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U. S. Securities and Exchange CommissionWashington, D.C. 20549

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FORM 10-KSB

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(Mark one)

|ý | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------

For the fiscal year ended December 31, 2001

|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

THE RICEX COMPANY(Name of Small Business Issuer in its Charter)

|DELAWARE(State or Other Jurisdiction of Incorporation or
Organization No.)            | 68-0412200(I.R.S. Employer Identification No.)
|------------------------------------------------------------------------------------- | ----------------------------------------------
|1241 Hawk's Flight Court,
El Dorado Hills, CA(Address of Principal Executive Offices) | 95762(Zip Code)                               

Issuer's telephone number(916) 933-3000

Securities registered under Section 12(b) of the Exchange Act:NONE

Title of each class:None

Name of each exchange on which registered:None

|Securities registered under Section 12(g) of the Exchange Act: |  | Common Stock, $.001 par value(Title of Class)
|-------------------------------------------------------------- |  | ---------------------------------------------

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

Check
if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is contained in this form, and no disclosure will be contained, to the
best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this
Form 10-KSB. o

State
issuer's revenues for its most recent fiscal year:        $6,299,000

State
the aggregate market value of the voting stock held by non-affiliates computed by reference to the price at which the stock was sold or the average bid and asked prices
of such stock, as of a specified date within the past 60 days. As of March 1, 2002, the aggregate market value of the company's common stock held by non-affiliates was
$9,030,417.

State
the number of shares outstanding of each of the issuer's classes of common equity as of the latest practicable date. As of March 1, 2002, 38,829,350 shares of common stock
were outstanding.

TRANSITIONAL
SMALL BUSINESS DISCLOSURE FORMAT (CHECK
ONE):    Yes o    NO ý

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FORM 10-KSB

INDEX

|PART I     |  |                                                                                                                 |  |   
|---------- |  | --------------------------------------------------------------------------------------------------------------- |  | --
|Item 1.    |  | Description of Business                                                                                         |  | 3 
|Item 2.    |  | Description of Property                                                                                         |  | 18
|Item 3.    |  | Legal Proceedings                                                                                               |  | 18
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                             |  | 19
|PART II    |  |                                                                                                                 |  |   
|Item 5.    |  | Market for Common Equity and Related Stockholder Matters                                                        |  | 19
|Item 6.    |  | Management's Discussion and Analysis or Plan of Operation                                                       |  | 21
|Item 7.    |  | Financial Statements                                                                                            |  | 28
|Item 8.    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                            |  | 45
|PART III   |  |                                                                                                                 |  |   
|Item 9.    |  | Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act |  | 45
|Item 10.   |  | Executive Compensation                                                                                          |  | 47
|Item 11.   |  | Security Ownership of Certain Beneficial Owners and Management                                                  |  | 52
|Item 12.   |  | Certain Relationships and Related Transactions                                                                  |  | 53
|Item 13.   |  | Exhibits and Reports on Form 8-K                                                                                |  | 56
|Signatures |  |                                                                                                                 |  | 61

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PART I

Item 1. DESCRIPTION OF THE BUSINESS

OVERVIEW

The RiceX Company (the "Company" or "RiceX Company"), formerly Food Extrusion, Inc., was incorporated in California in 1989 and in 1998 was reincorporated
in Delaware and changed its name to The RiceX Company. Since its formation, the Company has been engaged in extensive research and development efforts that resulted in the development of a process
(the "RiceX Process") that stabilizes rice bran, the portion of the rice kernel that lies beneath the hull and over the white rice. Rice bran contains over 60% of the nutritional value of rice, but
without stabilization the nutritional value of the rice bran is lost shortly after the rice milling process due to lipase-induced rancidity. Consequently, a rich nutrient resource must either be
thrown away or disposed of as low value animal feed. The RiceX Process deactivates the lipase enzyme and makes the bran shelf life stable for a minimum of one year. While other competing processes
have been able to stabilize rice bran for a limited time, the RiceX Process naturally preserves more of the higher value nutritional and antioxidant compounds found in rice bran for a significantly
longer time. RiceX Stabilized Rice Bran produced by the Company meets microbiological standards for human consumption. The RiceX Process has enabled the Company to develop a variety of
nutritional food products, including its primary product RiceX Stabilized Rice Bran. The Company's customers include consumer nutrition and healthcare companies, domestic and
international food companies, and companion animal feed manufacturers.

The
Company, through its subsidiary, Food Extrusion Montana, Inc. ("FoodEx MT"), is engaged in custom manufacturing of grain based products for food ingredient companies at its
production facility in Dillon, Montana. FoodEx MT has specialized processing equipment and techniques for the treatment of grain products to cook, convert, isolate, dry and package finished food
ingredients used in the formulation of health food and consumer food finished products. RiceX Solubles, a highly nutritious, carbohydrate and lipid rich fraction, is produced at the FoodEx MT
facility. The Company
believes that FoodEx MT's manufacturing capabilities are unique among grain processors with custom processing capabilities suited to numerous food applications.

The
Company generated approximately $6,299,000 and $3,839,000 in revenue for the years ended December 31, 2001 and 2000, respectively. With 2001 revenues up 64% from the 2000
levels, the Company more than tripled its profitability compared to last year. The Company reported $1,129,000 net income for year ended December 31, 2001 compared to a net loss of $2,467,000
for year ended December 31, 2000. While the Company generated net income in 2001, the Company expects to utilize net operating loss carry-forwards, which will reduce income tax expense to the
state minimum tax of $1,600 for year ended December 31, 2001. Net operating loss carry-forwards expire for federal tax purposes at various dates from 2009 through 2020 and expire for state tax
purposes in 2003 through 2010. The Company's business is not seasonal. "See Part IIItem 7. Financial Statements."

The
Company occupies approximately 24,800 square feet of executive offices, warehouse and production facilities in El Dorado Hills, California and Dillon, Montana.

RiceX
and RiceX Solubles are registered trade names of the Company. Mirachol® and Max "E"® are registered trademarks of the Company
which have been licensed to a third party for use, and the Company holds patents to (1) the production of Beta Glucan, (2) a micro nutrient enriched rice bran oil process, (3) a
method to treat high cholesterol and (4) a method to treat diabetes.

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RICEX PRODUCTS

The Company produces stabilized, nutrient-rich rice bran that may be used in a wide variety of new products. The Company is pursuing the development
of proprietary rice bran products from stabilized rice bran. The Company's current products include:

|RiceX Stabilized Rice Bran:      |  | Stable whole rice bran and germ. This is the basic stabilized rice bran product that is both a food supplement and an ingredient for cereals, baked goods, companion animal feed, health bars, etc., and also the base material for producing RiceX
Solubles, oils and RiceX Fiber Complex.
|-------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|RiceX Stabilized Rice Bran Fine: |  | This is the same product as RiceX Stabilized Rice Bran except that it has been ground to a particle size that will pass through a 20 mesh screen; used primarily in baking applications.                                                                                                   
|Dextrinized Rice Bran:           |  | A carbohydrate converted stabilized rice bran that is more suitably used in baking and mixed health drink applications. This product contains all of the nutrient-rich components of stabilized rice bran.                                                                                 
|RiceX Solubles:                  |  | A highly concentrated soluble carbohydrate and lipid rich fraction component of RiceX stabilized rice bran with the fiber removed. RiceX Solubles also embodies a concentrated form of the vitamins and nutrients found in stabilized rice
bran.                                           
|RiceX Fiber Complex:             |  | Nutrient-rich insoluble fiber source that contains rice bran oil and associated nutrients. This product, designed for use by the baking and health food markets, is the remaining ingredient when stabilized rice bran is processed to form RiceX
Solubles.                                

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In
addition, further refining RiceX Stabilized Rice Bran into oil and its by-products produces Max "E" Oil, RiceX Defatted Fiber and Higher Value Fractions ("HVF").

|Max "E" Oil:                    |  | Nutrient-rich oil made from RiceX Stabilized Rice Bran. This oil has a high flash point, which provides a very long fry life, and it is not readily absorbed into food. In addition, the oil maintains many of the nutritional benefits of the whole rice
bran products.                                                               
|------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|RiceX Defatted Fiber:           |  | Low fat soluble fiber that does not contain rice bran oil. This is a product designed for use by the baking industry for its high fiber nutritional benefits.                                                                                                                                                                          
|Higher Value Fractions ("HVF"): |  | Nutraceutical like compounds naturally occurring in Stabilized Rice Bran and Rice Bran Oil that provide specific health benefits. Tocopherols, tocotrienols, and gamma oryzanol are some of the antioxidant-rich fractions that are found in rice bran and
are enhanced by stabilization, with the gamma oryzanol being unique to rice.

INDUSTRY BACKGROUND

THE IMPORTANCE OF RICE

Rice is the staple food for approximately 70% of the world's population, and is the staple food source for several of the world's largest countries. World rice
production is expected to be more than 589 million metric tons in the 2001-2002 crop year (according to the United States Department of Agriculture), constituting more than one
quarter of all cereal grains produced worldwide. The United States accounts for less than 2% of the world's production. Ninety percent (90%) of world rice tonnage is produced in 13 countries with
aggregate populations of 3.2 billion people (USA Rice Federation, Rice Notes). Approximately 75% of all rice production occurs in five regions: China, India, South East Asia, Africa and South
America that have a combined population of 2.3 billion people (nearly 50% of the world's population) and an average per capita gross domestic product of $2,000 (less than one tenth of the U.S.
average).

Malnutrition
is a common problem in this group of nations, particularly for people located in rural villages where subsistence rice farming is a primary livelihood. Transportation and
storage are poor, consequently locally grown rice is consumed locally and the amount of food available varies widely over time with changes in seasons and weather. Children are especially susceptible
to variations in local agricultural output due to their heightened nutritional needs and dependency on others for food. Per capita rice consumption in many of the poorer rice belt countries exceeds
one pound per day.

Despite
the importance of rice as a worldwide food source and the problems associated with nutritional deficiencies in rice-dependent nations, more than 60% of the nutrients
found in rice are destroyed during milling. Most of the rice nutrients are contained in the outer brown layer of the rice kernel known as the bran layer, which, because of poor stability, becomes
inedible due to lipase-induced rancidity or microbiological spoilage shortly after the milling process.

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RICE PROCESSING AND RICE BRAN STABILIZATION

When harvested from the field, rice is in the form of paddy, or "rough" rice where the kernel is fully enveloped by the rice hull. The hull is dried, then removed
in the first stage of milling, yielding brown rice. In the second stage of milling, the outer brown layer, or rice bran, is removed to produce white
rice. Rice bran is composed of the rice germ and several sub-layers, which accounts for approximately 8% by weight of paddy rice and contain over 60% of the nutrients found in each kernel
of rice. (Juliano, B.O., 1985 Rice: Chemistry and Technology, American Association of Cereal Chemists, St. Paul, MN, p. 37-50.)

Under
normal milling conditions, when brown rice is milled into white rice, the oil in the bran and a potent lipase enzyme found on the surface of the bran come into contact with one
another. The lipase enzyme causes very rapid hydrolysis of the oil, converting it into glycerol, monoglycerides, diglycerides and free fatty acid ("FFA"). As the FFA content increases, the rice bran
becomes unsuitable for human or animal consumption. At normal room temperature, the FFA level increases to 5-8% within 24 hours and thereafter increases at the rate of approximately
4-5% per day. Rice bran is unfit for human consumption at 5% FFA, which typically occurs within 24 hours of milling.

When
the lipase enzyme can be deactivated, rice bran can be stabilized, thus preserving a potentially important nutrient source that is largely wasted today. Heat will deactivate the
lipase enzyme, reduce microbiological load and reduce moisture levels, serving as the basis for most attempts at stabilization of rice bran, but most of the rice bran nutrients are lost in the
process. Parboiled, or converted rice, is subjected to soaking and steaming prior to being dried and milled. This process softens the rice kernel and reduces the problem of lipase-induced hydrolysis.
The bran produced from parboiled rice, however, is only semi-stabilized, typically spoiling in 20 days or less. The parboiling process also destroys much of the nutritional value of
the bran because many of the micronutrients are water-soluble and are leached out during the parboiling process. There have been a number of attempts to develop alternative rice bran stabilization
processes that deactivate the lipase enzyme using chemicals, microwave heating, and variants on extrusion technology. The Company believes each of these efforts results in an inferior product that
uses chemicals or does not remain stable for a commercially reasonable period, or the nutrients in the bran are lost thereby significantly reducing the nutritional value in the bran.

THE RICEX SOLUTION

The RiceX Process uses proprietary innovations in food extrusion technology to create a combination of temperature, pressure and other conditions necessary to
deactivate the lipase enzyme without significantly damaging the structure or activity of other, higher value compounds, oils and proteins found in the bran. The RiceX Process does not use chemicals to
stabilize raw rice bran, and produces an "all natural" nutrient-rich product.

The
Company's processing equipment is designed to be installed on the premises of any two-stage rice mill and is located downstream from the rice polishers. After hulling,
the rice is transported pneumatically to the rice polishing room where the brown rice kernels are tumbled and the rice bran is polished from the surface of each kernel. The bran is separated from the
denser polished rice grain and is transported pneumatically to a loop conveyor system designed by the Company. The loop conveyor system immediately carries the fresh, unstabilized rice bran to the
RiceX Company stabilizer. Stabilization is achieved by feeding the fresh rice bran into a specially designed auger food extruder that forces the material under pressure and heat through an orifice.
The auger is designed to create the proper temperature, shear and pressure necessary to selectively deactivate the lipase enzyme and
reduce the microbiological load. Process controllers that maintain process conditions within the prescribed pressure/temperature regime control the system. In case of power failure or interruption of

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the flow of fresh bran into the system, the electronic control system is designed to purge the RiceX Company equipment of materials in process and safely shut down.

Bran
leaving the Company's stabilization system (the "RiceX Bran") is deposited on a food-grade conveyor that tempers the product and reduces moisture content. The product is
then discharged onto the cooling unit. A high volume, low-pressure airflow further dehumidifies and cools the RiceX Bran as it moves forward. The cooled RiceX Bran is then loaded into one
ton shipping containers for transportation to other processing facilities or is transported by pneumatic conveyor to a bagging unit for packaging in 40 and 50 pound sacks. RiceX Bran has a shelf life
of at least one-year and is rich in tocopherols, tocotrienols, oryzanols, a complete and balanced amino acid profile, and other nutritional and natural compounds that exhibit positive
health properties ("nutraceuticals").

The
RiceX Process system is modular. Each stabilization module can process approximately 2,000 pounds of RiceX Bran per hour and has a capacity of over 5,700 tons per year. Stabilization
production capacity can be doubled or tripled by installing additional RiceX Company units sharing a common conveyor and stage system, which can handle the output of the world's largest rice mills.
The Company has developed and tested a smaller production unit, which has a maximum production capacity of 840 tons per year, for installation in countries or locations where rice mills are
substantially smaller than those in the United States.

The
processing conditions created by the RiceX Process are unique. However the ancillary equipment used to achieve these processing conditions is in wide use throughout the food
industry. It is in the stabilizer unit that the proprietary RiceX Company technology resides; all of the other processing, material handling, control, and storage components are
off-the-shelf equipment items.

BENEFITS OF RICEX STABILIZED RICE BRAN

Rice bran is a rich source of protein, oil, vitamins, antioxidants, dietary fiber and other nutrients. The proximate composition and caloric content of RiceX
Stabilized Rice Bran is as follows:

RICEX STABLIZED RICE BRAN COMPOSITION

Fat

18%-23%Protein

12%-16%Total Dietary Fiber

23%-35%Soluble Fiber

2%-6%Moisture

4%-8%Ash

7%-10%Calories

3.2 kcal/gram


Rice
bran is unique in the plant kingdom. Its protein is hypoallergenic and contains all of the essential amino acids, the necessary building blocks of protein in the body. Rice bran
contains approximately 20% oil, which closely resembles peanut oil in fatty acid composition and heat stability. Rice bran oil contains essential fatty acids and a broad range of nutraceutical
compounds that have been demonstrated to have therapeutic properties. (Cheruvanky and Raghuram, 1991 Journal of the American College of Nutrition, Vol. 10, No. 4, pp. 593-691.)

Nutraceuticals
are food constituents that have human therapeutic effects. Some of these compounds include a newly discovered complex of Vitamin E called "tocotrienols," and gamma
oryzanol, which is only found in rice. These compounds are potent antioxidants that have been shown to aid in reducing damage from free radicals in the body. RiceX Bran also contains very high levels
of B-complex vitamins, betacarotene (a vitamin A precursor), other carotenoids and phytosterols, as well

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as both soluble and insoluble fiber. (Saunders, 1990, Rice Bran Oil, presented at Calorie Control Council Meeting, February 14, 1990, Washington, D.C.)

The
Company filed two provisional U.S. patent applications relating to RiceX Solubles, RiceX Fiber Complex and HVF products and intends to seek patent protection in selected foreign
jurisdictions. The patent applications include "A Method for Treating Diabetes Mellitus," and "A Method for Treating Hypercholesterolemia, Hyperlipidemia, and Atherosclerosis." The
Hypercholesterolemia Treatment issued on October 3, 2000, was assigned patent number 6,126,943. The patent for "A Therapy for Diabetes, Hyperglycemia and Hypoglycemia" was issued to the Company
on October 16, 2001 and was assigned patent number 6,303,586 B1. In addition, the Company holds patents to the production of
Beta Glucan, patent number 5,512,287, and a micro nutrient enriched rice bran oil process, patent number 5,985,344. The Company may apply for additional patents in the future as new products are
developed.

