** **

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

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** **

**FORM 10-QSB**

** **

**(Mark one)**

| **ý**                                                                                                                                                                                                                                                                                                                            |   | **QUARTERLY  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                  |   |                                                                                    |
| **For the quarterly period ended March 31, 2003**                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                  |
| **o**                                                                                                                                                                                                                                                                                                                                 |   | **TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                                                                                                                                                                                                  |   |                                                                                    |
| **For the transition period  from                        to                        ** |

** **

**Commission File Number 0-24285**

** **

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** **

**THE RICEX COMPANY**

**(Name of Small BusinessIssuer in Its Charter)**

** **

| **Delaware**                                                                        |   | **68-0412200**                        |
|-------------------------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization)                    |   | (I.R.S. Employer  Identification No.) |
|                                                                                |   |                                  |
| **1241 Hawk’s Flight Court, El Dorado  Hills,  California**                    |   | **95762**                             |
| (Address of Principal  Executive Offices)                                           |   | (Zip Code)                            |
|                                                                                |   |                                  |
| Issuer’s telephone number, including area code:  **(916)  933-3000**      |
|                                                                                |
| **Not Applicable**                                                                  |
| (Former Name, Former  Address and Former Fiscal Year, if Changed Since Last Report) |

 

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Check whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. Yes   ý   No   o

 

**APPLICABLE ONLY TO CORPORATE ISSUERS**

 

State the number of shares outstanding of each of theissuer’s classes of common equity, as of the latest practicable date:  38,485,791 as of May 2, 2003.

 

Transitional Small Business Disclosure Format (checkone):  Yes   o   No   ý

 

 

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**FORM 10-QSB**

 

Index

 
| **PART I.**    | **FINANCIAL INFORMATION**                                                                 |
|----------------|-------------------------------------------------------------------------------------------|
|           |                                                                                      |
| Item 1.        | Financial Statements                                                                      |
|           |                                                                                      |
|           | (a) Consolidated Balance  Sheet at March 31, 2003                                         |
|           |                                                                                      |
|           | (b) Consolidated  Statements of Operations for the quarters ended March 31, 2003 and 2002 |
|           |                                                                                      |
|           | (c) Consolidated  Statements of Cash Flow for the quarters ended March 31, 2003 and 2002  |
|           |                                                                                      |
|           | (d) Notes  to financial statements                                                        |
|           |                                                                                      |
| Item 2.        | Management’s Discussion and  Analysis or Plan of Operation                           |
|           |                                                                                      |
| Item 3.        | Controls and Procedures                                                                   |
|           |                                                                                      |
| **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     |
|           |                                                                                      |
| Certifications |
|                |                                                                                           |  |

 

2

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**FORWARD-LOOKING STATEMENTS**

 

This document contains “forward-looking statements”within the meaning of the Private Securities Litigation Reform Act of1995.  All statements other thanstatements of historical fact are “forward-looking statements” for purposes offederal and state securities laws, including, but not limited to, anyprojections of earnings, revenue or other financial items; any statements ofthe plans, strategies and objectives of management for future operations; anystatements concerning proposed new services or developments; any statementsregarding future economic conditions or performance; any statements of belief;and any statements of assumptions underlying any of the foregoing.

 

Forward-looking statements may include the words“may,” “could,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect”or “anticipate” or other similar words. These forward-looking statements present our estimates and assumptionsonly as of the date of this report. Except for our ongoing obligation to disclose material information asrequired by the federal securities laws, we do not intend, and undertake noobligation, to update any forward-looking statement.

 

Although we believe that the expectations reflected inany of our forward-looking statements are reasonable, actual results coulddiffer materially from those projected or assumed in any of our forward-lookingstatements.  Our future financialcondition and results of operations, as well as any forward-looking statements,are subject to change and inherent risks and uncertainties.  The factors impacting these risks anduncertainties include, but are not limited to:

 

•              increased competitive pressures from existingcompetitors and new entrants;

 

•              increases in interest rates or our cost of borrowingor a default under any material debt agreements;

 

•              deterioration in general or regional economicconditions;

 

•              adverse state or federal legislation or regulationthat increases the costs of compliance, or adverse findings by a regulator withrespect to existing operations;

 

•              loss of customers or sales weakness;

 

•              inability to achieve future sales levels or otheroperating results;

 

•              the unavailability of funds for capital expenditures;and

 

•              operational inefficiencies in distribution or othersystems.