BUSINESS STRATEGY

The Company's goal is to become the world's leading producer and distributor of stabilized rice bran and rice bran based products in the premium consumer food and
animal feed sectors of the marketplace. The Company will produce stabilized rice bran and related products in manufacturing facilities owned by it or through joint venture arrangements. See "Supply
and Manufacturing." The Company does not intend to sell its proprietary technology or processing methods, but will protect its process and products through both trade secret protection and through
patent and trademark protection. See "Patents and Trademarks."

The
Company intends to continue research and development efforts to establish the efficacy of its stabilized rice bran based products in providing nutritional support to individuals with
chronic diseases and in promoting human health and nutrition. The Company believes that clinical support for stabilized rice bran products will further enhance the value of its products as
nutraceuticals and functional food ingredients. Finally, the Company intends to aggressively market its products in four distinct product areas: nutraceuticals, functional food ingredients,
performance feed and companion pet food supplements, and rice bran oils. In further pursuit of this goal, the Company has focused and will continue to focus its marketing and development efforts in
two distinctly different areas: developed nations, including the U.S., Europe, South Africa, Argentina, Japan, Korea, and Taiwan; and developing nations, including Central and South America, India,
China, Indonesia and most of the other countries in Asia, and Africa.

DEVELOPED NATIONS

In developed nations, the Company's focus is on producing and selling RiceX Company ingredients to large consumer product marketers as health enhancing
ingredients for existing or newly developed products, and as stand-alone products to consumers. The Company has established a relationship with German and Korean companies to introduce RiceX Company
products into the European and Asian communities. Although there can be no assurance that the Company's products will be successfully introduced into these communities, the Company believes that
interest of this type validates the potential opportunity and the relationship reflects the strategy for the Company's foreign ventures. The Company intends to seek other opportunities in the
developed nations by converting stabilized rice bran grown in those countries into finished goods and higher value fractions with demonstrated health or nutritional benefits.

DEVELOPING NATIONS

The Company's strategic development has been focused on making its nutrient dense stabilized rice bran products available to developing countries where
nutritional deficiencies are a major concern,

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particularly among school aged children. The school nutritional and diet upgrading programs in developing countries worldwide represent a $30 to $35 million market opportunity for the Company.
The Food and Agriculture Organization of the United Nations and the Foreign Agricultural Service of the United States Department of Agriculture have targeted over 800 million nutritionally
deficient humans for assistance in the worldwide program titled "American Special Supplemental Food Programs for Women, Infants and Children".

The
Company's first international strategic alliance was established in December, 2000 with PRODESA and the Christian Children's Fund in Guatemala for supplying nutritionally dense
ingredients throughout Guatemala over a twelve month period starting in January 2001. As a result, the Company's stabilized rice bran product solubles have been used to process a nutritionally
enhanced drink for school breakfast and lunch programs to over 67,000 children at the rural community level throughout Guatemala. The Company is on the cutting edge of this developing nations program
as evidenced by the Company's 2001 proof-of-concept market development activities in Guatemala that generated nearly $2,300,000 in revenues for year ended December 31,
2001.

The
twelve-month program in Guatemala was highly successful in reducing malnutrition in school age children and enhancing their nutritional growth potential. The Company expects to
expand into 2 to 3 additional Central American countries in 2002 using the PRODESA / Christian Children's Fund model. The Company is holding substantive discussions with several government officials
which may result in expanding its Central American program into additional countries including Asia during year 2003.

The
Company also intends to partner with local governments and companies in developing nations, on a joint venture basis, to stabilize locally grown rice bran for local consumption and
for future export. The Company plans to introduce its stabilization process systems in large rice mills located in Central and South America, China, India and Southeast Asia in the future. In many
developing nations, the average person has a 300-500 calorie daily diet deficit. [The Food and Agriculture Organization of the United Nations (FAO), Agrostat PC, on diskette
(FAO, Rome, 12993); and the World Resources Institute in collaboration with the United Nations Environment Programme and the United Nations Development Programme, World Resources 1994-95
(Oxford University Press; New York, 1994), p. 108.] If the Company is able to expand into these areas, the installation of 100 RiceX processing systems has the capacity to provide up to
500 nutritionally dense calories per day to over 15 million people each year. The diet supplement provided by the locally grown and stabilized rice bran would help those people approach U.S.
levels of nutrition.

The
Company has had preliminary discussions regarding the demonstration of its system and the end products for this technology with a number of companies and governments including
countries in
Central America, India, China, Argentina, Brazil, Malaysia, and certain African countries. There can be no assurance that these discussions will lead to implementation of the RiceX Process with these
companies or governments.

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SALES AND MARKETING

The Company has targeted four distinct product areas in which RiceX Bran and related products may be used as the primary ingredient. The Company's key marketing
strategy is to form strategic alliances with industry leaders in each of its target markets. This strategy will allow the Company to leverage the research, marketing and distribution strengths of its
partners in order to more economically and efficiently introduce and market products. The Company has formed alliances, or has entered into negotiations to form alliances, in each of its target
markets: nutraceuticals, functional food ingredients, performance feed and companion pet food supplements, and rice bran oils.

The
Company's overall marketing plans in each of the target markets are discussed below.

NUTRACEUTICALS

Nutraceuticals are food-derived substances with pharmaceutical-like properties, including vitamins and dietary supplements. RiceX Bran can
be used as a nutraceutical to provide certain specific nutrients or food components (including antioxidants, oryzanols, Vitamin E, Vitamin B, and bran fiber) or to address specific health applications
such as cardiovascular health, diabetes control, fighting free radicals and general nutritional supplementation. The Company has sold RiceX Bran products as ingredients to consumer nutrition and
healthcare companies, national nutritional retailers, and multi-level personal product marketers. The Company is continuing to develop HVFs, the nutraceutical-like compounds found in rice
bran that provides specific health benefits. The Company has also been informed that at least one national nutritional retailer and other personal product marketing companies are working on
development of special products utilizing RiceX Bran and its related products. There can be no assurance that such marketing efforts will be successful or that any of the proposed products will be
developed in a commercially reasonable time or at all.

During
2000, the Company entered into an exclusive distribution agreement (the "Original Agreement") with NutraStar Incorporated, a Nevada corporation ("NutraStar") to develop products
and market them into the nutraceutical and value added functional foods markets for human nutrition. Under this arrangement, during the year 2000 the Company recognized sales to NutraStar of $622,000.
By year end 2000 NutraStar had not finalized its structural funding and consequently in early 2001 the Company established a reserve of $250,000 against a receivable from NutraStar at
December 31, 2000 and suspended NutraStar's exclusivity arrangement under the Original Agreement. The Original
Agreement between RiceX and NutraStar subsequently was canceled in 2001 because of issues related to payment for outstanding goods shipped by the Company. In late 2001, NutraStar entered into a plan
and agreement of exchange (the "Reorganization") dated November 9, 2001 with Alliance Consumer International, Inc. ("Alliance"). Pursuant to the Reorganization, NutraStar became a wholly
owned subsidiary of Alliance, and Alliance thereafter changed its name to NutraStar Incorporated, a California corporation ("NutraStar California"). In addition, several creditors of NutraStar,
including the Company, agreed to cancel certain indebtedness owed by NutraStar in exchange for shares of NutraStar California's Series A preferred stock. Pursuant to this arrangement, during
December 2001 the Company agreed to cancel $190,000 of NutraStar's indebtedness in exchange for 190,000 shares of NutraStar California's Series A preferred stock. Concurrent with the
Reorganization, the Company and NutraStar entered into a new exclusive distribution agreement (the "Exclusive Distribution Agreement") whereby the Company granted NutraStar an exclusive license to
sell certain RiceX brand products for distribution into the nutraceutical market. The Exclusive Distribution Agreement covers the United States and all of its territories and any additional countries
or regions of the countries that RiceX and NutraStar mutually agree upon in writing. Patricia McPeak, who resigned as president of the Company on March 31, 2000 retained her seat on the
Company's Board of Directors until June 29, 2001 at which time her term expired. Ms. McPeak is an officer and director of NutraStar and also became an officer and director of NutraStar
California. She is the spouse of Daniel L. McPeak, Sr., Chairman of the Board and Chief Executive Officer of the Company. See Part II, Item 7, "Financial

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Statements" and Part III, "Certain Relationships and Related Transactions" for further discussions of NutraStar.

FUNCTIONAL FOOD INGREDIENTS

RiceX Bran is a low cost, all natural food product that contains a unique combination of oil, protein, carbohydrates, vitamins, minerals, fibers, and antioxidants
that can be used to enhance the nutritional value of popular consumer products. Several foods that are ideally suited for the addition of RiceX Bran to their products include cereals, snack foods and
breads. The Company is marketing RiceX Bran to consumer food companies for use in already established products and for development of new products.

The
functional food market in the United States is $16 billion and the Company estimates this represents a $35 to $45 million market share opportunity for itself. Premium
ingredient manufacturers are in high demand and the Company is strategically positioned to take advantage of this growing and sustainable market opportunity. The Company's proprietary technology and
product patents represent extremely valuable assets for achieving strategic leverage in this industry segment.

PERFORMANCE FEED AND COMPANION PET FOOD SUPPLEMENTS

The Company also markets RiceX Bran as a feed supplement for animals. RiceX Bran is used as an equine feed supplement and has proven to provide greater muscle
mass, improved stamina, and
hair-coat luster when added to a normal diet. Show and performance horses represent the premium end of the equine market and present the Company with a $12 to $15 million market
share opportunity for future revenue growth.

The
Company has retained the services of The University of Illinois, Animal Science Department to study the palatability benefits and physiological effects of RiceX Bran on companion
pets. The results of this eight-week clinical trial will be scientifically reviewed and published upon completion. The Company believes that this study will have a positive effect on its
marketing efforts worldwide. The United States market for companion pet foods is estimated to be $12 billion annually and $27 billion worldwide.

The
Company has initiated strategic alliance discussions with several major domestic premium pet food and equine feed manufacturers and distributors. The Company anticipates finalizing
joint venture alliances with major premium pet and equine product manufacturers in 2002 and 2003.

RICE BRAN OILS

Nutrient-rich oil made from RiceX Stabilized Rice Bran has a high flash point, which provides a long fry life and is not readily absorbed into food.
The oil also maintains many of the nutritional benefits of whole rice bran products, making it ideally suited for healthy salad and cooking oils.

The
Company and Monsanto Corporation completed a preliminary joint venture wherein the Company's proprietary technology for stabilizing rice bran was tested in India. Since India is the
second largest rice producer in the world, it made sense that significant opportunities in India could be realized if the Company's technology was proven in that region of the world. The Company
successfully demonstrated its stabilization capability and Monsanto acknowledged that the preliminary joint venture met its objectives. The Company is now developing stabilized rice bran marketing
models, which would support aggressive expansion into India and other major rice producing countries. There can be no assurance that a marketing model will be successful.

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MARKETING METHODS

As of March 1, 2002, the Company has a direct in-house sales representative and through a definitive agreement dated September 29, 2000
Intermark Partners Strategic Management, LLC has been charged to assist the Company in establishing and implementing a strategic business plan for growth in domestic and international markets. In
addition, the Company has entered into agreements with NutraStar and
PRODESA for developing and marketing RiceX Bran products. Shipping and distribution of products are managed and directed by RiceX Company corporate staff and by the direction of several of its
processing locations and subcontract shippers. Additionally, significant alliances are in process of development to help increase sales volume.

Pursuant
to the Stabilized Rice Bran Processing Sales and Marketing Agreement between Farmers' Rice Cooperative ("Farmers"), a cooperative association organized under the California Food
and Agriculture Code and the Company dated June 1, 1999, Farmers' has a non-exclusive license to the Company's rice bran processing equipment for production of stabilized rice bran
solely for sale to the Company and Farmers' customers. Pursuant to the terms of the agreement, Farmers' has agreed to pay the Company a royalty payment for each short ton of stabilized rice bran
produced by Farmers' for sale to its customers. The royalty payment may be adjusted from time to time to account for the changes in the market.

CUSTOMERS

The Company has in excess of 150 active customer accounts. Currently, the Company's major customers are (1) Christian Children's Fund / PRODESA
(2) Wolcott Farms, (3) Integris, and (4) ACH, formally Pacific Grain. The Company depended on these customers for approximately 80% of all sales revenue during 2001. Loss of any
of these companies as a customer could have a material adverse effect on the Company's business, financial condition and results of operations.

SUPPLY AND MANUFACTURING

The Company purchases unstabilized rice bran from one major supplier, Farmers' Rice Cooperative ("Farmers"). Pursuant to an agreement with Farmers', the Company's
stabilization machinery is physically attached to Farmers' rice processing plants and the rice bran by-product is directly transferred to the Company's machinery for stabilization without
the need for shipping. The relationship with farmers' is symbiotic, as the rice manufacturer searches for raw rice bran marketing channels while the Company has a ready access to unstabilized bran.
Farmers' is currently the only supplier of unstabilized rice bran to the Company. The Company intends to enter into additional relationships with rice processors, both in the United States and abroad
as part of its overall business strategy. The Company's production capacity currently stands at 1,500 tons per month. The Company believes that it will be able to obtain additional suppliers due to
the benefits suppliers can expect to receive from an agreement with the Company. There can be no assurance that the Company will obtain additional suppliers.

As
required, the Company ships RiceX Bran from its facilities in California to its plant in Dillon, Montana for further processing into RiceX Solubles, Dextrinized Rice Bran, and RiceX
Fiber Complex. Current monthly production capacity is approximately 50 tons of RiceX Solubles and 50 tons of RiceX Fiber Complex. Additional equipment could more than double production capacity. The
Company intends to acquire or construct an additional processing facility as the demand for RiceX Solubles and RiceX Fiber Complex justifies expansion.

Every
food product manufactured by the Company is produced under published FDA and USDA regulations for "Good Manufacturing Practices." The Vice President of Operations oversees quality
control, and a microbiologist and Ph.D. chemist conducts quality assurance testing. Product samples for

12

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each product code are analyzed for microbiological adherence to a predetermined set of product specifications and each lot is released once it demonstrates its compliance with specifications.

PATENTS AND TRADEMARKS

The RiceX Process is an adaptation and refinement of standard food processing technology applied to the stabilization of rice bran. The Company has chosen to
treat the RiceX Process as a trade secret and not to pursue process or process equipment patents on the original processes. However, process improvements will be reviewed for future patent protection.
The Company believes that the unique products, and their biological effects, resulting from RiceX Company Stabilized Rice Bran are patentable. In 1998, the Company filed two provisional U.S. patent
applications relating to RiceX Solubles, RiceX Fiber Complex and HVF products and intends to seek patent protection in selected foreign jurisdictions. The patent applications include "A Method for
Treating Diabetes Mellitus," and "A Method for Treating Hypercholesterolemia, Hyperlipidemia, and Atherosclerosis." The Hypercholesterolemia Treatment issued on October 3, 2000, was assigned
patent number 6,126,943. The patent for "A Therapy for Diabetes, Hyperglycemia and Hypoglycemia" was issued to the Company on October 16, 2001 and was assigned patent number 6,303,586 B1. The
Company may apply for additional patents in the future as new products are developed.

RiceX
and RiceX Solubles are registered trade names of the Company. Mirachol® and Max "E"® are registered trademarks of the Company
which have been licensed to a third party for use, and the Company holds patents to (1) the production of Beta Glucan, (2) a micro nutrient enriched rice bran oil process, (3) a
method to treat high cholesterol, and (4) a method to treat diabetes.

The
Company endeavors to protect its intellectual property rights through patents, trademarks, trade secrets and other measures, however, there can be no assurance that the Company will
be able to protect its technology adequately or that competitors will not develop similar technology. There can be no assurance that any patent application the Company may file will be issued or that
foreign intellectual property laws will protect the Company's intellectual property rights. Other companies and inventors may receive patents that contain claims applicable to the Company's system and
processes. The use of the Company's systems covered by such patents could require licenses that may not be available on acceptable terms, if at all. In addition, there can be no assurance that patent
applications will result in issued patents.

Although
there currently are no pending claims or lawsuits against the Company regarding possible infringement claims, there can be no assurance that infringement claims by third
parties, or claims for
indemnification resulting from infringement claims, will not be asserted in the future or that such assertions, if proven to be true, will not materially adversely affect the Company's business,
financial condition and results of operations. In the future, litigation may be necessary to enforce patents issued to the Company, to protect trade secrets or know-how owned by the
Company or to defend the Company against claimed infringement of the rights of others and to determine the scope and validity of the proprietary rights of others. Any such litigation could result in
substantial cost and diversion of resources by the Company, which could have a material adverse effect on the Company's financial condition and results of operations. Adverse determinations in such
litigation could result in the Company's loss of proprietary rights, subject the Company to significant liabilities to third parties, require the Company to seek licenses from third parties or prevent
the Company from manufacturing or selling its systems, any of which could have a material adverse effect on the Company's financial condition and results of operations. In addition, there can be no
assurance that a license under a third party's intellectual property rights will be available on reasonable terms, if at all.

13

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COMPETITION

Although the Company believes that it is the only company to use non-chemical methods to stabilize all natural rice bran so that the bran has a shelf
life of over one-year, the Company competes with other companies attempting to stabilize rice bran, as well as companies producing other food ingredients and nutritional supplements. The
Company's only significant competitor is Producer's Rice Mill. The competitor may have greater capital resources and experience in the food industry in total, however the Company believes it has more
experience in the rice bran industry than its competitor. There can be no assurance that the Company will be able to compete successfully in the rice bran industry. The Company's major nutritional
supplement competitors include producers of wheat bran and oat bran, particularly in the functional food ingredients market segment.

RESEARCH AND DEVELOPMENT

Rice bran contains a wide variety of antioxidants, vitamins, and other nutrients associated with good health and resistance to disease. The Company has conducted
a preliminary clinical evaluation that indicates RiceX products have efficacy in the nutritional management of certain conditions and diseases, such as diabetes mellitus and coronary vascular disease.
Data from this study has been analyzed and the data supports the initiation of clinical trials. The Company intends to vigorously conduct these trials and, if successful, will develop foods containing
the active nutraceutical components of RiceX Bran to manufacture products targeted at specific conditions or suitable for the maintenance of general health and well-being. There can be no
assurance that the results of additional clinical trials will prove successful or that the Company will be able to develop additional new products. See "Governmental Regulations."

The
Company has retained the services of The University of Illinois, Animal Science Department to study the physiological effects of RiceX Bran on companion pets. The results of this
eight-week clinical trial will be scientifically reviewed and published upon completion. The Company believes that this study will have a positive effect on its marketing efforts
worldwide. The United States market for companion pet foods is estimated to be $12 billion annually and $27 billion worldwide.

Expenditures
for research and development for the years ended December 31, 2001 and 2000 totaled $201,000 and $271,000 respectively. Even though expenditures were down for year
ended 2001 compared to year ended 2000, the Company expects to continue research and development expenditures to establish the scientific basis for health claims of existing products and to develop
new products and applications.

EMPLOYEES

As of March 1, 2002, the Company had a total of 22 employees, all of which are full time employees. The Company believes that its relations with its
employees are good.

FORWARD-LOOKING STATEMENTS

When used in this report, the words "believe," "expect," "anticipate" and similar expressions, together with other discussion of future trends or results, are
intended to identify forward-looking statements within the meaning of Section 27A 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 and uncertainties, including those discussed below that could cause actual results to differ
materially from those projected. These forward-looking statements speak only as of the date hereof. All of these forward-looking statements are based on estimates and assumptions made by management of
the Company which, although believed to be reasonable, are inherently uncertain and difficult to predict; therefore, undue reliance should not be placed upon such statements. The following important
factors, among others, could cause the

14

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Company's results of operations to be adversely affected in future periods: (i) increased competitive pressures from existing competitors and new entrants; (ii) increases in interest
rates or the Company's cost of borrowing or a default under any material debt agreements; (iii) deterioration in general or regional economic conditions; (iv) adverse state or federal
legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations; (v) loss of customers or sales weakness;
(vi) inability to achieve future sales levels or other operating results; (vii) the unavailability of funds for capital expenditures; and (viii) operational inefficiencies in
distribution or other Company systems. Many of such factors are beyond the control of the Company. There can be no assurance that the Company will not incur new or additional unforeseen costs in
connection with the ongoing conduct of its business. Accordingly, any forward-looking statements included herein do not purport to be predictions of future events or circumstances and may not be
realized. In addition, assumptions relating to budgeting, marketing, advertising, litigation and other
management decisions are subjective in many respects and thus susceptible to interpretations and periodic revisions based on actual experience and business developments, the impact of which may cause
the Company to alter its marketing, capital expenditure or other budgets, which may in turn affect the Company's financial positions and results of operations.

LIMITED OPERATING HISTORY

There is limited historical financial information about the Company upon which to base an evaluation of the Company's performance or to make a decision regarding
an investment in shares of the Company's common stock. Although the Company was originally formed in May 1989 commercial manufacturing operations and marketing efforts did not commence until
June 1996. For the first time in the Company's history net income of $1,129,000 was recorded while operations generated almost $800,000 in cash for year ended December 31, 2001. The
Company has shareholders' equity of $3,876,000 and cash and cash equivalents aggregated $1,603,000 at December 31, 2001. During the past two years the Company's management team has developed a
strategic and financially sound business plan to meet the ongoing liquidity of the Company's operations for the year ended December 31, 2002 and thereafter. The Company believes it has
positioned itself to become the foremost premium ingredient supplier in the food manufacturing and animal feed sectors. The Company's business could be subject to any or all of the problems, expenses,
delays and risks inherent in the establishment of a new business enterprise including limited capital resources, possible delays in product development, possible cost overruns due to price and cost
increases in raw product and manufacturing processes, uncertain market acceptance and absence of an operating history. Therefore, there can be no assurance that the Company's business or products will
be successful or that the Company will be able to achieve or maintain profitable operations. There can be no assurance that the Company will not encounter unforeseen difficulties that may deplete its
capital resources more rapidly than anticipated.

15

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MARKET RISKS OF A NEW BUSINESS

The Company has formulated its business plan and strategies based on certain assumptions regarding the size of the rice bran market, the Company's anticipated
share of this market, and the estimated price and acceptance of the Company's products. These assumptions are based on the best estimates of the Company's management. There can be no assurance that
the Company's assessments regarding market size, potential market share attainable by the Company, the price at which the Company will be able to sell its products, market acceptance of the Company's
products or a variety of other factors will prove to be correct. Any future success of the Company may depend upon factors including changes in the dietary supplement industry, governmental
regulation, increased levels of competition including the entry of additional competitors and increased success by existing competitors, changes in general economic conditions, increases in operating
costs including costs of production, supplies, personnel, equipment, and reduced margins cause by competitive pressures.

COMPETITION

Competition in the Company's targeted industries, including nutraceuticals, functional food ingredients, rice bran oils, animal feed supplements and companion pet
food ingredients is vigorous with a large number of businesses engaged in the various industries. Many of the competitors have established reputations for successfully developing and marketing their
products. Many of the competitors have greater financial, managerial, and technical resources than the Company. If the Company is not successful in competing in these markets, it may not be able to
attain its business objectives.

GOVERNMENTAL REGULATION

The processing, formulation, packaging, labeling and advertising of the Company's products are subject to regulation by one or more federal agencies. Although
Congress has recently recognized the potential impact of dietary supplements in promoting the health of U.S. citizens by enacting the Dietary Supplement Health Education Act of 1994 ("DSHEA"), which
severely limits the FDA's jurisdiction in regulating dietary supplements, there is no way to predict the potential effect of DSHEA. It may be difficult for any company manufacturing or marketing
dietary supplements to remain in strict compliance with the technical requirements of DSHEA. The FDA has proposed regulations with the purpose of implementing DSHEA and proposals have been made to
modify or change the provisions of DSHEA. It is impossible to predict whether those regulations of proposed changes will become law or
the effect that such regulations or proposed changes, if implemented, will have on the business and operation of the Company.

RELIANCE ON LIMITED NUMBER OF PRODUCTS

All of the Company's products are based on stabilized rice bran. Although the Company will market rice bran as a dietary supplement, as an active food ingredient
for inclusion in other companies' products, and in other ways, a decline in the market demand for the Company's products as well as the products of other companies utilizing the Company's products
could have a significant adverse impact on the Company.

RELIANCE ON ADEQUATE SUPPLY OF RAW RICE BRAN

The Company's proprietary technology is used to stabilize rice bran, which is a by-product from milling paddy rice to white rice. The Company
currently has a supply arrangement with one of the largest rice mills in the United States and is pursuing other supply sources in the United States and in foreign countries. There can be no assurance
that the Company will continue to secure adequate sources of raw rice bran to meet its requirements to produce stabilized rice bran products.

16

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DEPENDENCE ON MARKETING EFFORTS

The Company is dependent on its ability to market products to animal food producers, food manufacturers, mass merchandise and health food retailers, and to other
companies for use in their products. The Company must increase the level of awareness of dietary supplements in general and the Company's products in particular. The Company will be required to devote
substantial management and financial resources to its marketing and advertising efforts and there can be no assurance that these efforts will be successful.

DEPENDENCE ON KEY EMPLOYEES

The Company believes that its success will depend, to a significant extent, upon the efforts and abilities of the current group of executives, strategic alliance
and joint venture partners. The loss of the services of one or more of these key personnel or partners could have a material adverse affect on the Company's business, financial condition and results
of operations. In addition, the Company's future
success will depend upon its ability to continue to attract and retain qualified management personnel. There can be no assurance that the Company will be successful in attracting and retaining such
personnel.

PATENTS, LICENSES AND INTELLECTUAL PROPERTY CLAIMS

The Company's success depends in part on its ability to obtain patents, licenses and other intellectual property rights for its products and technology. The
Company has four United States patents and the Company may decide to file corresponding international applications. The Company holds patents to (1) the production of Beta Glucan, (2) a
micro nutrient enriched rice bran oil process, (3) a method to treat high cholesterol and (4) a method to treat diabetes. The process of seeking patent protection may be long and
expensive, and there can be no assurance that patents will be issued, that the Company will be able to protect its technology adequately, or that competition will not be able to develop similar
technology. There currently are no claims or lawsuits pending or threatened against the Company regarding possible infringement claims, but there can be no assurance that infringement claims by third
parties, or claims for indemnification resulting from infringement claims, will not be asserted in the future or that such assertions, if proven to be true, will not materially adversely affect the
Company's business, financial condition and results of operations. In the future, litigation may be necessary to enforce patents issued to the Company, to protect trade secrets or know-how
owned by the Company or to defend the Company against claimed infringement of the rights of others and to determine the scope and validity of the proprietary rights of others. Any litigation could
result in substantial cost and diversion of effort by the Company, which could have a material adverse affect on the Company's financial condition and results of operations. Adverse determinations in
any litigation could result in the Company's loss of proprietary rights, subjecting the Company to significant liabilities to third parties, require the Company to seek licenses from third parties or
prevent the Company from manufacturing or selling its systems, any of which could have a material adverse affect on the Company's financial condition and results of operations. There can be no
assurance that a license under a third party's intellectual property rights will be available to the Company on reasonable terms, if at all.

THIN MARKET; POSSIBLE VOLATILITY OF STOCK PRICE

The Company's Common Stock has been traded on the OTC Bulletin Board since May 1996 under the symbol "RICX". The Company believes that factors such as
announcements of developments related to the Company's business, fluctuations in the Company's quarterly or annual operating results, failure to meet securities analysts' expectations, general
conditions in the international marketplace and the worldwide economy, announcements of technological innovations or new systems or enhancements by the Company or its competitors, developments in
patents or other intellectual property rights and developments in the Company's relationships with customers and suppliers could cause the price of the

17

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Company's common stock to fluctuate, perhaps substantially. In recent years the stock market has experienced extreme price fluctuations, which have often been unrelated to the operating performance
of affected companies. Such fluctuations could adversely affect the market price of the Company's common stock.

ANTI-TAKEOVER EFFECT OF CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE LAW

Under the Company's Certificate of Incorporation, the Board of Directors of the Company has the authority, without action by the Company's stockholders, to fix
certain terms of, and to issue, shares of Preferred Stock. The Company is incorporated under Delaware law. Certain provisions of the Certificate of Incorporation and certain provisions of Delaware law
may have the effect of delaying, deterring or preventing a change in control of the Company. Other provisions in the Company's Certificate of Incorporation and Bylaws and Delaware law impose
procedural and other requirements that could make it more difficult to effect certain corporate actions, including replacing incumbent directors. Further, the Board is divided into three classes, each
of which is to serve for a staggered three-year term after the initial classification and election, which may make it more difficult for a third party to gain control of the Board. By
virtue of these provisions, the Board of Directors of the Company may be able to take or prevent actions affecting unaffiliated stockholders without such stockholders' approval or consent. In
addition, these provisions may adversely affect the market price of the Company's Common Stock and reduce the possibility that an investor may receive a premium for his or her shares in a tender
offer. See "Directors, Executive Officers, Promoters and Control Persons."

THE COMPANY

The Company was incorporated under Delaware law in May 1998 and succeeded to the business of its predecessor corporation, Food Extrusion, Inc.,
pursuant to a reincorporation that was effective upon completion of the merger of the Nevada corporation with the Delaware corporation on August 4, 1998. Food Extrusion, Inc., ("FoodEx
CA"), was incorporated in California in May 1989 and subsequently merged in a stock-for-stock exchange into Core Iris, a Nevada corporation and subsequently changed its
name to Food Extrusion, Inc. ("Food Extrusion, Inc."). Food Extrusion, Inc. changed its name to The RiceX Company in May 1998. Food Extrusion Montana, Inc. ("FoodEx
MT"), was incorporated in Montana in December 1996, as a wholly owned subsidiary of the Company. In January 1997, FoodEx MT acquired certain assets of Centennial Foods, Inc., an
Idaho corporation ("Centennial") in exchange for common stock and the assumption of certain liabilities which were paid in full in January 1999.

Item 2. DESCRIPTION OF PROPERTY

The Company currently leases (i) a 5,600 square foot office facility at 1241 Hawk's Flight Court, El Dorado Hills, California, and (ii) a 3,500
square foot warehouse and shipping facility at 1261 Hawk's Flight Court, El Dorado Hills, California. FoodEx MT owns a 15,700 square foot production facility in Dillon, Montana. The leases for the El
Dorado Hills facilities, expiring in September 2006, have aggregate annual lease payments for both properties approximating $69,000, net of sub-lease payment collections
approximating $64,000 per year. In November 1999, the Company entered into a sub-lease agreement with a company, NutraStar, that expires September 2006 for a portion (7,800
square feet) of the facility located at 1261 Hawk's Flight Court, El Dorado Hills, California.

The
Company believes that its facilities are adequate for its proposed needs through 2002 and that the properties are adequately covered by insurance.

Item 3. LEGAL PROCEEDINGS

The Company is from time to time involved in litigation incidental to the conduct of its business. While the outcome of lawsuits and other proceedings against the
Company cannot be predicted with

18

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certainty, in the opinion of management, none of the litigation in which the Company is currently involved, individually or in the aggregate, is expected to result in a material effect on the
Company's financial position or results of operations.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to the security holders of the Company for a vote during the Quarter ended December 31, 2001.

PART II

Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The principal United States market for the Company's common stock is the OTC Bulletin Board. These quotations reflect inter-dealer prices, without retail
mark-up, mark down or commissions and may not represent actual transactions. The following is the high and low bid information for such common stock:

COMMON STOCK

HIGH

LOW2001First Quarter

$
0.48

$
0.31Second Quarter

$
0.60

$
0.26Third Quarter

$
0.60

$
0.27Fourth Quarter

$
0.45

$
0.312000First Quarter

$
1.13

$
0.59Second Quarter

$
0.75

$
0.41Third Quarter

$
0.63

$
0.31Fourth Quarter

$
0.69

$
0.25


There
are approximately 263 holders of record of the Company's common stock as of March 1, 2002.

DIVIDENDS

The Company has neither paid, nor declared, any dividends since its inception and does not intend to declare any such dividends in the foreseeable future. The
Company's ability to pay dividends is subject to limitations imposed by Delaware law and, as a quasi-California corporation, to the more restrictive provision of California law. Under Delaware law,
dividends may be paid to the extent that the corporation's assets exceed its liabilities and it is able to pay its debts as they become due in the usual course of business. California law generally
prohibits a corporation from paying dividends unless the retained earnings of the corporation immediately prior to the distribution exceed the amount of the distribution. Alternatively, a corporation
may pay dividends if (i) the assets of the corporation exceed 11/4 times its liabilities; and (ii) the current assets of the corporation equal or exceed its current
liabilities,
but if the average pre-tax earnings of the corporation before interest expense for the two years preceding the distribution was less than the average interest expense of the corporation
for those years, the current assets of the corporation must exceed 11/4 times its current liabilities.

RECENT SALES OF UNREGISTERED SECURITIES

In 1998, in conjunction with RiceX's reincorporation in Delaware, the Company increased its authorized number of common shares from 50,000,000 shares to
100,000,000 shares and authorized 10,000,000 shares of preferred stock which may be issued from time to time, in one or more series, and authorized its Board of Directors to establish the rights,
preferences and privileges of each such series,

19

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when issued. At December 31, 2001, an aggregate of 38,829,350 shares of common stock were outstanding, and an additional 27,168,369 shares of the Company's common stock were reserved for
future issuance upon the exercise of stock options and warrants.

During
2001, the Company did not issue or sell any shares of its common stock.

In
April 2000, the Company issued 14,134 shares of common stock to an agent for introducing investors to the Company. The value of the common stock was approximately $10,601 and
is recorded in shareholders' equity. The shares were issued without registration under the Securities Act in reliance on the exemption from registration provided by Section 4(2) of the
Securities Act.

In
May 2000, the Company issued 100,000 shares of common stock to acquire equipment from one of its suppliers. The value of the common stock was $68,750 and is recorded in
shareholders equity. The shares were issued without registration under the Securities Act in reliance on the exemption from registration provided by Section 4(2) of the Securities Act.

Also
in May 2000, the Company issued 1,200,000 shares of common stock to three executives pursuant to the exercise of some of their stock options and received promissory notes in
the amount of $863,000. In June 2000, the executives rescinded the exercise of these stock options and promissory notes. These stock options were issued in accordance with the Company's 1997
Stock Option Plan that was ratified by the Board of Directors in 1997. The shares were issued without registration under the Securities Act in reliance on the exemption from registration provided by
Section 4(2) of the Securities Act.