 

For a detailed description of these and other factorsthat could cause actual results to differ materially from those expressed inany forward-looking statement, please see “Risk Factors” in our Annual Reporton Form 10-KSB for the year ended December 31, 2002.

 

3

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**PART 1**.                FINANCIAL INFORMATION

** **

**Item 1**.                    UNAUDITED FINANCIAL INFORMATION

 

**THE RICEXCOMPANY**

**CONSOLIDATED BALANCE SHEET**

**March 31,2003**

**(unaudited)**

 
| ASSETS                                                                                                             |   |        |      |
|--------------------------------------------------------------------------------------------------------------------|--------|-------------|-----------|
|                                                                                                               |   |        |      |
| CURRENT ASSETS:                                                                                                    |   |        |      |
| Cash and cash equivalents                                                                                          |   | $           | 2,555,184 |   |
| Trade accounts receivable                                                                                          |   | 339,143     |      |
| Inventories                                                                                                        |   | 308,644     |      |
| Deposits and other current  assets                                                                                 |   | 76,109      |      |
|                                                                                                               |   |        |      |
| Total current assets                                                                                               |   | 3,279,080   |      |
|                                                                                                               |   |        |      |
| PROPERTY AND EQUIPMENT,  net                                                                                       |   | 996,087     |      |
|                                                                                                               |   |        |      |
| OTHER ASSETS                                                                                                       |   | 83,886      |      |
|                                                                                                               |   |        |      |
|                                                                                                               |   | $           | 4,359,053 |   |
|                                                                                                               |   |        |      |
| LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)                                                                |   |        |      |
|                                                                                                               |   |        |      |
| CURRENT LIABILITIES:                                                                                               |   |        |      |
| Accounts payable and  accrued liabilities                                                                          |   | $           | 307,885   |   |
| Total current liabilities                                                                                          |   | 307,885     |      |
|                                                                                                               |   |        |      |
| Total liabilities                                                                                                  |   | 307,885     |      |
|                                                                                                               |   |        |      |
| COMMITMENTS AND CONTINGENCIES                                                                                      |   |        |      |
|                                                                                                               |   |        |      |
| 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, 38,538,349 shares issued and  outstanding |   | 38,538      |      |
| Additional paid-in capital                                                                                         |   | 29,246,209  |      |
| Accumulated deficit                                                                                                |   | (25,233,579 | )         |
| Total shareholders’ equity                                                                                    |   | 4,051,168   |      |
|                                                                                                               |   |        |      |
|                                                                                                               |   | $           | 4,359,053 |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

4

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**THE RICEXCOMPANYCONSOLIDATED STATEMENTS OFOPERATIONS(UNAUDITED)**

** **
|                                             |   | **Quarters  ended** |     |
|--------------------------------------------------|--------|---------------------|----------|
|                                             |   | **March 31,  2003** |     | **March 31,  2002** |   |
| Revenues                                         |   |                |     |   |   |
| Sales                                            |   | $                   | 947,040  |   | $ | 1,417,291 |   |
| Royalties                                        |   | —              |     | 332 |   |
|                                             |   | 947,040             |     | 1,417,623 |   |
|                                             |   |                |     |   |   |
| Cost of sales                                    |   | 486,422             |     | 525,062 |   |
|                                             |   | 460,618             |     | 892,561 |   |
|                                             |   |                |     |   |   |
| Research and development  expenses               |   | 42,773              |     | 64,687 |   |
| Selling, general and  administrative expenses    |   | 550,123             |     | 392,111 |   |
| Professional fees                                |   | 116,734             |     | 102,118 |   |
| Investor relations fees                          |   | 9,135               |     | 3,133 |   |
|                                             |   |                |     |   |   |
| Income (loss) from  operations                   |   | (258,147            | )        | 330,512 |   |
| Other income:                                    |   |                |     |   |   |
| Interest and other income                        |   | 5,737               |     | 6,877 |   |
| Income (loss) before  provision for income taxes |   | (252,410            | )        | 337,389 |   |
| Provision for income taxes                       |   | 2,275               |     | 1,600 |   |
|                                             |   |                |     |   |   |
| Net income (loss)                                |   | $                   | (254,685 | ) | $ | 335,789 |   |
|                                             |   |                |     |   |   |
| Basic and diluted earnings  per share:           |   |                |     |   |   |
| Net income (loss) per  share                     |   | $                   | (0.01    | ) | $ | 0.01 |   |
|                                             |   |                |     |   |   |
| Weighted average number of  shares outstanding   |   | 38,592,336          |     | 38,829,350 |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