During
June 2000, the Company and three executive officers rescinded the exercise of 2,700,000 stock options priced at $.72 per share and promissory notes in the total amount of
$1,941,000 given in payment of the exercise price. On account of the rescission, the executive officers returned to the Company the shares of common stock purchased pursuant to the exercise of the
options. The rescission
of the exercise of the options restores the Company and the executive officers to the positions they occupied prior to the exercise. The 2,700,000 stock options may be exercised in the future at the
$.72 per share exercise price until expired.

Also
in June 2000, the Company issued 32,000 shares of common stock for services rendered. The value of the common stock was $24,000 and is recorded in shareholders' equity. The
shares were issued without registration under the Securities Act in reliance on the exemption from registration provided by Section 4(2) of the Securities Act.

In
September 2000, the Company finalized an agreement with a venture capital firm to convert a $2,500,000 note to equity. On September 29, 2000, the Company converted the
note for 3,571,429 shares of common stock and warrants to purchase 3,571,429 shares of common stock at $.70 per share. These warrants are immediately exercisable and have a term of five years. In
connection with this conversion of the note to equity the Company also granted additional warrants to purchase up to 4,464,285 shares of common stock at $.70 per share. These additional warrants are
exercisable at any time during the five-year period commencing from the date of grant. The warrant shares are restricted from sale and or transfer until such time when the Company's
revenues at various stages reach an annualized equivalent of $12,000,000 and $25,000,000. The shares issued were without registration under the Securities Act in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act.

During
October 2000, the Company issued 50,000 shares of common stock to consultants for services rendered. The value of the common stock was $50,000 and is recorded in
shareholders' equity. The shares were issued without registration under the Securities Act in reliance on the exemption from registration provided by Section 4(2) of the Securities Act.

20

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Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following is a discussion of the consolidated financial condition of The RiceX Company as of December 31, 2001 and the results of operations for the
fiscal years ended December 31, 2001 and 2000, which should be read in conjunction with, and is qualified in its entirety by, the consolidated financial statements and notes thereto included
elsewhere in this report.

When
used in this report, the words "believe," "expect," "anticipate" and similar expressions, together with other discussion of future trends or results, are intended to identify
forward-looking statements within the meaning of Section 27A 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 and uncertainties, including those discussed below that could cause actual results to differ materially from those projected.
These forward-looking statements speak only as of the date hereof. All of these forward-looking statements are based on estimates and assumptions made by management of the Company which, although
believed to be reasonable, are inherently uncertain and difficult to predict; therefore, undue reliance should not be placed upon such statements. The following important factors, among others, could
cause the Company's results of operations to be adversely affected in future periods: (i) increased competitive pressures from existing competitors and new entrants; (ii) increases in
interest rates or the Company's cost of borrowing or a default under any material debt agreements; (iii) deterioration in general or regional economic conditions; (iv) adverse state or
federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations; (v) loss of customers or sales weakness;
(vi) inability to achieve future sales levels or other operating results; (vii) the unavailability of funds for capital expenditures; and (viii) operational inefficiencies in
distribution or other Company systems. Many of such factors are beyond the control of the Company. There can be no assurance that the Company will not incur new or additional unforeseen costs in
connection with the ongoing conduct of its business. Accordingly, any forward-looking statements included herein do not purport to be predictions of future events or circumstances and may not be
realized. In addition, assumptions relating to budgeting, marketing, advertising, litigation and other management decisions are subjective in many respects and thus susceptible to interpretations and
periodic revisions based on actual experience and business developments, the impact of which may cause the Company to alter its marketing, capital expenditure or other budgets, which may in turn
affect the Company's financial positions and results of operations.

OVERVIEW

Since its formation in 1989, the Company has been engaged in extensive research and development activities that resulted in the development of the RiceX Process
to stabilize rice bran. During 1996, 1997 and 1998, the Company accelerated its research, including clinical trials; product development; equipment development; procurement of manufacturing
facilities; development of markets and distribution methods; negotiation of strategic alliances; patent applications; raising capital; and development of corporate infrastructure, including executive
recruitment activities. The Company commenced commercial operations in 1996 with revenues for the year aggregating approximately $908,000 and the Company reporting a net loss of approximately
$5,024,000 for the year ended December 31, 1996. Revenues for year ended December 31, 2001 increased to $6,299,000 with the Company reporting a net income of $1,129,000.

The
following highlights the Company's financial data for December 31, 2001, 2000 and 1999.

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Selected Financial Summary
(in thousands except share data)

Consolidated Operating Results

2001

2000

1999Revenue

$
6,299

$
3,839

$
3,259Gross margins


3,853


1,754


1,04361
%

46
%

32
%Research and development expenses


201


271


712Selling, general and administrative expenses


1,704


1,178


1,329Stock option and warrant expense


12


92


104Professional and investor relations fees


877


1,509


688Bad debt expense





250


157Net income (loss)

$
1,129

$
(2,468
)
$
(3,246
)Earnings per share


0.03


(0.07
)

(0.13
)Weighted average number of shares outstanding


38,829,350


36,727,443


24,486,683


Consolidated Balance Sheets

2001

2000

1999Cash and cash equivalents

$
1,603

$
968

$
1,030Total assets


4,660


4,539


4,958Total liabilities and convertible debt


562


616


4,890Deferred revenue, advance payments


221


1,341


Shareholders' equity

$
3,876

$
2,581

$
67Number of shares outstanding at December 31,


38,829,350


38,829,350


36,393,784


Since
1996, the Company's management team has focused on developing a strategic and financially sound business plan, and their efforts resulted in retiring $14,577,000 debt obligations,
improving shareholder equity to $3,876,000, increasing revenues to $6,299,000, and increasing profits to $1,129,000 for year ended December 31, 2001. Management believes that its operating plan
currently being implemented is sufficient to meet the ongoing liquidity needs of the Company for the year ended December 31, 2002.

The
Company now is positioned to focus on business development. The operating plan includes improved gross margins from reduced costs by improved production efficiencies and product
sales mix and by increased sales and expanded marketing efforts domestically and internationally. Management also implemented spending controls, which reduced some overhead costs. Additionally,
significant alliances are in process to help increase sales volume. For a complete understanding of these activities, this Management's Discussion and Analysis should be read in conjunction with
Part I. Item 1Description of Business and Part II. Item 7Financial Statements to this Form 10-KSB.

YEAR ENDED DECEMBER 31, 2001 AND DECEMBER 31, 2000

Consolidated revenues for year ended December 31, 2001 was $6,299,000, an increase of $2,460,000, or 64%, compared to $3,839,000 for the prior year of
2000. The increased revenues were attributed to a year-to-date increase in three RiceX Bran product categories, RiceX Stabilized Rice Bran ("SRB") Regular, RiceX Solubles and
SRB Fine. RiceX Solubles had an increase in revenues of $2,304,000, or 222%, primarily due to sales to the Christian Children's Fund in Guatemala and an increased demand domestically. SRB Fine
increased $93,000, or 71%. SRB Regular increased $143,000, or 6%, and RiceX Fiber decreased $43,000, or 13% compared to sales through December 2000. Royalty income was $20,000 through
December 2001 compared to $18,000 for the same time period last year.

22

---

Gross
margins for year ended December 31, 2001 were $3,853,000, or 61%, compared to $1,754,000, or 46% for year ended December 31, 2000. The improvement in gross margin
dollars of $2,099,000 is attributed to product sales mix, a multi-year supplier volume/pricing contract, and increased production use of the FoodEx Montana plant, thereby improving
production efficiencies and reducing unabsorbed costs through December 31, 2001. Gross margins on the Company's various RiceX Bran products vary widely and the gross margins are impacted from
period to period by sales mix and utilization of production capacity. The Company expects that gross margins will continue to improve as sales volumes increase.

Research
and Development ("R&D") expenses were down for year ended December 31, 2001 compared to last year. R&D expenditures went from $271,000 for year ended December 31,
2000 to $201,000 for year ended December 31, 2001. This $70,000 decrease was primarily due to reimbursements from a customer for process research. Even though expenditures were down for the
year ended 2001, the Company expects to continue research and development expenditures to establish the scientific basis for health claims of existing products and to develop new products and
applications.

Selling,
General, and Administration ("S,G&A") expenses were $1,704,000 for year ended December 31, 2001, compared to $1,178,000 for year ended December 31, 2000, an
increase of $526,000. The increase was primarily associated with increased sales commissions and other increased activities over the same period last year. These increased activities were anticipated
by management based upon their 2001 business development plan and the trend is expected to continue through 2002.

Stock
option and warrant expense was $92,000 for year ended December 31, 2000 and $12,000 for year ended December 31, 2001. Stock option compensation expense is a
non-cash charge relating to the issuance of favorably priced stock options to employees and directors to attract and retain key personnel to the Company. The charge represents the
difference between the exercise price and the trading value on the date of the grant. The difference is recognized over the vesting period of each grant, which generally ranges from two to three
years, except for the directors' grants, which vest over one year.

Professional
and investor relations fees decreased $632,000 for year ended December 31, 2001 compared to last year. Substantial decrease, $996,000, in investor relations fees
through December 31, 2001 compared to expenses through December 31, 2000 was due for the most part to expenses relating to the issuance of stock and warrants to an investor relations
firm through year ended December 31, 2000. Other professional costs associated with legal fees and new business development consulting fees and related charges increased $364,000 for year ended
December 31, 2001 compared to year ended December 31, 2000 results.

Interest
expense for year ended December 31, 2001 decreased more than $1,017,000 compared to the same period last year. Interest expense for year ended December 31, 2001
was $6,000 compared to $1,023,000 for year ended December 31, 2000. The decrease for year ended December 31, 2001, compared to year ended December 31, 2000, is associated with the
eliminated amortization of interest expense on a note to a shareholder that was paid in December 2000.

For
year ended December 31, 2001, the Company's net income was $1,129,000, or $.03 per share, compared to a net loss of $2,468,000, or $.07 per share, an improvement of $3,597,000
over the same period last year. The improvement for the year is predominantly due to successful marketing efforts resulting in increased revenues, increased efficiencies in production, debt reduction
and increased gross margins. Combining reduced interest expenses, strong RiceX Solubles sales to the Christian Children's Fund in Guatemala, and increased sales of RiceX Solubles domestically; the
Company experienced an improvement in net income.

While
the Company generated net income in 2001, the Company expects to utilize net operating loss carry-forwards which will reduce income tax expense to the state minimum tax of $1,600
for year

23

---

ended December 31, 2001. Net operating loss carry-forwards expire for federal tax purposes at various dates from 2009 through 2020 and expire for state tax purposes in 2003 through 2010.

YEAR ENDED DECEMBER 31, 2000 AND DECEMBER 31, 1999

Consolidated revenues through December 2000 of $3,839,000 increased $579,000, or 18%, from the same period last year. The sales increase is attributed to
an increase in all product categories, RiceX Stabilized Rice Bran ("SRB") SRB Regular, RiceX Solubles, SRB Fine, and RiceX Fiber. SRB Regular showed an increase in revenue of $53,000, and the RiceX
Fiber increase was $74,000. RiceX Solubles sales increased by $461,000, with SRB Fine increasing $2,000 compared to sales through December 1999. Royalty income has decreased $11,000, from
$29,000 in 1999 to $18,000 for period ended December 31, 2000 due primarily to the change in the royalty rate per ton produced within the newly negotiated supplier contract. While sales of
RiceX Bran products accounted for virtually 100% and 99% of total sales in 2000 and 1999 respectively, the mix of such products differed in 2000 comparatively. In 2000, SRB Regular sales, primarily
for the equine market, accounted for 60% of
revenue versus 70% in 1999. RiceX Solubles experienced a significant increase in sales mix from 18% in 1999 to 27% in 2000. RiceX Fiber and SRB Fine products accounted for 12% and 13% in 1999 and 2000
respectively. The sales of RiceX Solubles include sales to NutraStar, an affiliate, of $622,000, or 16% of revenues, during 2000. See Part II, Item 7, "Financial Statements" and
Part III, "Certain Relationships and Related Transactions" for further discussions of NutraStar.

Gross
margins through period ended December 31, 2000 were $1,754,000, or 46%, compared to $1,043,000, or 32%, during the same period last year. The improvement in gross margin
dollars of $696,000 over 1999 is attributed to product sales mix, a multi-year supplier volume/pricing contract, and increased production use of the FoodEx Montana plant, thereby improving
production efficiencies and reducing unabsorbed costs through December 31, 2000. Gross margins on the Company's various RiceX Bran products vary widely and the gross margins are impacted from
period to period by sales mix and utilization of production capacity. The Company expects that gross margins will improve as sales volumes increase.

Expenditures
for research and development for the years ended December 31, 2000 and 1999 totaled $271,000 and $712,000, respectively. The reduction of R&D expenses in 2000 was
mostly due to the termination and subsequent transfer of technical employees and associated expenses to a nutraceutical company, NutraStar that was granted an exclusive license to sell RiceX Bran
products in domestic markets. Even though expenditures were down for the year ended 2000 compared to the year ended 1999, the Company expects to continue research and development expenditures to
establish the scientific basis for health claims of existing products and develop new products and applications. For example, during 2000 the Company retained the services of The University of
Illinois, Animal Science Department to study the physiological effect of RiceX Bran on companion pets. The results of this eight-week clinical trial will be scientifically reviewed and
published upon completion. The Company believes that this study will have a positive effect on its marketing efforts worldwide. The United States market for companion pet foods is estimated to be
$12 billion annually and $27 billion worldwide.

Selling,
General, and Administration expenses were $1,178,000 and $1,329,000 in 2000 and 1999 respectively, a decrease of $150,000, or 11%. Selling, general, and administration
activities in 2000 were directed at raising capital, establishing new supplier agreements, development of direct sales efforts, and developing domestic and international sales alliances. Management
also implemented spending controls which reduced overhead costs.

The
years ended December 31, 2000 and 1999 included non-cash charges totaling $92,000 and $104,000, respectively, for stock option and warrant compensation to
employees. The 2000 non-cash charges represent the vested portion of issued options held by the current executive officers and

24

---

warrants issued to former employees' severance agreements. The 1999 non-cash charges represent the vested portion pursuant of issued options held by the current executive officers.

Professional
fees in 2000 were $1,509,000 compared to $688,000 in 1999, an increase of $821,000. The increase in 2000 was primarily associated with an investor relation reserve charged
for stock and warrants for services to an investor relations firm. Investor relation fees represent $1,165,000 of total professional fees in 2000 and $350,000 of total professional fees in 1999. Other
costs were due to annual audit costs, fees connected with patent searches and applications, attorney's fees, and consulting fees.

Bad
debt expenses increased $93,000, or 59%, to $250,000 for the year ended December 31, 2000 compared to $157,000 for the same time period last year. The increase was due to the
Company establishing a reserve against a receivable from an affiliate, NutraStar. During 2000, the Company recognized sales to NutraStar of $622,000 and recorded cash receipts from NutraStar of
$502,000. By year-end 2000 NutraStar had not finalized its pending funding, consequently the Company established a reserve against a receivable of NutraStar. At December 31, 2000,
the Company had an outstanding receivable from NutraStar of $330,000 net of an allowance for doubtful accounts of $250,000. The Company received payments from NutraStar totaling $286,000 after
December 31, 2000 further reducing this receivable balance. The Company also had a deposit of $100,000 included in deferred revenue at December 31, 2000 from NutraStar. See
Part II, Item 7, "Financial Statements" and Part III, "Certain Relationships and Related Transactions" for further discussions of NutraStar.

Interest
expense decreased through period ending December 31, 2000 by $302,000, or 23%, from $1,325,000 in 1999 to $1,023,000 in 2000, due mostly to the eliminated amortization of
certain debt issuance costs associated with a note that was in December 1999.

For
the year ended December 31, 2000, the Company's net loss was $2,468,000, or $.07 per share, compared to a net loss of $3,246,000, or $.13 per share, in 1999, an improvement of
$778,000, or 24%, over the same period last year. As discussed above, the decrease in the Company's net loss reflects improvements in revenues and gross margins and significant reductions in most
overhead expense categories.

LIQUIDITY AND CAPITAL RESOURCES

The cash balances at December 31, 2001 increased $635,000 to $1,603,000 from $968,000 at December 31, 2000. The Company has generated cumulative
positive cash flows for twelve months ended December 31, 2001. Year ended December 31, 2001 showed $1,879,000 in cash provided from operating activities before realizing $1,119,000 of
deferred revenue received and recognized at December 31, 2001. After recognizing deferred revenue for twelve months ended December 31, 2001, cash generated from operations was $760,000.
As disclosed below, the Company has $221,000 of product prepayment in deferred revenue at December 31, 2001 for the January 2002 shipment to the Christian Children's Fund in Guatemala.

The
Company's first international strategic alliance was established in December, 2000 with PRODESA and the Christian Children's Fund in Guatemala for supplying nutritionally dense
ingredients
throughout Guatemala over a twelve month period starting in January 2001. As a result, the Company's stabilized rice bran product solubles have been used to process a nutritionally enhanced
drink for school breakfast and lunch programs to over 67,000 children at the rural community level throughout Guatemala. The Company is on the cutting edge of this developing nations program as
evidenced by the Company's 2001 proof-of-concept market development activities in Guatemala that generated nearly $2,300,000 in revenues for year ended December 31,
2001.

The
twelve-month program in Guatemala was highly successful in reducing malnutrition in school age children and enhancing their nutritional growth potential. The Company expects to
expand into 2

25

---

to 3 additional Central American countries in 2002 using the PRODESA / Christian Children's Fund model. The Company is holding substantive discussions with several government officials which may
result in expanding its Central American program into additional countries including Asia during year 2003.