5

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**THE RICEX COMPANYCONSOLIDATED STATEMENTS OF CASH FLOWS(unaudited)**

 
|                                                                               |   | **Quarters  ended** |      |
|------------------------------------------------------------------------------------|--------|---------------------|-----------|
|                                                                               |   | **March 31,  2003** |      | **March 31,  2002** |   |
| Cash flow from operating  activities:                                              |   |                |      |   |   |
| Net income (loss)                                                                  |   | $                   | (254,685  | ) | $ | 335,789 |   |
| Adjustments to reconcile  net income (loss) to net cash from operating activities: |   |                |      |   |   |
| Depreciation and  amortization                                                     |   | 155,466             |      | 175,881 |   |
| Issuance of warrants and  stock options                                            |   | 3,000               |      | 7,077 |   |
| Amortization of prepaid  processing fees                                           |   | —              |      | 19,533 |   |
| Amortization of warrants  issued                                                   |   | 19,140              |      | 19,140 |   |
| Recognition of deferred  revenue                                                   |   | —              |      | (206,800 | ) |
| Net changes in operating  assets and liabilities                                   |   |                |      |   |   |
| Trade accounts receivable                                                          |   | 1,026,333           |      | 206,848 |   |
| Inventories                                                                        |   | (1,333              | )         | (58,597 | ) |
| Deposits and other current  assets                                                 |   | 25,072              |      | (56,282 | ) |
| Accounts payable, accrued  liabilities                                             |   | (281,085            | )         | 36,746 |   |
|                                                                               |   |                |      |   |   |
| Net cash from operating  activities                                                |   | 691,908             |      | 479,335 |   |
|                                                                               |   |                |      |   |   |
| Cash flows from investing  activities                                              |   |                |      |   |   |
| Purchases of property and  equipment, and other assets                             |   | (26,495             | )         | (7,928 | ) |
| Net cash from investing  activities                                                |   | (26,495             | )         | (7,928 | ) |
|                                                                               |   |                |      |   |   |
| Cash flows from financing  activities                                              |   |                |      |   |   |
| Repurchase of common stock                                                         |   | (33,939             | )         | — |   |
| Net cash from financing  activities                                                |   | (33,939             | )         | — |   |
|                                                                               |   |                |      |   |   |
| Net increase in cash and  cash equivalents                                         |   | 631,474             |      | 471,407 |   |
|                                                                               |   |                |      |   |   |
| Cash and cash equivalents,  beginning of period                                    |   | 1,923,710           |      | 1,603,065 |   |
|                                                                               |   |                |      |   |   |
| Cash and cash equivalents,  end of period                                          |   | $                   | 2,555,184 |   | $ | 2,074,472 |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

6

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**THERICEX COMPANY**

** **

**NOTES TO UNAUDITED****CONSOLIDATED FINANCIALSTATEMENTS**

** **

**1.****            ****DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES**

 

The RiceX Company (“RiceX”), formerly Food Extrusion,Inc., was incorporated in California in 1989 and in 1998 was reincorporated inDelaware and changed its name to The RiceX Company. We have a wholly ownedsubsidiary, Food Extrusion Montana, Inc. (FoodEx Montana). The unauditedconsolidated financial statements include the accounts of RiceX and FoodExMontana, collectively, after the elimination of all inter-company balances andtransactions.

 

We are an agribusiness food technology company, whichhave developed a proprietary process to stabilize rice bran.  We are headquartered in El Dorado Hills,California and have stabilization equipment located at one rice mill inNorthern California.  We purchase rawrice bran from this mill.  Millemployees, under our supervision, operate our equipment to stabilize rice bran.We pay a processing fee to the mill for this service.  Under an agreement with the mill, the mill may use our equipmentto stabilize rice bran for its customers in exchange for the payment of aroyalty fee to us under certain production conditions.

 

FoodEx Montana is engaged in the business of custommanufacturing grain-based products for food ingredient companies at itsproduction facility in Dillon, Montana. The facility has specialized processing equipment and techniques for thetreatment of grain products to cook, enzyme treat, convert, isolate, dry, andpackage finished food ingredients.  Thesoluble and fiber complex form of our rice bran products are produced at theMontana facility.

 

There have been no changes in our significantaccounting policies as set forth in the Company’s audited financial statementsfor the year ended December 31, 2002, which were included in our Form10-KSB.  These unaudited financialstatements for the three months ended March 31, 2003 have been prepared inaccordance with generally accepted accounting principles for interim financialinformation.  Accordingly, they do notinclude all of the information and footnotes required by generally acceptedaccounting principles for complete financial statements. In the opinion ofmanagement, all adjustments (consisting of normal recurring accruals)considered necessary for a fair presentation have been included.  The results of operations for the threemonths ended March 31, 2003 are not necessarily indicative of the resultsexpected for the full year.

 

**2.****            ****PROPERTY AND EQUIPMENT**

 

At March 31, 2003, property and equipment consists ofthe following:

 
| Land and buildings                              |   | $          | 380,154 |   |
|-------------------------------------------------|--------|------------|---------|--------|
| Equipment                                       |   | 4,501,195  |    |
| Leasehold improvements                          |   | 381,641    |    |
| Furniture and fixtures                          |   | 208,071    |    |
|                                            |   | 5,471,062  |    |
| Less accumulated  depreciation and amortization |   | (4,676,875 | )       |
|                                            |   | 794,187    |    |
| Equipment not placed in  service                |   | 201,900    |    |
|                                            |   | $          | 996,087 |   |

 

7

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**3.****            ****ACCOUNTS PAYABLE AND ACCRUED LIABILITIES**

 

At March 31, 2003, accounts payable and accruedliabilities consist of the following:

 
| Trade accounts payable    |   | $       | 124,569 |   |
|---------------------------|--------|---------|---------|--------|
| Other accrued liabilities |   | 183,316 |    |
|                      |   | $       | 307,885 |   |

 

**4.****            ****PROVISION FOR INCOME TAXES**

 

While we have a net loss through March 31, 2003, weanticipate net income for year ended December 31, 2003. The Company expects toutilize net operating loss carry-forwards for federal income taxes only. Ineffect is a gubernatorial suspension of applicable NOL by the CaliforniaFranchise Tax Board until 2004. California’s 2002-03 budget included asuspension of the NOL for the 2002 and 2003 taxable years. In return for thesuspension, business taxpayers get a 100% (instead of 65%) NOL deduction fortaxable years beginning on or after January 1, 2004; and the Legislatureextended by one year the carryover period for losses incurred on or afterJanuary 1, 2002, and by two years for losses incurred prior to January 1, 2002.These tax provisions do not include the effect of Alternative Minimum Tax. Netoperating loss carry-forwards expire for federal tax purposes at various datesfrom 2009 through 2020 and expire for state tax purposes in 2003 through 2012which will reduce income tax expense to the California state minimum tax of$1,600, not including the effect of the Alternative Minimum Tax. 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. Theestimated Delaware state tax payment of $2,275 was paid for franchise tax due.

 

**5.****            ****NET INCOME (LOSS) PER SHARE**

 

Basic net income (loss) per share is computed by dividingnet income (loss) by the weighted average number of common shares outstandingduring all periods presented.  Options and warrants are excluded from thebasic net income (loss) per share calculation because they are currentlyanti-dilutive.

** **

**6.****            ****CONCENTRATION OF CREDIT RISK**

 

Financial instruments that potentially subject us tosignificant concentrations of credit risk consist primarily of trade accountsreceivable for sales to major customers. We perform credit evaluations on our customers financial condition andgenerally do not require collateral on accounts receivable.  We maintain an allowance for doubtfulaccounts on our receivables based upon expected collection of all accountsreceivable.  Uncollected accounts havenot been significant.