Through
2001, market development focused on nutritionally dense ingredients in the international market place: first in Latin America and then Asian countries. These market segments
currently represent multi billion dollar potential market opportunities. Also during 2001, the Company initiated strategic alliance discussions with major domestic premium pet food and equine feed
manufacturers and distributors. Domestic markets for these segments currently represent a potential opportunity of over $250 million annually. The Company continues to aggressively discuss
joint venture opportunities with major premium pet and equine product producers. The Company hopes the results of these successful alliances will have a significant financial effect on the Company's
annual revenues and profit lines starting within fiscal year 2002 and 2003. There can be no assurance the Company will obtain additional strategic partners.

The
Company also intends to partner with local governments and companies in developing nations on a joint venture basis to stabilize locally grown rice bran for local consumption and for
future export. The Company plans to introduce its stabilization process systems in large rice mills located in Central and South America, China, India and Southeast Asia. The Company has had
preliminary discussions regarding the demonstration of its system and the end products for this technology with a number of companies and governments including other countries in Central America,
India, China, Argentina, Brazil, Malaysia and certain African countries. There can be no assurance that these discussions will lead to implementation of the RiceX Process with these companies or
governments.

During
2000, the Company entered into an exclusive distribution agreement (the "Original Agreement") with NutraStar Incorporated, a Nevada corporation ("NutraStar") to develop products
and market them into the nutraceutical and value added functional foods markets for human nutrition. Under this arrangement, during the year 2000 the Company recognized sales to NutraStar of $622,000.
By year end 2000 NutraStar had not finalized its structural funding and consequently in early 2001 the Company established a reserve of $250,000 against a receivable from NutraStar at
December 31, 2000 and suspended NutraStar's exclusivity arrangement under the Original Agreement. The Original Agreement between RiceX and NutraStar subsequently was canceled in 2001 because of
issues related to payment for outstanding goods shipped by the Company. In late 2001, NutraStar entered into a plan
and agreement of exchange (the "Reorganization") dated November 9, 2001 with Alliance Consumer International, Inc. ("Alliance"). Pursuant to the Reorganization, NutraStar became a wholly
owned subsidiary of Alliance, and Alliance thereafter changed its name to NutraStar Incorporated, a California corporation ("NutraStar California"). In addition, several creditors of NutraStar,
including the Company, agreed to cancel certain indebtedness owed by NutraStar in exchange for shares of NutraStar California's Series A preferred stock. Pursuant to this arrangement, during
December 2001 the Company agreed to cancel $190,000 of NutraStar's indebtedness in exchange for 190,000 shares of NutraStar California's Series A preferred stock. Concurrent with the
Reorganization, the Company and NutraStar entered into a new exclusive distribution agreement (the "Exclusive Distribution Agreement") whereby the Company granted NutraStar an exclusive license to
sell certain RiceX brand products for distribution into the nutraceutical market. The Exclusive Distribution Agreement covers the United States and all of its territories and any additional countries
or regions of the countries that RiceX and NutraStar mutually agree upon in writing. Patricia McPeak, who resigned as president of the Company on March 31, 2000 retained her seat on the
Company's Board of Directors until June 29, 2001 at which time her term expired. Ms. McPeak is an officer and director of NutraStar and also became an officer and director of NutraStar
California. She is the spouse of Daniel L. McPeak, Sr., Chairman of the Board and Chief Executive Officer of the Company. See Part II, Item 7, "Financial

26

---

Statements" and Part III, "Certain Relationships and Related Transactions" for further discussions of NutraStar.

The
Company has retained the services of The University of Illinois, Animal Science Department to study the physiological effects of RiceX Bran on companion pets. The results of this
eight-week clinical trial will be scientifically reviewed and published upon completion. The Company hopes that this study will have a positive effect on its marketing efforts worldwide.
The United States market for companion pet foods is estimated to be $12 billion annually and $27 billion worldwide. The Company anticipates receiving the University of Illinois clinical
study some time during fiscal 2002.

The
Company expects to continue to expand its sales and marketing efforts, research and development, and professional and legal fees for patent and trademark applications. The Company
has various ongoing business development strategies that target international markets and domestic premium pet food and equine feed markets.

These
efforts could significantly increase demand for the Company's products beyond the Company's current production capacity. While the Company believes it can increase its production
capacity to meet sales demand, significant additional capital could be required to meet such expansion requirements. The Company has sufficient cash reserves to meet all anticipated short term
operating requirements.

The
timing and amount of any long term capital requirements cannot be predicted at this time. There can be no assurance that any financing will be available on acceptable terms. If such
financing is not available on satisfactory terms, the Company 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 be adversely affected.

27

---



Item 7. FINANCIAL STATEMENTS

THE RICEX COMPANY  INDEX TO FINANCIAL STATEMENTS

|                                                                                           |  | Page
|------------------------------------------------------------------------------------------ |  | ----
|Independent Auditor's Report                                                               |  | 29  
|Financial Statements                                                                       |  |     
|Consolidated Balance Sheets as of December 31, 2001 and 2000                               |  | 30  
|Consolidated Statements of Operations for the years ended December 31, 2001 and 2000       |  | 31  
|Consolidated Statements of Shareholders' Equity (Deficit) as of December 31, 2001 and 2000 |  | 32  
|Consolidated Statements of Cash Flows for the years ended December 31, 2001 and 2000       |  | 33  
|Notes to Consolidated Financial Statements                                                 |  | 34  

28

---

INDEPENDENT AUDITOR'S REPORT

The
Board of Directors The RiceX Company

We
have audited the accompanying consolidated balance sheets ofThe RiceX Companyand Subsidiary as of December 31, 2001 and 2000,
and the related consolidated statements of operations, shareholders' equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The RiceX Company and Subsidiary at
December 31, 2001 and 2000, and the results of its consolidated operations and its consolidated cash flows for the years then ended in conformity with accounting principles generally accepted
in the United States of America.

/s/
Moss Adams LLP

Stockton,
California
March 6, 2002

29

---



THE RICEX COMPANY  CONSOLIDATED BALANCE SHEET

|                                       |                                                                                                                        | DECEMBER 31,                                                                                                                      |          
|-------------------------------------- | ---------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------- | ---------
|
|ASSETS                                 |                                                                                                                       
|CURRENT ASSETS:                        |                                                                                                                        |                                                                                                                                   |          
|                                       | Cash and cash equivalents                                                                                              |                                                                                                                                   | $        
|                                       | Trade accounts receivable, net of allowance for doubtful accounts, $20,000 and $267,516 in 2001 and 2000, respectively |                                                                                                                                   |          
|                                       | Inventories                                                                                                            |                                                                                                                                   |          
|                                       | Deposits and other current assets                                                                                      |                                                                                                                                   |          
|                                       |                                                                                                                        |                                                                                                                                   |          
|                                       |                                                                                                                        | Total current assets                                                                                                              |          
|PROPERTY AND EQUIPMENT, net            |                                                                                                                        |                                                                                                                                   | 1,786,276
|OTHER ASSETS, net                      |                                                                                                                        |                                                                                                                                   | 91,986   
|                                       |                                                                                                                        |                                                                                                                                   |          
|                                       |                                                                                                                        | $                                                                                                                                 | 4,660,112
|                                       |                                                                                                                        |                                                                                                                                   |          
|LIABILITIES AND SHAREHOLDERS' EQUITY   |                                                                                                                       
|CURRENT LIABILITIES:                   |                                                                                                                        |                                                                                                                                   |          
|                                       | Accounts payable and accrued liabilities                                                                               |                                                                                                                                   | $        
|                                       | Deferred revenue                                                                                                       |                                                                                                                                   |          
|                                       |                                                                                                                        |                                                                                                                                   |          
|                                       |                                                                                                                        | Total current liabilities                                                                                                         |          
|COMMITMENTS AND CONTINGENCIES (Note 5) |                                                                                                                        |                                                                                                                                   |          
|SHAREHOLDERS' EQUITY (DEFICIT)         |                                                                                                                        |                                                                                                                                   |          
|                                       |                                                                                                                        | Preferred stock, par value $.001 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 in 2001 and 2000 |          
|                                       | Additional paid-in capital                                                                                             |                                                                                                                                   |          
|                                       | Accumulated deficit                                                                                                    |                                                                                                                                   |          
|                                       | Deferred expenses relating to equity issuance                                                                          |                                                                                                                                   |          
|                                       |                                                                                                                        |                                                                                                                                   |          
|                                       |                                                                                                                        | Total shareholders' equity                                                                                                        |          
|                                       |                                                                                                                        |                                                                                                                                   |          
|                                       |                                                                                                                        | $                                                                                                                                 | 4,660,112
|                                       |                                                                                                                        |                                                                                                                                   |          

The
accompanying notes are an integral part of these statements.

30

---



THE RICEX COMPANY  CONSOLIDATED STATEMENT OF OPERATIONS

|                                                                  |                            | YEARS ENDED DECEMBER 31,      |           
|----------------------------------------------------------------- | -------------------------- | ----------------------------- | ----------
|
|REVENUES                                                          |                            |                               |           
|                                                                  | Sales                      |                               | $         
|                                                                  | Royalties                  |                               |           
|                                                                  |                            |                               |           
|                                                                  |                            |                               | 6,298,568 
|COST OF SALES                                                     |                            |                               | 2,445,119 
|                                                                  |                            |                               |           
|                                                                  |                            |                               | 3,853,449 
|RESEARCH AND DEVELOPMENT EXPENSES                                 |                            |                               | 200,651   
|SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                      |                            |                               | 1,703,591 
|STOCK OPTION AND WARRANT EXPENSE                                  |                            |                               | 12,000    
|INVESTOR RELATIONS                                                |                            |                               | 169,189   
|PROFESSIONAL FEES                                                 |                            |                               | 707,964   
|BAD DEBT EXPENSE                                                  |                            |                               |          
|                                                                  |                            |                               |           
|                                                                  |                            | Income (loss) from operations |           
|OTHER INCOME (EXPENSE):                                           |                            |                               |           
|                                                                  | Interest and other income  |                               |           
|                                                                  | Interest and other expense |                               |           
|                                                                  |                            |                               |           
|                                                                  |                            | Net income (loss)             |           
|                                                                  |                            |                               |           
|BASIC AND DILUTED EARNINGS PER SHARE;
net income (loss) per share |                            | $                             | ..03      
|                                                                  |                            |                               |           
|WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING                     |                            |                               | 38,829,350
|                                                                  |                            |                               |           

The
accompanying notes are an integral part of these statements.

31

---



THE RICEX COMPANY  CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)

YEARS ENDED DECEMBER 31, 2001 AND 2000

|                                                                         |  |            |   |   |        |   |   |            |   | Deferred
Expenses
Related to
Equity
Issuance |             |   |   |            |  
|------------------------------------------------------------------------ |  | ---------- | - | - | ------ | - | - | ---------- | - | -------------------------------------------- | ----------- | - | - | ---------- | -
|
|
|
|Balance, December 31, 1999                                               |  | 36,393,784 |   | $ | 36,394 |   | $ | 27,252,130 |   | $                                            | (24,013,864 | ) | $ | (2,128,731 | )
|Issuance of common stock and warrants for services                       |  | 82,000     |   |   | 82     |   |   | 73,918     |   |                                              |            |   |   |           |  
|Amortization of prepaid interest                                         |  |           |   |   |       |   |   |           |   |                                              |            |   |   | 323,593    |  
|Amortization of debt issuance                                            |  |           |   |   |       |   |   |           |   |                                              |            |   |   | 696,298    |  
|Recognition of compensation expense                                      |  |           |   |   |       |   |   | 83,160     |   |                                              |            |   |   |           |  
|Recognition of warrants issued for services                              |  |           |   |   |       |   |   | 9,000      |   |                                              |            |   |   |           |  
|Amortization of warrants issued for consulting fees                      |  |           |   |   |       |   |   |           |   |                                              |            |   |   | 19,139     |  
|Issuance of common stock pursuant to the exercise of stock options       |  | 1,200,000  |   |   | 1,200  |   |   | 862,800    |   |                                              |            |   |   |           |  
|Rescission of exercises of stock options                                 |  | (2,700,000 | ) |   | (2,700 | ) |   | (1,941,300 | ) |                                              |            |   |   |           |  
|Issuance of common stock private placement, net of finders fee of $9,600 |  | 182,137    |   |   | 182    |   |   | 116,218    |   |                                              |            |   |   |           |  
|Conversion of debt to equity                                             |  | 3,571,429  |   |   | 3,571  |   |   | 2,415,214  |   |                                              |            |   |   |           |  
|Amortization of prepaid processing fees                                  |  |           |   |   |       |   |   |           |   |                                              |            |   |   | 78,125     |  
|Amortization of investor relations fee                                   |  |           |   |   |       |   |   | 182,127    |   |                                              |            |   |   | 913,527    |  
|Issuance of warrants for consulting fees                                 |  |           |   |   |       |   |   | 229,671    |   |                                              |            |   |   | (229,671   | )
|Issuance of common stock for purchase of equipment                       |  | 100,000    |   |   | 100    |   |   | 68,650     |   |                                              |            |   |   |           |  
|Net loss for the year                                                    |  |           |   |   |       |   |   |           |   |                                              | (2,467,781  | ) |   |           |  
|                                                                         |  |            |   |   |        |   |   |            |   |                                              |             |   |   |            |  
|Balance, December 31, 2000                                               |  | 38,829,350 |   |   | 38,829 |   |   | 29,351,588 |   |                                              | (26,481,645 | ) |   | (327,720   | )
|Amortization of warrants issued to former employees                      |  |           |   |   |       |   |   | 12,000     |   |                                              |            |   |   |           |  
|Amortization of warrants issued for consulting fees                      |  |           |   |   |       |   |   |           |   |                                              |            |   |   | 76,557     |  
|Amortization of prepaid processing fees                                  |  |           |   |   |       |   |   |           |   |                                              |            |   |   | 78,125     |  
|Net income for the year                                                  |  |           |   |   |       |   |   |           |   |                                              | 1,128,647   |   |   |           |  
|                                                                         |  |            |   |   |        |   |   |            |   |                                              |             |   |   |            |  
|Balance, December 31, 2001                                               |  | 38,829,350 |   | $ | 38,829 |   | $ | 29,363,588 |   | $                                            | (25,352,998 | ) | $ | (173,038   | )
|                                                                         |  |            |   |   |        |   |   |            |   |                                              |             |   |   |            |  

The accompanying notes are an integral part of these statements.

32

---



THE RICEX COMPANY  CONSOLIDATED STATEMENT OF CASH FLOWS

|                                                     |                                                                                   | YEARS ENDED DECEMBER 31,                                          |                                   
|---------------------------------------------------- | --------------------------------------------------------------------------------- | ----------------------------------------------------------------- | ----------------------------------
|
|CASH FLOW FROM OPERATING ACTIVITIES:                 |                                                                                   |                                                                   |                                   
|                                                     | Net income (loss)                                                                 |                                                                   | $                                 
|                                                     | Adjustments to reconcile net income (loss) to net cash from operating activities: |                                                                   |                                   
|                                                     |                                                                                   | Depreciation and amortization                                     |                                   
|                                                     |                                                                                   | Amortization of investor relation expense                         |                                   
|                                                     |                                                                                   | Bad debt expense                                                  |                                   
|                                                     |                                                                                   | Shares, warrants and options issued for compensation and services |                                   
|                                                     |                                                                                   | Amortization of shares and warrants issued for services           |                                   
|                                                     |                                                                                   | Deferred revenue received                                         |                                   
|                                                     |                                                                                   | Recognition of deferred revenue                                   |                                   
|                                                     |                                                                                   | Amortization of prepaid interest and debt issuance costs          |                                   
|                                                     | Net changes in operating assets and liabilities                                   |                                                                   |                                   
|                                                     |                                                                                   | Trade accounts receivable                                         |                                   
|                                                     |                                                                                   | Inventories                                                       |                                   
|                                                     |                                                                                   | Deposits and other current assets                                 |                                   
|                                                     |                                                                                   | Accounts payable and accrued liabilities                          |                                   
|                                                     |                                                                                   |                                                                   |                                   
|                                                     |                                                                                   |                                                                   | Net cash from operating activities
|                                                     |                                                                                   |                                                                   |                                   
|CASH FLOWS FROM INVESTING ACTIVITIES                 |                                                                                   |                                                                   |                                   
|                                                     | Purchases of property and equipment, and other assets                             |                                                                   |                                   
|                                                     | Proceeds from sale of equipment                                                   |                                                                   |                                   
|                                                     |                                                                                   |                                                                   |                                   
|                                                     |                                                                                   |                                                                   | Net cash from investing activities
|                                                     |                                                                                   |                                                                   |                                   
|CASH FLOWS FROM FINANCING ACTIVITIES                 |                                                                                   |                                                                   |                                   
|                                                     | Proceeds from issuance of common stock                                            |                                                                   |                                   
|                                                     | Payment of long-term debt to shareholders                                         |                                                                   |                                   
|                                                     | Payments association with conversion of long-term debt                            |                                                                   |                                   
|                                                     |                                                                                   |                                                                   |                                   
|                                                     |                                                                                   |                                                                   | Net cash from financing activities
|                                                     |                                                                                   |                                                                   |                                   
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |                                                                                   |                                                                   | 635,322                           
|CASH AND CASH EQUIVALENTS, beginning of year         |                                                                                   |                                                                   | 967,743                           
|                                                     |                                                                                   |                                                                   |                                   
|CASH AND CASH EQUIVALENTS, end of year               |                                                                                   | $                                                                 | 1,603,065                         
|                                                     |                                                                                   |                                                                   |                                   

The
accompanying notes are an integral part of these statements.