 

For three months ended March 31, 2003, two customersaccounted for 40% and 16% of sales, respectively. Accounts receivable due fromthese two customers are 0% and 36%, respectively, of the total outstanding.

 

**7.****            ****OTHER INFORMATION**

 

***Stock Options***. At March 31, 2003, the Company has one stock-based employee compensationplan.  We account for this plan underthe recognition and measurement principles of APB Opinions No. 25, Accountingfor Stock Issued to Employees, and related Interpretations.

 

8

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No stock-based employee compensation cost is reflectedin net income, as all options granted under those plans had an exercise priceequal to the market value of the underlying common stock on the date ofgrant.  The following table illustratesthe effect on net income and earnings per share if we had applied the fairvalue recognition provisions of FASB Statement No. 123, Accounting forStock-Based Compensation, to stock-based employee compensation.

 
|                                                                                                                   |   | **MARCH 31,** |     | **MARCH 31,** |   |
|------------------------------------------------------------------------------------------------------------------------|--------|---------------|----------|---------------|--------|
|                                                                                                                   |   | **2003**      |     | **2002**      |   |
| Net income, as  reported                                                                                               |   | $             | (254,685 | )             | $      | 335,789 |   |
| Deduct:  Total stock-based employee compensation  expense determined under fair value based method for all awards |   | —        |     | —        |   |
| Pro forma net  income                                                                                                  |   | $             | (254,685 | )             | $      | 335,789 |   |
| Earnings per  share:                                                                                                   |   |          |     |          |   |
| Basic and  diluted net income per share – as reported                                                             |   | $             | (.01     | )             | $      | .01 |   |
| Basic and  diluted net income per share – pro forma                                                               |   | $             | (.01     | )             | $      | .01 |   |
| Weighted average  fair value of options granted to employees during the quarter                                        |   | $             | —   |          | $      | — |   |

 

**Item 2.**                   MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OFOPERATION

** **

The following is a discussion of the consolidatedfinancial condition of our results of operations for the quarters ended March31, 2003 and 2002.

 

**QUARTERSENDED MARCH 31, 2003 AND 2002**

 

Consolidated revenues through period ended March 31,2003 of $947,000 decreased $470,000, or 33%, from the same period lastyear.  The revenue decrease is primarilyattributed to a year-to-date decrease in sales of two product lines, SRBRegular and Solubles.  Solubles showed adecrease in revenue of $191,000, SRB Regular decreased $303,000, and Fiberincreased $1,000 compared to sales through March 2002.  SRB Fine increased $20,000 during the sameperiod.

 

Gross margins through period ended March 2003 were$461,000, or 49%, compared to $893,000, or 63%, during the same period lastyear.  The decrease in gross margindollars of $432,000 was primarily attributed to the decrease in revenues of$470,000 offset by the decrease in cost of goods sold of $39,000.  Contributing to the decrease in gross marginpercentage was low production volume at our Montana plant creating unabsorbedcosts of $53,000 for the first quarter period ended March 31, 2003.

 

Research and development (“R&D”) expenses reflecta $22,000 decrease for the quarter ended March 31, 2003 compared to the sameperiod last year.  R&D expendituresdecreased from $65,000 for the quarter ended March 31, 2002 to $43,000 for thesame quarter in 2003 due to a decrease of cost allocated to R&D based onsales volume.  Even though expenditureswere down for the quarter ended March 31, 2003, the Company expects to continueresearch and development expenditures to establish the scientific basis forhealth claims of existing products and to develop new products and applications.

 

Selling, general and administrative (“SG&A”)expenses were $550,000 and $392,000 through period ended March 31, 2003 and2002 respectively, an increase of $158,000. The increase was due mostly toexpenses relating to our expanding sales and marketing functions.  This increase was anticipated by managementbased upon their 2003 business development plan.

 

9

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Professional fees increased to $117,000 for thequarter ended March 31, 2003 from $102,000 for the same quarter in 2002.  The increase of $15,000 is due primarily toincreased services in three categories. Professional fees include fees related to accounting, legal, and consulting.

 

Investor relation fees increased $6,000 to $9,000 forthe quarter ended March 31, 2003 from $3,000 for the quarter ended March 31,2002.  Essentially, these fees wererelated to printing, filing, and preparation costs to comply with SECrequirements for the first quarter ended March 31, 2003 and 2002 respectively.

 

While we have a net loss through March 31, 2003, weanticipate net income for year ended December 31, 2003.  The Company expects to utilize net operatingloss carry-forwards for federal income taxes only.  In effect is a gubernatorial suspension of applicable NOL by theCalifornia Franchise Tax Board until 2004. California’s 2002-03 budget includeda suspension of the NOL for the 2002 and 2003 taxable years.  In return for the suspension, businesstaxpayers get a 100% (instead of 65%) NOL deduction for taxable years beginningon or after January 1, 2004; and the Legislature extended by one year thecarryover period for losses incurred on or after January 1, 2002, and by twoyears for losses incurred prior to January 1, 2002.  These tax provisions do not include the effect of AlternativeMinimum Tax.  Net operating losscarry-forwards expire for federal tax purposes at various dates from 2009through 2020 and expire for California state tax purposes in 2003 through 2012which will reduce income tax expense to the state minimum tax of $1,600, notincluding the effect of the Alternative Minimum Tax.  Net operating loss carry-forwards expire for federal tax purposesat various dates from 2009 through 2020 and expire for state tax purposes in2003 through 2010. The estimated Delaware state tax payment of $2,275 was paidfor franchise tax due.

 

We had a net loss of $255,000 for quarter ended March31, 2003, or $0.01 per share, compared to net income of $336,000 or $0.01 pershare, a decrease of $591,000 over the same period last year.  The decrease is primarily due to decreasedrevenues of $470,000, which included no sales to Central America, off-set bydecreased cost of goods sold of $39,000, lower utilization of productioncapacity, and higher SG&A expenses through quarter ended March 31, 2003.

** **

**LIQUIDITY AND CAPITAL RESOURCES**

 

For three months ended March 31, 2003, cash balanceand cash flow increased compared to the same period last year.  Our cash balance at March 31, 2003 increased$481,000 to $2,555,000, up from $2,074,000 at March 31, 2002.  Management believes our cash reserve isadequate to meet future operating requirements.

 

Our management team has developed a strategic andfinancially sound business plan to meet our ongoing liquidity needs for theyear ended December 31, 2003 and thereafter. We believe that we have positioned ourselves to become the foremostpremium ingredient supplier in the food manufacturing and animal feedsectors.  Our cash position has notrequired cash from financing activities in order to fund operations in thethree years since retiring all our debt.

 

In 2002, our Board approved resolutions authorizing usto repurchase up to a total of $1,000,000 of our own stock on the open marketfor a period of one year.  Werepurchased 103,626 shares of our own stock on the open market at a cost of$27,000 during the year ending

 

10

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December 31, 2002. For quarter ended March 31, 2003,we repurchased 142,375 shares at a cost of $34,000 accumulating to 246,001total shares repurchased under the program.

 

In 2001, funded by a United States Department ofAgriculture grant, we provided a nutrition drink to 67,000 children each schoolday for the entire school year in rural Guatemala. A clinical study of 150 randomlyselected children concluded that acute malnutrition was eliminated in the studygroup and chronic malnutrition was reduced from 37 percent to only 5percent.  All of the childrendemonstrated marked improvement in school attendance, alertness and scholasticachievement.  The success of the 2001Guatemala program has given rise to additional funding applications inGuatemala, El Salvador, Nicaragua and Honduras.  Feeding programs have been approved for both Guatemala and ElSalvador for 2003.

 

We will be working with major rescue and reliefagencies and congressional supporters to bring a multi-year program to providenutritional drinks to one million children each school day from a RiceXfacility located within the region.  Wehave secured a conditional commitment from Overseas Private InvestmentCorporation to assist in the funding the facility and working capitalrequirements.  There can be no assurancethat this conditional commitment will lead to building a facility in theregion.

 

We continue to focus our market development activitieson nutritionally dense ingredients in the international market place first inLatin America and then into other world countries.  These market segments currently represent multimillion dollarpotential market opportunities.  We alsocontinue to initiate strategic alliance discussions to identify and formulatepotential joint venture opportunities with major domestic premium pet food andequine feed manufacturers and distributors. Domestic markets for these segments currently represent a potentialopportunity of over $250 million annually. We hope the results of these successful alliances will have asignificant financial effect on our annual revenues and profit starting within fiscalyears 2003 and 2004.  There can be noassurance that we will obtain additional strategic alliances.