33

---



THE RICEX COMPANY  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 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 in Delaware and changed
its name to The RiceX Company. RiceX has a wholly owned subsidiary, Food Extrusion Montana, Inc. (FoodEx Montana). The consolidated financial statements include the accounts of RiceX and FoodEx
Montana (collectively "the Company"), after the elimination of all inter-company balances and transactions.

The
Company is an agribusiness food technology company, which has developed a proprietary process to stabilize rice bran. RiceX is headquartered in El Dorado Hills, California and has
stabilization equipment located at a rice mill in Northern California. The Company purchases raw rice bran from the mill and mill employees, under Company supervision, operate the Company's equipment
to stabilize rice bran. The Company pays a processing fee to the mill for this service. Under an agreement with the mill, the mill may use the Company's equipment to stabilize rice bran for its
customers in exchange for the payment of a royalty fee to the Company. The Company intends to enter into additional relationships with rice processors as part of its overall business strategy.

FoodEx
Montana is engaged in the business of custom manufacturing grain-based products for food ingredient companies at its production facility in Dillon, Montana. The facility has
specialized processing equipment and techniques for the treatment of grain products to cook, enzyme treat, convert, isolate, dry and package finished food ingredients. The soluble form of the
Company's rice bran products is produced at the Montana facility.

The
processing, formulation, packaging, labeling and advertising of the Company's products are subject to regulation by one or more federal agencies. Congress enacted the Dietary
Supplement Health Education Act of 1994 ("DSHEA"), which limits the FDA's jurisdiction in regulating dietary supplements. The FDA has proposed regulations with the purpose of implementing DSHEA and
proposals have been made to modify or change the provisions of DSHEA. The effect that those regulations or proposed changes will have on the operations of the Company cannot currently be determined.

A
summary of the significant accounting principles and practices used in the preparation of the consolidated financial statements follows:

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

Concentration of credit riskFinancial instruments that potentially subject the Company to significant concentrations of
credit risk consist primarily of trade accounts receivable for sales to major customers. The Company performs credit evaluations on its customers financial condition and generally does not require
collateral on accounts receivable. The Company maintains an allowance for doubtful accounts on its receivables based upon expected collectibility of all accounts receivable. Uncollected accounts have
not been significant.

In
2001, three major customers each accounted for 36%, 30% and 11% of sales, respectively. Accounts receivable includes amounts due from two customers comprising of 54% and 17% of the
total outstanding. Approximately 36% of total sales are the result of exports to Guatemala.

34

---

In
2000, two major customers accounted for 50% and 17% of sales and 33% and 64% of accounts receivable, respectively.

Cash and cash equivalentsCash equivalents consist of highly liquid investments with an original or remaining maturity at the
time of purchase of three months or less.

InventoriesInventories are stated at the lower of cost or market determined on a first-in, first-out
basis. The costs associated with the milling process are allocated to inventory.

Property and equipmentProperty and equipment are stated at cost. Depreciation or amortization is computed on the
straight-line method over the shorter of the estimated life of the asset or the lease term, generally ranging from three to ten years. Upon sales or retirement, the related cost and
accumulated depreciation or amortization are removed from the accounts and the resulting gain or loss,
if any, is included in results of operations. The cost of additions, improvements, and interest on construction are capitalized, while maintenance and repairs are charged to operations when incurred.

The
estimated lives used in determining depreciation and amortization are:

Buildings

10 yearsEquipment

5 - 7 yearsLeasehold improvements

7 yearsFurniture and fixtures

5 - 7 years


Deferred expenses related to equity issuanceCosts incurred in connection with equity issuances are deferred and amortized
over the terms of the related service.

Revenue recognitionRevenues from product sales are recognized as products are shipped. Deposits are deferred until either the
product has shipped or conditions relating to the sale have been substantially performed.

Research and developmentResearch and development costs are expensed when incurred.

Stock optionsThe Company accounts for employee stock options using the intrinsic value method under which compensation
expense is recognized in the financial statements when the exercise price of option grants are issued at less than fair market value on the grant date. Rescission of any exercise is considered a
modification of the award and results in a new measurement date. The Company adopted the disclosure-only provisions of Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation", which require the Company to disclose pro forma net income (loss) assuming compensation expense related to options granted was determined using the fair
value method. As required by SFAS No. 123, the Company has valued stock option and warrants granted to employees and made the required pro forma calculations under the fair value method using
the Black-Scholes option pricing model with the following weighted-average assumptions for 2001 and 2000: risk-free interest rate range of 3.44% to 4.44% in 2001 and 5.13% to 5.21% in
2000; expected
option lives of three years and one to five years in 2001 and 2000, respectively; expected volatility of 107% to 115% in 2001 and 102% to 106% in 2000; and no expected dividend in either year.

Net income (loss) per shareBasic net income (loss) per share is computed based on the weighted average number of shares of
common stock outstanding during each period. Diluted earnings per share reflect the potential dilution that could occur if common shares were issued pursuant to the exercise of options or warrants.
For the year ended December 31, 2000, there were potentially dilutive instruments

35

---

including stock options, warrants and convertible debt; however, they were anti-dilutive as the Company reported a loss from operations.

Income taxesDeferred income tax assets and liabilities result from the future tax consequences associated with temporary
differences between the carry amounts and the tax bases of assets and liabilities. A valuation allowance is established to reduce deferred tax assets if it is more likely than not, that all, or some
portion, of such deferred tax assets will not be realized.

Accounting for long-lived assetsLong-lived assets are recorded at the lower of amortized cost or fair
value. As part of an ongoing review of the valuation of long-lived assets, management assesses the carrying value of such assets if facts and circumstances suggest they may be impaired. If
this review indicates that the carrying value of these assets may not be recoverable, as determined by a non-discounted cash flow analysis over the remaining useful life, the carrying
value would be reduced to its estimated fair value. There has been no impairment recognized in these consolidated financial statements.

ReclassificationsCertain reclassifications have been made to the 2000 financial information to conform to the 2001
presentation.

NOTE 2PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

|                                               |  | DECEMBER 31, |           
|---------------------------------------------- |  | ------------ | ----------
|
|Land and buildings                             |  | $            | 377,510   
|Equipment                                      |  |              | 4,423,196 
|Leasehold improvements                         |  |              | 381,642   
|Furniture and fixtures                         |  |              | 218,071   
|Construction in progress                       |  |              | 10,717    
|                                               |  |              |           
|                                               |  |              | 5,411,136 
|Less accumulated depreciation and amortization |  |              | (3,826,760
|                                               |  |              |           
|                                               |  |              | 1,584,376 
|Equipment not placed in service                |  |              | 201,900   
|                                               |  |              |           
|                                               |  | $            | 1,786,276 
|                                               |  |              |           

NOTE 3ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts
payable and accrued liabilities consist of the following:

|                          |  | DECEMBER 31,
|------------------------- |  | ------------
|
|Trade accounts payable    |  | $           
|Other accrued liabilities |  |             
|Customer deposits         |  |             
|                          |  |             
|                          |  | $           
|                          |  |             

36

---

NOTE 4CONVERTIBLE NOTE

In
November 1999, the Company entered into a letter of intent with a venture capitalist firm to provide up to $6,000,000 in financing to pay off the Company's debt and expand its
manufacturing capacity and marketing efforts. The agreement provided an initial investment of $2,500,000 as a convertible note. The note was secured by property and equipment and intellectual property
of the Company and was non-interest bearing. In September 2000, this note was converted into 3,571,429 shares of common stock at $.70 per share.

The
Company leases office, laboratory and warehouse space and vehicles under operating leases which expire in 2006 and 2002, respectively. Beginning in October 2001, the Company
has the unilateral right to terminate the facilities' operating leases with six months written notice. Rent expense under operating leases was $64,353 and $48,188 for the years ended
December 31, 2001 and 2000, respectively.

The
following is a schedule of future minimum lease payments required under the above leases:

Fiscal year ending each December2002

$
164,6922003


147,2432004


134,6722005


133,5172006


100,138Total

$
680,262Amounts reimbursed from affiliate(included above)2002

$
63,1222003


64,2982004


64,7002005


65,9062006


49,427Total

$
307,453


NOTE 6SHAREHOLDERS' EQUITY

A. Common and preferred stock

In
1998, in conjunction with RiceX's re-incorporation in Delaware, the Company increased its authorized number of common shares from 50,000,000 shares to 100,000,000 shares
and authorized 10,000,000 shares of preferred stock which may be issued from time to time, in one or more series, and authorized its Board of Directors to establish the rights, preferences and
privileges of each such series, when issued. At December 31, 2001, an aggregate of 27,168,369 shares of the Company's common stock was reserved for future issuance upon the conversion of debt
and the exercise of stock options and warrants.

B. Stock issued for services and other

In
May 2000, the Company issued 100,000 shares of stock to acquire equipment from one of its suppliers. The equipment was recorded based on the fair value of stock on the date of
issuance. The

37

---

value of the common stock was $68,750 and is capitalized as equipment for the year ended December 31, 2000.

In
June 2000, the Company issued 32,000 shares of stock to consultants for services received. The value of the common stock was $24,000 and is included in professional services
for the year ended December 31, 2000.

In
October 2000, the Company issued 50,000 shares of stock to consultants for services rendered. The values of the services rendered were $50,000 and reduced accrued liabilities
for the year ended December 31, 2000.

In
September 2000, the Company issued warrants to purchase 2,600,000 shares of common stock at $.70 per share to a venture capitalist firm as a finders fee and to develop and
implement a strategic business plan. The Company valued the warrants in accordance with SFAS No. 123 using the Black-Scholes option pricing model. The amount relating to the strategic plan has
been recorded as a contra account to shareholders' equity and is being amortized to professional expenses over a three year period. During 2001 and 2000, the Company amortized $76,557 and $19,139,
respectively.

In
July 1999, the Company issued 250,000 shares of common stock to a vendor in lieu of cash to guarantee direct supplies for three years, "prepaid processing fee." The value of
the common stock was $234,000 and is recorded as a contra account to shareholders' equity and is being amortized to cost of goods sold over the three year period. During 2001 and 2000, the Company
amortized $78,125 each year.

In
November 1999, the Company entered into a contract with a company to provide investor relations for a period of one year. The Company issued 1,600,000 shares of common stock
with a fair value of $1,264,000. This amount was recorded as a contra account to shareholders' equity. During 1999, the Company amortized $350,473 as professional fees. Additionally, the Company
issued warrants to purchase 1,000,000 shares of common stock. The fair market value of these warrants, determined in accordance with SFAS No. 123 using the Black-Scholes option pricing model,
was $126,000 of which approximately $70,000 was recorded as professional fees for the year ended December 31, 1999. In
February 2000, the agreement was terminated. As a result, the Company has recognized the remaining investor relation expense of approximately $1,095,000.

C. Shares issued to employees

In
May 2000, the Company and three executive officers exercised 1,200,000 stock options at $.72 per share and issued promissory notes of $862,800 as payment for the exercise
price.

In
June 2000, the Company and three executive officers rescinded the exercise of 2,700,000 stock options priced at $.72 per share and promissory notes in the total of $1,941,000
given as payment for the exercise price. On account of the rescission, the executive officers returned to the Company the shares of common stock purchased pursuant to the exercise of the options. The
rescission of the exercise of the options restores the Company and the executive officers to the positions they occupied prior to the exercise. This has been considered a modification of the award
which resulted in a new measurement date. These options are outstanding at December 31, 2001.

D. Conversion of debt to equity

In
September 2000, the Company converted a $2,500,000 note into 3,571,429 shares of common stock and issued warrants to purchase 3,571,429 shares of common stock. In connection
with this conversion, the Company also granted additional warrants to purchase up to 4,464,285 shares of stock

38

---

at $.70 per share. These additional warrants are restricted from sale or transfer until such time the Company's revenues at various stages reach an annualized equivalent of $12,000,000 and
$25,000,000.

E. Deferred expenses related to equity issuance

In
December 1998, the Company issued 940,679 shares of common stock as prepaid interest and warrants to purchase 3,734,540 shares of common stock in connection with a loan
agreement. The Company recorded $647,186 of prepaid interest reflecting the fair market value of the shares on December 31, 1998 and $1,392,597 of debt issuance costs, reflecting the fair value
of the warrants on December 31, 1998. The Company valued the warrants in accordance with SFAS No. 123 using the Black-Scholes option pricing model. During 2000, the Company amortized
$323,593 of prepaid interest and debt issuance costs. These warrants were fully amortized in 2000.

F. Private placement

During
2000, the Company issued 182,137 shares of common stock and warrants to purchase shares of common stock in conjunction with a $6 million dollar private placement for cash
proceeds of $116,400. These warrants, which expire three years from issue date, have an exercise price for the first year of $1.00 per share, for the second year of $1.25 per share and for the third
year of $1.50 per share. At December 31, 2001, all warrants issued in conjunction with this private placement were outstanding.

G. Warrants and non-qualified stock options issued

At
December 31, 2001, the warrants and non-qualified stock options outstanding were as follows:

|Shares issuable under warrants
and non-qualified options |  | Number of
Shares |   | Exercise Price
Per Share |              | Exercise
Period
|-------------------------------------------------------- |  | ---------------- | - | ------------------------ | ------------ | ---------------
|Balance, January 1, 2000                                 |  | 10,522,651       |   | $                        | 0.69 - $4.00 |                
|Issued during the year                                   |  | 14,206,718       |   | $                        | 0.70 - $0.79 |                
|Canceled during the year                                 |  | (2,980,000       | ) | $                        | 0.69 - $4.00 |                
|                                                         |  |                  |   |                          |              |                
|Balance, December 31, 2000                               |  | 21,749,369       |   | $                        | 0.70 - $2.00 |                
|Issued during the year                                   |  |                 |   |                          |             |                
|Canceled during the year                                 |  | (250,000         | ) | $                        | 1.00         |                
|                                                         |  |                  |   |                          |              |                
|Balance, December 31, 2001                               |  | 21,499,369       |   | $                        | 0.70 - $2.00 |                
|                                                         |  |                  |   |                          |              |                

The
balance outstanding at December 31, 2001 and 2000 includes incentive warrants to purchase 7,714,287 shares which are restricted from sale and, or transfer until such time when
certain sales targets are achieved.

39

---

H. Stock option plan

The
Company has 10,000,000 shares of common stock reserved for grant to its officers, director and key employees under its stock option plan. At December 31, 2001, options to
purchase 5,669,000 shares of common stock had been granted under the Plan and 4,331,000 shares were available for future grants. Stock option information is as follows:

Number of
Shares

Weighted-
Average
Exercise
PriceShares under option at January 1, 2000

1,469,000

$
.82Granted

2,082,000


.79Exercised

(1,200,000
)

.72Rescinded exercise

2,700,000


.72Canceled

(129,000
)

.70Shares under option at December 31, 2000

4,922,000

$
..78Granted

950,000


.38Forfeited

(203,000
)

.40Shares under option at December 31, 2001

5,669,000

$
..73Options exercisable at December 31, 2001

5,526,667

$
..74


Weighted
average remaining contractual life of options outstanding at December 31, 2001 is 8.4 years.



As
required by SFAS No. 123, the Company has determined the pro-forma information as if the Company had accounted for stock options granted under the fair value method
using the Black-Scholes option pricing model. The model requires the input of highly subjective assumptions including expected stock volatility that is subject to change. For this reason, resulting
pro-forma compensation costs are not necessarily indicative of future costs. For purposes of pro-forma disclosures, the estimated fair value of the options is recognized as an
expense over the options' vesting period.

The
Company's pro-forma net loss and net loss per share would be as follows:

DECEMBER 31,2001

2000Net income (loss), as reported

$
1,128,647

$
(2,467,781
)Net income (loss), pro-forma

$
639,632

$
(2,896,843
)Basic and diluted net income (loss) per shareas reported

$
.03

$
(.07
)Basic and diluted net income (loss) per sharepro-forma

$
.02

$
(.08
)Weighted average fair value of options granted to employees during the year

$
.26

$
.46


NOTE 7EMPLOYEE BENEFIT PLAN

Effective January 1, 2000, the 401(k) plan of The RiceX Company's subsidiary, Food Extrusion Montana, changed names from theFood
Extrusion, Montana 401(k) Profit Sharing Plan and TrusttoThe RiceX Company 401(k) Plan & Trust. This name change also
included all RiceX employees. To participate in the plan, an employee must have completed one year of service and attained the age of

40

---

21. Additionally, the Company may, at its discretion, make additional employer contributions. In order to be eligible to receive an allocation of the discretionary contributions, the employee must
work 1000 hours in and be employed on the last day of the plan year. Employees are immediately vested in company contributions. The Company contributes 3% of each employee's salary annually to
the plan regardless of employee participation. Plan contributions amounted to $35,000 and $28,000 in 2001 and 2000, respectively.