 

These efforts could significantly increase demand forour products beyond our current production capacity.  While we believe we can increase our production capacity to meetsales demand, significant additional capital could be required to meet suchexpansion requirements.  We havesufficient cash reserves to meet all anticipated short term operatingrequirements.  However, the timing andamount of any long-term capital requirements cannot be predicted at thistime.  There can be no assurance thatany financing will be available on acceptable terms.  If such financing is not available on satisfactory terms, we may beunable to develop or expand our business, develop new products, or develop newmarkets at the rate desired and our operating results may be adverselyaffected.

** **

**Item 3**.                    CONTROLS AND PROCEDURES

 

(a)           We established a compliance committee in2002 to carry out an evaluation of the effectiveness of our disclosure controlsand procedures.  An evaluation of ourdisclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c)under the Securities Exchange Act of 1934 (the “Act”)) was carried out underthe supervision and with the participation of Chief Executive Officer and ChiefFinancial Officer, within the 90-day period preceding the filing date of thisForm 10-QSB.  The procedures ascurrently in effect are effective in ensuring that the information required tobe disclosed by us in the reports we file or submit under the Act are (1)accumulated and communicated to our management (including the Chief ExecutiveOfficer and

 

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Chief Financial Officer), as appropriate, to allowtimely decisions regarding required disclosure, and (2) recorded, processed,summarized, and reported within the time periods specified under the SEC’srules.

 

(b)           In the period ending March 31, 2003, wedid not make any significant changes in, nor take any corrective actionsregarding, our internal controls subsequent to the date of the evaluationreferred to in the previous paragraph, including any corrective action withregard to significant deficiencies and material weaknesses.

** **

**PART 2**.                OTHER INFORMATION

** **

**Item 1.**                    LEGAL PROCEEDINGS

 

From time to time we are involved in litigationincidental to the conduct of our business. While the outcome of lawsuits andother proceedings against us cannot be predicted with certainty, in the opinionof management, none of the litigation in which we are currently involved,individually or in the aggregate, is expected to result in a material effect onour financial position or results of operations.

** **

**Item 2.**                    CHANGES IN SECURITIES AND USE OF PROCEEDS

 

In 2002, our Board approved resolutions authorizing usto repurchase up to a total of $1,000,000 of our own stock on the open marketfor a period of one year.  For quarterended March 31, 2003, we repurchased 142,375 shares at a cost of $34,000accumulating to 246,001 total shares repurchased under the program.

** **

**Item 3.**                    DEFAULTS UPON SENIOR SECURITIES

 

None

** **

**Item 4.**                    SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

 

None

** **

**Item 5.**                    OTHER INFORMATION

 

None

 

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**Item 6.****                   ****EXHIBITS AND REPORTS ON FORM 8-K**

 

(a)           **Index to Exhibits**

 

The following exhibits are attached hereto and filedherewith:

 
| **Exhibit  Number** |   | **Description  of Exhibit**                                                         |
|---------------------|--------|-------------------------------------------------------------------------------------|
|                |   |                                                                                |
| 99.1                |   | Certification of Chief Executive Officer Pursuant to  18 U.S.C. §1350          |
|                |   |                                                                                |
| 99.2                |   | Certification of Chief Financial Officer Pursuant to  18 U.S.C. §1350          |
|                |   |                                                                                |
| 99.3                |   | Charter of Compensation Committee of the Board of  Directors dated February 4, 2003 |

 

(b)           **Reports on Form 8-K**

 

None

 

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**SIGNATURES**

 

In accordance with the requirements of the SecuritiesExchange Act of 1934, the registrant caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized:

 
|                      |   | THE RICEX COMPANY |
|---------------------------|--------|-------------------|
|                      |   |              |
| Date:  May  15, 2003 |   | By:               | /s/ Daniel L. McPeak |   |
|                      |   |              | Daniel L. McPeak |
|                      |   |              | Chairman of the Board and  Chief Executive Officer |
|                      |   |              |   |
| Date:  May  15, 2003 |   | By:               | /s/ Todd C. Crow |   |
|                      |   |              | Todd C. Crow |
|                      |   |              | Director, Vice President, Finance  and Chief Financial Officer |

 

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**CERTIFICATIONS**

 

I, Daniel L.McPeak Sr., certify that:

 

1.             I have reviewed this quarterly report onForm 10-QSB of The RiceX Company.

 

2.             Based on my knowledge, this quarterlyreport does not contain any untrue statement of a material fact or omit tostate a material fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report.

 

3.             Based on my knowledge, the financialstatements, and other financial information included in this quarterly report,fairly present in all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, the periodspresented in this quarterly report.

 

4.             The registrant’s other certifyingofficers and I are responsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)for the registrant and have:

 

(a)           designed such disclosure controls and procedures toensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this quarterly report is beingprepared;

 

(b)           evaluated the effectiveness of the registrant’s disclosurecontrols and procedures as of a date within 90 days prior to the filing date ofthis quarterly report (the “Evaluation Date”); and

 

(c)           presented in this quarterly report our conclusionsabout the effectiveness of the disclosure controls and procedures based on ourevaluation as of the Evaluation Date;

 

5.             The registrant’s other certifyingofficers and I have disclosed, based on our most recent evaluation, to theregistrant’s auditors and the audit committee of registrant’s board ofdirectors (or persons performing the equivalent functions):

 

(a)           all significant deficiencies in the design oroperation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and haveidentified for the registrant’s auditors any material weaknesses in internalcontrols; and

 

(b)           any fraud, whether or not material, that involvesmanagement or other employees who have a significant role in the registrant’sinternal controls; and

 

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6.             The registrant’s other certifying officers and I haveindicated in this quarterly report whether or not there were significantchanges in internal controls or in other factors that could significantlyaffect internal controls subsequent to the date of our most recent evaluation,including any corrective actions with regard to significant deficiencies andmaterial weaknesses.

 
| Dated:  May  15, 2003 | /s/ Daniel L. McPeak,  Sr. |   |
|---------------------------------|----------------------------|--------|
|                            | Daniel L. McPeak, Sr.      |
|                            | Chief Executive Officer    |

 

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I, Todd C. Crow,certify that:

 

1.             I have reviewed this quarterly report onForm 10-QSB of The RiceX Company.

 

2.             Based on my knowledge, this quarterlyreport does not contain any untrue statement of a material fact or omit tostate a material fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report.

 

3.             Based on my knowledge, the financialstatements, and other financial information included in this quarterly report,fairly present in all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, the periods presentedin this quarterly report.

 

4.             The registrant’s other certifyingofficers and I are responsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)for the registrant and have:

 

(a)           designed such disclosure controls and procedures toensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this quarterly report is beingprepared;

 

(b)           evaluated the effectiveness of the registrant’sdisclosure controls and procedures as of a date within 90 days prior to thefiling date of this quarterly report (the “Evaluation Date”); and

 

(c)           presented in this quarterly report our conclusionsabout the effectiveness of the disclosure controls and procedures based on ourevaluation as of the Evaluation Date;

 

5.             The registrant’s other certifyingofficers and I have disclosed, based on our most recent evaluation, to the registrant’sauditors and the audit committee of registrant’s board of directors (or personsperforming the equivalent functions):

 

(a)           all significant deficiencies in the design oroperation of internal controls which could adversely affect the registrant’s abilityto record, process, summarize and report financial data and have identified forthe registrant’s auditors any material weaknesses in internal controls; and

 

(b)           any fraud, whether or not material, that involvesmanagement or other employees who have a significant role in the registrant’sinternal controls; and

 

6.             The registrant’s other certifyingofficers and I have indicated in this quarterly report whether or not therewere significant changes in internal controls or in other factors that could significantlyaffect internal controls subsequent to the date of our most recent evaluation,including any corrective actions with regard to significant deficiencies andmaterial weaknesses.

 
| Dated:  May 15, 2003 | /s/ Todd C. Crow        |   |
|---------------------------|-------------------------|--------|
|                      | Todd C. Crow            |
|                      | Chief Financial Officer |

 

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