NOTE 8RELATED PARTY TRANSACTIONS

During 2000, the Company entered into an exclusive distribution agreement (the "Original Agreement") with NutraStar Incorporated, a Nevada corporation
("NutraStar") to develop products and market them into the nutraceutical and value added functional foods markets for human nutrition. Under this arrangement, the Company recognized sales to NutraStar
of $72,000 and $622,000 during 2001 and 2000, respectively. By year end 2000 NutraStar had not finalized its structural funding and consequently the Company established a reserve of $250,000 against a
receivable from NutraStar at December 31, 2000. At December 31, 2000, the Company had a net outstanding receivable from NutraStar of $334,000 and an allowance for doubtful accounts of
$250,000. The Company also had a deposit of $100,000 included in deferred revenue from NutraStar at December 31, 2000. The receivable balance from NutraStar at December 31, 2001 was
zero. NutraStar is subleasing a portion of the Company's office space (see Note 5).

In
early 2001 the Company suspended NutraStar's exclusivity arrangement and began making direct sales to the customer base which was previously acquired by NutraStar under the Original
Agreement. The Company continued NutraStar's pricing which was higher than what RiceX had previously charged these customers. The price differential of approximately $156,000 was recognized as
commission expense by the Company and is recorded as selling expense in its 2001 Statement of Operations. After paying NutraStar $56,000, the Company applied the remaining $100,000 price differential
to the receivable balance from NutraStar. The deposit of $100,000 at December 31, 2000 was also applied by the Company to the receivable balance from NutraStar. The net effect of these
transactions resulted in
a remaining balance of $130,000 due from NutraStar which was subsequently exchanged for shares of NutraStar California's Series A preferred stock as discussed below. The Original Agreement
between RiceX and NutraStar subsequently was canceled in 2001 because of issues related to payment for outstanding goods shipped by the Company.

In
late 2001, NutraStar entered into a plan and agreement of exchange (the "Reorganization") dated November 9, 2001 with Alliance Consumer International, Inc. ("Alliance").
Pursuant to the Reorganization, NutraStar became a wholly owned subsidiary of Alliance, and Alliance thereafter changed its name to NutraStar Incorporated, a California corporation ("NutraStar
California"). In addition, several creditors of NutraStar, including the Company, agreed to cancel certain indebtedness owed by NutraStar in exchange for shares of NutraStar California's
Series A preferred stock. Pursuant to this arrangement, during December 2001 the Company agreed to cancel $190,000 of NutraStar's indebtedness in exchange for 190,000 shares of NutraStar
California's Series A preferred stock. Concurrent with the Reorganization, the Company and NutraStar entered into a new five-year exclusive distribution agreement (the "Exclusive
Distribution Agreement") whereby the Company granted NutraStar an exclusive license to sell certain RiceX brand products for distribution into the nutraceutical market. The Exclusive Distribution
Agreement covers the United States and all of its territories and any additional countries or regions of the countries that RiceX and NutraStar mutually agree upon in writing. NutraStar has agreed to
meet certain escalating minimum purchase requirements throughout the term of the contract. NutraStar has paid a $135,000 security deposit, which is recorded in other liabilities. A prepayment deposit
of fifty percent is required for each purchase order for the first six months of the agreement and decreases to zero as long as there are no defaults during the first twelve months. The agreement also
provides for the option to extend for two additional periods of five

41

---

years each. In exchange for the exclusive license in the nutraceutical market, the Company will receive license fees. Patricia McPeak, who resigned as president of the Company on March 31,
2000 retained her seat on the Company's Board of Directors until June 29, 2001 at which time her term expired. Ms. McPeak is an officer and director of NutraStar and also became an
officer and director of NutraStar California. She is the spouse of Daniel McPeak, Sr., Chairman of the Board and Chief Executive Officer of the Company.

In
September 2000, the Company finalized an agreement with a venture capital firm to convert a $2,500,000 note to equity (see Note 4). In connection with this transaction,
the Company issued common stock and warrants to two principle parties, one of which is GBV Intermark Fund, LLC. The manager of this fund was appointed to the Company's Board of Directors in
October 2000.

During
2001, the Company paid to an investor relations firm, who is a shareholder, approximately $80,000 for investor relations services.

NOTE 9INCOME TAXES

The provision for income taxes which is included in other expenses on the statement of operations consists of $1,600 for the years ended December 31, 2001
and 2000 which represents the state minimum tax.

Deferred
tax assets (liabilities) are comprised of the following:

DECEMBER 31,2001

2000Net operating loss carryforward

$
4,264,000

$
5,115,000Options and warrants





340,000Accrued reserves


118,000


36,000Research costs


872,000


747,000Accumulated depreciation


(254,000
)

(129,000
)Other


16,000


14,0005,016,000


6,123,000Less valuation allowance


(5,016,000
)

(6,123,000
)$


$



Deferred
taxes arise from temporary differences in the recognition of certain expenses for tax and financial statement purposes. At December 31, 2001, management determined that
realization of these
benefits is not assured and has provided a valuation allowance for the entire amount of such benefits. At December 31, 2001, net operating loss carryforwards were approximately $11,600,000 for
federal tax purposes that expire at various dates from 2009 through 2020 and $9,800,000 for state tax purposes that expire in 2003 through 2010.

Utilization
of net operating loss carryforwards may be subject to substantial annual limitations due to the "change in ownership" provisions of the internal revenue code and similar
state regulations. The annual limitation may result in expiration of net operating loss carryforwards before utilization.

42

---

NOTE 10SUPPLEMENTAL CASH FLOW INFORMATION AND NON CASH FINANCING ACTIVITIES

|                                             |                                                                              | YEARS ENDED DECEMBER 31, |  
|-------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------ | -
|
|Supplemental cash flow information:          |                                                                              |                          |  
|                                             | Cash paid for income taxes                                                   |                          | $
|                                             | Cash paid for interest expense                                               |                          | $
|Non cash investing and financing activities: |                                                                              |                          |  
|                                             | Issuance (rescission) of common stock for note receivable                    |                          | $
|                                             | Conversion of debt into equity                                               |                          | $
|                                             | Amortization/issuance of common stock for prepaid interest on debt financing |                          | $
|                                             | Amortization/issuance of warrants for debt issuance costs                    |                          | $
|                                             | Amortization/issuance of common stock and warrants for services              |                          | $
|                                             | Issuance of stock options to employees                                       |                          | $
|                                             | Issuance of stock to acquire equipment                                       |                          | $

NOTE 11EARNINGS PER SHARE

The
Company computes earnings per share (EPS) in accordance with SFAS No. 128,"Earnings per Share".SFAS No. 128 requires
the presentation of basic EPS, which does not consider the effect of common stock equivalents, and diluted EPS, which considers all dilutive common stock equivalents.

Year Ended December 31, 2001Income
(Numerator)

Shares
(Denominator)

Per-Share
AmountBasic EPSNet earnings

$
1,128,647

38,829,350

$
.03Effect of Dilutive SecuritiesStock options




37,975Diluted EPSNet earnings plus assumed conversions

$
1,128,647

38,867,325

$
.03


Options
and warrants to purchase 19,454,082 shares of common stock at a range of $0.38-$2.00 a share were outstanding during 2001. They were not included in the computation of diluted
EPS because the options' exercise price was greater than the average market price of the common shares.

Year Ended December 31, 2000Loss
(Numerator)

Shares
(Denominator)

Per-Share
AmountBasic EPSNet loss

$
(2,467,781
)
36,727,443

$
(.07
)Effect of Dilutive SecuritiesStock options




Diluted EPSNet loss plus assumed conversions

$
(2,467,781
)
36,727,443

$
(.07
)


43

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Options
and warrants to purchase 18,957,082 shares of common stock were outstanding during 2000. They were not included in the computation of diluted EPS because the options were
considered anti-dilutive.

NOTE 12FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of the Company's financial instruments approximated carrying value at December 31, 2001 and 2000. The Company's financial instruments
include cash and accounts receivable for which the carrying amount approximates fair value due to the short maturity of the instruments.

44

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Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

PART III

Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

NAME

AGE

POSITIONDaniel L. McPeak, Sr.

67

Class III Director, CEO, and Chairman of the BoardPatricia McPeak (1)(2)

61

Class III DirectorKirit S. Kamdar (2)

60

Class I DirectorSteven W. Saunders (3)

46

Class I DirectorKenneth L. Miller (3)

57

Class II DirectorTodd C. Crow

53

Class III Director, Vice President Finance & CFOIke E. Lynch

57

Vice President of OperationsDaniel L. McPeak, Jr.

42

Vice President and General Manager


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DIRECTORS AND EXECUTIVE OFFICERS

DANIEL L. MCPEAK. Mr. McPeak co-founded the Company in February 1989 and has served as Chairman of the Board of the Company since its
formation. In November 1998, Mr. McPeak was re-appointed Chief Executive Officer ("CEO") of the Company. Mr. McPeak previously served as CEO of the Company from
May 1989 to April 1997. Mr. McPeak is the spouse of Ms. McPeak and the father of Daniel L. McPeak, Jr. Mr. McPeak will serve as a Class III Director until the
election of Directors in 2004.

PATRICIA
MCPEAK. Ms. McPeak co-founded the Company in February 1989 and served as President from its formation until March 31, 2000. From
February 1989 to January 1996, Ms. McPeak also served as Secretary of the Company. On February 5, 1999, the Board of Directors approved Ms. McPeak's formation of a
retail nutraceutical company and her resignation as President at a future date. On March 31, 2000, Ms. McPeak resigned as President and retained her seat on the Company's Board of
Directors, as a Class III Director, until the expiration of her term, June 29, 2001. Since April 1, 2000, Ms. McPeak has been President and CEO of NutraStar, Incorporated,
which has the license to sell RiceX products in the nutraceutical market. Ms. McPeak is the spouse of Mr. McPeak.

KIRIT
S. KAMDAR. Mr. Kamdar has served as a Class I Director of the Company since August 1998 and will serve until the next election of Directors in 2002. From
January 1990 to September 1992, Mr. Kamdar also served as Director of the Company, and from January 1990 to April 1994 as the Company's Executive Vice President.
Since July 1974, Mr. Kamdar has been Chairman of the Board and Chief Executive Officer of Kamflex Corporation, a manufacturing corporation.

STEVEN
W. SAUNDERS. Mr. Saunders has served as a Class I Director of the Company since August 1998 and will serve until the next election of Directors in 2002.
Mr. Saunders has been

45

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President of Saunders Construction, Inc., a commercial construction firm since February 7, 1991 and President of Warwick Corporation, a business-consulting firm.

KENNETH
L. MILLER. Mr. Miller has served as a Class II Director of the Company since October 2000 and will serve until the next election of Directors in 2003.
Mr. Miller co-founded Granite Bay Ventures, LLC, a venture capital firm, and has served as Senior Partner from January 1999 to present. From March 1995 to present,
Mr. Miller has served as a self-employed consultant focusing on marketing and strategic planning. From November 1999 to the present, Mr. Miller has served as a
Director of Polymer Bioscience, Inc., a medical device company. From November 1998 to the present, Mr. Miller has served as a Director of Digital Doc, Inc., a dental
technology company. From 1991 to 1996, Mr Miller served as Senior Vice President of Field Operations for LeFebure Corporation, a bank equipment manufacturing company. From 1979 to 1991,
Mr. Miller held various positions including Director of Marketing and Vice President, General Manager of the Mosler Division of American Standard, Inc., an electronics systems firm. From
1971 to 1979, Mr. Miller held various senior financial and management positions in the moving and storage industry.

TODD
C. CROW. Mr. Crow has served as a Class III Director of the Company since June 2001 and will serve until the next election of Directors in 2004. Mr. Crow
joined the Company in May 1996 and has been the Company's Vice President of Finance and Chief Financial Officer since November 1998 and its Secretary since January 1999. From
September 1997 to November 1998, Mr. Crow was the Company's Controller. From May 1996 to September 1997 he was the Company's Chief Financial Officer. Mr. Crow
also served as a Director of the Company from June 1996 to January 1997. From 1989 until joining The RiceX Company, Mr. Crow held senior financial positions with the Morning Star
Group, an agri-business holding company, and Harter, Inc., a food-processing manufacturer.

IKE
E. LYNCH. Mr. Lynch currently serves as Vice President of Operations and International Business Development for the RiceX Company and President and Chief Operating Officer of
Food ExtrusionMontana, positions which he has held since January 1997. From 1966 through 1982, Mr. Lynch was employed by the H. J. Heinz Company in various Management roles,
culminating with the President and CEO position of the Hubinger Company, a subsidiary of Heinz. In 1982 Mr. Lynch left Heinz to become President and CEO of Dawn Enterprises a LLC, specializing
in Ethanol production and marketing. Mr. Lynch left Dawn Enterprises in 1989 to form Centennial Foods, Incorporated where he served as President and Chief Executive Officer until the
acquisition of Centennial by RiceX in 1997.

DANIEL
L. MCPEAK, JR. Mr. McPeak joined the Company in July 1996 and has been the Company's Vice President and General Manager since November 1998. From
July 1996 to July 1997, he served as Director of Sales and Marketing, then moved to the position of Business Manager until November 1998. From 1994 until joining the Company,
Mr. McPeak served as Vice President of Marketing for Fort Knox, Inc., a security products manufacturer. Daniel L. McPeak, Jr. is the son of Daniel L. McPeak, Sr.

BOARD OF DIRECTORS

The Board of Directors is classified into three classes, designated Class I, Class II and Class III. The term of office of the initial
Class I Directors shall expire at the first regularly scheduled meeting of the stockholders following the effective date of the Certificate of Incorporation (August 4, 1998); the term of
office of the initial Class II Directors shall expire at the second annual meeting of the stockholders following the effective date and the term of the initial Class III Directors shall
expire at the third annual meeting of the stockholders following the effective date. The classification of the Board of Directors has the effect of generally requiring at least two annual stockholder
meetings, instead of one, to replace a majority of the members of the Board of Directors.

46

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BOARD COMMITTEES

The Board of Directors has established an Audit Committee and a Compensation Committee.

The
Audit Committee, consisting of Steven Saunders and Kenneth Miller, reviews the adequacy of internal controls and results and scope of the audit and other services provided by the
Company's independent auditors. The Audit Committee meets periodically with management and the independent auditors.

The
Compensation Committee, Kirit Kamdar, establishes salaries, incentives and other forms of compensation for officers and other employees of the Company, and administers the incentive
compensation and benefit plans of the Company.

SECTION 16(a) COMPLIANCE

Based upon a review of the Company's records, the Company is not aware of any officers or directors of the Company that failed to timely file one or more reports
disclosing beneficial ownership of securities of the Company as required under Section 16(a) of the Securities Exchange Act of 1934, as amended, during the fiscal year ended December 31,
2001.

Item 10. EXECUTIVE COMPENSATION

The following table sets forth the total compensation for the Chief Executive Officer and each of the Company's current executive officers and one former officer
whose total salary and bonuses for fiscal 2000 and 2001 exceeded $100,000 or would have exceeded $100,000 on an annualized basis (collectively, the "Named Executive Officers").

47

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SUMMARY COMPENSATION TABLE

|                                                                                 |  |                |  |     |                         |     |   | Long Term
Compensation
|-------------------------------------------------------------------------------- |  | -------------- |  | --- | ----------------------- | --- | - | ----------------------
|
|
|
|Daniel L. McPeak, Sr. (1)
Chairman of the Board,
Chief Executive Officer         |  | 2001
2000
1999 |  | $$$ | 250,000
233,077
149,126 |     | $ | 

16,251            
|Ike E. Lynch
VP Operations and
Chief Operating Officer of
Food Extrusion Montana |  | 2001
2000
1999 |  | $$$ | 135,000
131,538
124,592 |     |   | 

                 
|Todd C. Crow (3)
Chief Financial Officer                                         |  | 2001
2000
1999 |  | $$$ | 135,000
138,538
98,884  |     |   | 

                 
|Daniel L. McPeak, Jr. (4)
Executive VP,
General Manager                          |  | 2001
2000
1999 |  | $$$ | 135,000
131,538
98,940  |     | $ | 

9,900             
|Allen J. Simon (Terminated) (1)                                                  |  | 2001
2000
1999 |  | $   | 

20,833              | (6) |   |                       

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48

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OPTION ACTIVITY IN 2001 TO EXECUTIVES

The following table sets forth for each of the Named Executive Officers certain information concerning stock options activity granted during 2001.

|Name               |  | Number of
Securities
Underlying
Options/SARs
Granted (#) |   | Percent of Total
Options/SARs
Granted to
Employees in
Fiscal Year |   | Exercise
Price
($/Sh) |      | Market
Price
($/Sh) |   | Expiration
Date
|------------------ |  | -------------------------------------------------------- | - | ----------------------------------------------------------------- | - | --------------------- | ---- | ------------------- | - | ---------------
|Daniel McPeak, Sr. |  | 150,000(1                                                | ) | 16                                                                | % | $                     | 0.39 |                     | $ | 0.39           
|Daniel McPeak, Sr. |  | 50,000(2                                                 | ) | 5                                                                 | % | $                     | 0.40 |                     | $ | 0.40           
|Todd C. Crow       |  | 150,000(1                                                | ) | 5                                                                 | % | $                     | 0.39 |                     | $ | 0.39           

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STOCK OPTION EXERCISES AND YEAR-END VALUE TABLE

The table below reflects the number of shares covered by both exercisable and non-exercisable stock options as of December 31, 2001 for the
Named Executive Officers. Values for "in-the-money" options represent the position spread between the exercise price of existing options and the market value for the Company's
common stock on December 31, 2001.

|     |  |  |  |  |  | Number of
Unexercised Options |  | Value of Unexercised
In-the-Money Options
|---- |  |  |  |  |  | ----------------------------- |  | -----------------------------------------
|
|
|None |  |  |  |  |  |                               |  |                                          

DIRECTOR COMPENSATION

On July 9, 1997, the Board of Directors adopted a non-employee director compensation plan pursuant to which non-employee directors
are compensated as follows: (i) $15,000 annual retainer payable in quarterly installments for participation at up to six meetings of the Board of Directors; (ii) an immediately
exercisable, nonqualified stock option to purchase 50,000 shares of common stock to be granted upon appointment to the Board of Directors, and (iii) an immediately exercisable, nonqualified
stock option to purchase 15,000 shares of common stock to be granted on the day of each annual shareholders' meeting during the non-employee director's service on the Board of Directors.
Such options are to be granted as free-standing options and not under the 1997 Stock Option Plan. The exercise price shall be the fair market value of a share of common stock on the date
of grant. On April 27, 1999 the Board voted to temporarily suspend the grant of options with payment of retainer to the Board of Directors. Directors are also reimbursed for reasonable expenses
incurred in attending meetings of the Board of Directors and committees thereof. Effective February 22, 2001, the options program was reinstated and amended. The amendments include issuing
options to purchase 50,000 shares of the Company's common stock to each Board member on the anniversary of their appointment as Board member. The options will be fully vested at the end of one year,
or to the anniversary date. Should a member leave prior to 100 percent vesting, the options shares will be prorated to the vested period. The Director annual retainer fee remains suspended.

49

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EMPLOYMENT AGREEMENTS

MCPEAK EMPLOYMENT AGREEMENT. The Company entered into an Employment Agreement with Daniel L. McPeak, Sr. in April 2000 (the "McPeak Employment Agreement"),
pursuant to which Mr. McPeak agreed to serve as Chairman of the Board of Directors and as Chief Executive Officer of the Company. The McPeak Employment Agreement provides that Mr. McPeak
will receive an annual base salary of $250,000. The McPeak Employment Agreement terminates on March 31, 2003, unless his employment is terminated earlier. Thereafter, for a
five-year period commencing April 1, 2003 and ending on March 31, 2008, the employment agreement will convert to a consulting agreement with the Company. During the
consulting period, the Company shall pay a base of $125,000 per year. If during the term of the consulting period, the Company's annual sales revenues reach or exceed $12,000,000, the consulting fee
shall be increased to $175,000 per year. The term will be automatically extended for additional one-year periods unless either party delivers notice of election not to extend the
employment at least 60 days prior to the end of the then current term. Mr. McPeak's employment may be terminated prior to the expiration of this agreement under the following
circumstances: (i) death; (ii) termination by the Company for Cause (as defined in the McPeak Employment Agreement); (iii) termination by the Company without Cause (as defined in
the McPeak Employment Agreement). If Mr. McPeak is terminated without Cause, he is entitled to the base salary in effect at such time for the remainder of the term of the McPeak Employment
Agreement. Within six months of first receiving notice of a Change in Control (as defined in the McPeak Employment Agreement) Mr. McPeak may elect to retire from service and render, on a
non-exclusive basis, only such consulting and advisory services to the Company as he may reasonably accept and he is entitled to continue receiving his benefits and salary until the latter
of (i) six months after the date of such election, (ii) subsequent full-time employment with another enterprise, or (iii) the expiration of the term of the McPeak
Employment Agreement.

LYNCH
EMPLOYMENT AGREEMENT. In May 1999, the Company entered into an Employment Agreement with Mr. Ike E. Lynch (the "Lynch Employment Agreement"), pursuant to which
Mr. Lynch agreed to serve as Vice President of Operations for the Company and Chief Operating Officer for the Company's subsidiary, Food Extrusion Montana. The Lynch Employment Agreement
provides that Mr. Lynch will receive an annual base salary of $125,000, which was increased to $135,000 on May 1, 2000, and will be reviewed annually. The Lynch Employment Agreement
terminates on May 1, 2004, unless his employment is terminated earlier. Thereafter, the term will be automatically extended for an additional five-year term unless either party
delivers notice of election not to extend the employment at least 90 days prior to the expiration of the initial term. Mr. Lynch's employment may be terminated prior to the expiration of
the agreement under the following circumstances: (i) the mutual written agreement of the Company and Mr. Lynch; (ii) Mr. Lynch's disability, which shall, for the purposes
of the Lynch Employment Agreement, mean Mr. Lynch's inability due to physical or mental impairment, to perform Mr. Lynch's duties and obligations under the Lynch Employment Agreement,
despite reasonable accommodation by the Company, for a period exceeding three months; (iii) Mr. Lynch's death; (iv) notice of termination by the Company for cause (as defined in
the Lynch Employment Agreement); or (v) written notice of termination by the Company without cause upon fourteen (14) days notice, subject to the compensation for early termination. If
Mr. Lynch is terminated without cause, the Company shall pay to Mr. Lynch as liquidated damages and in lieu of any and all other claims which Mr. Lynch may have against the
Company the amount equal to Mr. Lynch's monthly base salary multiplied by the number of months remaining in the term of this Agreement, or a payment amount equal to two years of
Mr. Lynch's base salary, whichever is greater.

CROW
EMPLOYMENT AGREEMENT. In May 1999, the Company entered into an Employment Agreement with Mr. Todd C. Crow (the "Crow Employment Agreement"), pursuant to which
Mr. Crow agreed to serve as Chief Financial Officer of the Company. The Crow Employment Agreement

50

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provides that Mr. Crow will receive an annual base salary of $125,000, which was increased to $135,000 on May 1, 2000, and will be reviewed annually. The Crow Employment Agreement
terminates on May 1, 2004, unless his employment is terminated earlier. Thereafter, the term will be automatically extended for an additional five-year term unless either party
delivers notice of election not to extend the employment at least 90 days prior to the expiration of the initial term. Mr. Crow's employment may be terminated prior to the expiration of
the agreement under the following circumstances: (i) the mutual written agreement of the Company and Mr. Crow; (ii) Mr. Crow's disability, which shall, for the purposes of
the Crow Employment Agreement, mean Mr. Crow's inability due to physical or mental impairment, to perform Mr. Crow's duties and obligations under the Crow Employment Agreement, despite
reasonable accommodation by the Company, for a period exceeding three months; (iii) Mr. Crow's death; (iv) notice of termination by the Company for cause (as defined in the Crow
Employment Agreement); or (v) written notice of termination by the Company without cause upon fourteen (14) days notice, subject to the compensation for early termination. If
Mr. Crow is terminated without cause, the Company shall pay to Mr. Crow as liquidated damages and in lieu of any and all other claims which Mr. Crow may have against the Company
the amount equal to Mr. Crow's monthly base salary multiplied by the number of months remaining in the term of this Agreement, or a payment amount equal to two years of Mr. Crow's base
salary, whichever is greater.

MCPEAK,
JR. EMPLOYMENT AGREEMENT. In May 1999, the Company entered into an Employment Agreement with Daniel L. McPeak, Jr. (the "McPeak, Jr. Employment Agreement"),
pursuant to which Mr. McPeak agreed to serve as Executive Vice President and General Manager for the Company. The McPeak, Jr. Employment Agreement provides that Mr. McPeak will receive
an annual base salary of $125,000 which was increased to $135,000 on May 1, 2000, and will be reviewed annually. The McPeak, Jr. Employment Agreement terminates on May 1, 2004, unless
his employment is terminated earlier. Thereafter, the term will be automatically extended for an additional five-year term unless either party delivers notice of election not to extend the
employment at least 90 days prior to the expiration of the initial term. Mr. McPeak's employment may be terminated prior to the expiration of the agreement under the following
circumstances: (i) the mutual written agreement of the Company and Mr. McPeak; (ii) Mr. McPeak's disability, which shall, for the purposes of the McPeak, Jr. Employment
Agreement, mean Mr. McPeak's inability due to physical or mental impairment, to perform Mr. McPeak's duties and obligations under the McPeak Jr. Employment Agreement, despite reasonable
accommodation by the Company, for a period exceeding three months; (iii) Mr. McPeak's death; (iv) notice of termination by the Company for cause (as defined in the McPeak, Jr.
Employment Agreement); or (v) written notice of termination by the Company without cause upon fourteen (14) days notice, subject to the compensation for early termination. If
Mr. McPeak is terminated without cause, the Company shall pay to Mr. McPeak as liquidated damages and in lieu of any and all other claims which Mr. McPeak may have against the
Company the amount equal to Mr. McPeak's monthly base salary multiplied by the number of months remaining in the term of this Agreement, or a payment amount equal to two years of
Mr. McPeak's base salary, whichever is greater.

1997 STOCK OPTION PLAN

The Board of Directors adopted the 1997 Stock Option Plan (the "1997 Plan") in November 1997 and the shareholders approved the 1997 Plan in
May 1998. At the meeting of shareholders of the Company held on June 29, 2001, the shareholders approved increasing authorized shares of common stock to be issued under the Company's
1997 Stock Option Plan from 5,000,000 to 10,000,000 increasing the number of reserved shares of common stock from 5,000,000 shares to 10,000,000 shares. As of December 31, 2001 a total of
4,331,000 shares are available for future grant. The 1997 Plan provides for the grant of "incentive stock options" as defined in Section 422A of the Internal Revenue Code of 1986, as amended
(the "Code"), to employees of the Company. The 1997 Plan also provides for the grant of options that are not intended to qualify as incentive stock options under Section 422A

51

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of the Code to employees, non-employee directors and consultants of the Company. The exercise price of any incentive stock option granted under the 1997 Plan may not be less than 100% of
the fair market value of the Company's common stock on the date of grant and of any nonqualified stock option 85% of fair market value and 110% of fair market value in the case of a participant owning
stock possessing more than 10% of the voting rights of the Company's outstanding capital stock. Shares subject to an option granted under the 1997 Plan may be purchased for cash, in exchange for
shares of common stock owned by the optionee, or other consideration as set forth in the 1997 Plan. The Board of Directors administers the 1997 Plan. Under the 1997 Plan, options vest not less than
20% per year and have ten year terms (except with respect to 10% stockholders which have five-year terms). If the Company sells substantially all of its assets, is a party to a merger or
consolidation in which it is not the surviving corporation (a "Change of Control"), then the Company has the right to accelerate unvested options and shall give the option holder written notice of the
exercisability and specify a time period in which the option may be exercised. All options shall terminate in their entirety to the extent not
exercised on or prior to the date specified in the written notice unless the agreement governing the Change of Control shall provide otherwise.

Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information as of March 1, 2002 (the "Reference Date") with respect to the beneficial ownership of common stock of
the Company, by each person known by the Company to own beneficially more than five percent of the Company's common stock, by each executive officer and director, and by all officers and directors as
a group. Unless otherwise indicated, all persons have sole voting and investment powers over such shares, subject to community property laws. As of the Reference Date, there were 38,829,350 shares of
Common Stock outstanding and unexercised warrants and options representing 27,168,369 shares.

|Name (1)                                                                           |  | Amount & Nature
of Beneficial Owner (2) |   | Percent
of Class |  
|---------------------------------------------------------------------------------- |  | --------------------------------------- | - | ---------------- | -
|Monsanto
800 N. Lindbergh, St. Louis, MO 63167                                     |  | 7,167,479                               |   | 10.86            | %
|GBV Intermark Fund, LLC
2998 Douglas Blvd., Roseville, CA 95661                    |  | 5,803,574(3                             | ) | 8.79             | %
|Gilbert L. McCord, Sr.
7029 E. Hill Road, Grand Blac, MI 48439                     |  | 5,803,571(4                             | ) | 8.79             | %
|Daniel L. McPeak, Sr., Chairman of the Board
and Chief Executive Officer           |  | 5,774,095(5                             | ) | 8.75             | %
|Intermark Partners Strategic Management, LLC
484 East Carmel Dr., Carmel, IN 46032 |  | 5,078,215(6                             | ) | 7.69             | %
|Kirit Kamdar, Director                                                             |  | 1,951,250(7                             | ) |                  |  
|Steven W. Saunders, Director                                                       |  | 1,000,000(7                             | ) |                  |  
|Kenneth L. Miller, Director                                                        |  | 250,000(7                               | ) |                  |  
|Todd C. Crow, Chief Financial Officer                                              |  | 1,160,000(7                             | ) |                  |  
|Ike E. Lynch, V.P. Operations                                                      |  | 1,348,535(7                             | ) |                  |  
|Daniel L. McPeak, Jr., V.P. General Manager                                        |  | 965,500(7                               | ) |                  |  
|All directors and executive officers,
as a group (7 persons)                       |  | 12,449,380                              |   | 18.86            | %

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52

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Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Mr. Daniel McPeak, Sr. has served as Chairman of the Board of the Company since its formation in 1989. In November 1998, Mr. McPeak was
re-appointed Chief Executive Officer ("CEO") of the Company. Mr. McPeak previously served as CEO of the Company from May 1989 to April 1997. Mr. McPeak is the
spouse of Ms. Patricia McPeak and the father of Daniel L. McPeak, Jr. In February 2001, the Company issued Mr. McPeak non-statutory stock option agreements to purchase
150,000 shares of common stock at an exercise price of $.39 per share. Market price on the date of grant was $.39 per share. These options were fully vested upon date of grant. Expiration date of the
option agreements are February 22, 2011. Upon the anniversary date of Mr. McPeak appointment to the Board, in June, 2001 the Company issued him a non-statutory stock option
agreement to purchase 50,000 shares of common stock at an exercise price of $.40 per share. Market price on the date of grant was $.40 per share. The option will be fully vested at the end of one
year, or to the anniversary date. Expiration date of the option agreement is June 1, 2011. See Part III, Item 9, "Director Compensation" for further discussions. In April 2000,
the Company issued Mr. McPeak a non-statutory stock option agreement to purchase 2,000,000 shares of common stock at an exercise price of $.79 per share. One half of the options,
1,000,000 shares were fully vested upon date of grant. On April 1, 2001, the remaining 1,000,000 option shares will be fully vested with an exercise price of $.79 per share. Expiration date of
the option agreement is April 1, 2010. These stock options were issued in accordance with the Company's Employee Stock Option program that was ratified by the Board of Directors in 1997.

Ms. Patricia
McPeak served as a Director of the Company from its formation in 1989 until the expiration of her term on June 29, 2001. From February 1989 to
March 2000, Ms. McPeak also served as President of the Company. In February 2001, the Company issued Ms. McPeak a non-statutory stock option agreement to
purchase 150,000 shares of common stock at an exercise price of $.39 per share. Market price on the date of grant was $.39 per share. These options were fully vested upon date of grant. Upon the
anniversary date of Ms. McPeak appointment to the Board, in June, 2001 the

53

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Company issued her a non-statutory stock option agreement to purchase 50,000 shares of common stock at an exercise price of $.40 per share. Market price on the date of grant was $.40 per
share. These options will be fully vested at the end of one year, or to the anniversary date. In accordance with the non-statutory stock option agreement, these options will expire
90 days after the Board member leaves the Board of Directors. See Part III, Item 9, "Director Compensation" for further discussions. Since Ms. McPeak's directorship ended on
June 29, 2001 and she did not exercise her stock options, the non-statutory stock option agreements expired effective September 29, 2001. During 2000, the Company entered
into an exclusive distribution agreement (the "Original Agreement") with NutraStar Incorporated, a Nevada corporation ("NutraStar") to develop products and market them into the nutraceutical and value
added functional foods markets for human nutrition. Under this arrangement, during the year 2000 the Company recognized sales to NutraStar of $622,000. By year end 2000
NutraStar had not finalized its structural funding and consequently in early 2001 the Company established a reserve of $250,000 against a receivable from NutraStar at December 31, 2000 and
suspended NutraStar's exclusivity arrangement under the Original Agreement. The Original Agreement between RiceX and NutraStar subsequently was canceled in 2001 because of issues related to payment
for outstanding goods shipped by the Company. In late 2001, NutraStar entered into a plan and agreement of exchange (the "Reorganization") dated November 9, 2001 with Alliance Consumer
International, Inc. ("Alliance"). Pursuant to the Reorganization, NutraStar became a wholly owned subsidiary of Alliance, and Alliance thereafter changed its name to NutraStar Incorporated, a
California corporation ("NutraStar California"). In addition, several creditors of NutraStar, including the Company, agreed to cancel certain indebtedness owed by NutraStar in exchange for shares of
NutraStar California's Series A preferred stock. Pursuant to this arrangement, during December 2001 the Company agreed to cancel $190,000 of NutraStar's indebtedness in exchange for
190,000 shares of NutraStar California's Series A preferred stock. Concurrent with the Reorganization, the Company and NutraStar entered into a new exclusive distribution agreement (the
"Exclusive Distribution Agreement") whereby the Company granted NutraStar an exclusive license to sell certain RiceX brand products for distribution into the nutraceutical market. The Exclusive
Distribution Agreement covers the United States and all of its territories and any additional countries or regions of the countries that RiceX and NutraStar mutually agree upon in writing. Patricia
McPeak, who resigned as president of the Company on March 31, 2000 retained her seat on the Company's Board of Directors until June 29, 2001 at which time her term expired.
Ms. McPeak is an officer and director of NutraStar and also became an officer and director of NutraStar California. She is the spouse of Daniel L. McPeak, Sr., Chairman of the Board and Chief
Executive Officer of the Company. See Part II, Item 7, "Financial Statements" for further discussions of NutraStar.

Mr. Kirit
Kamdar has been a Director of the Company since August 5, 1998 and was a Director of the Company from January 1990 to September 1992. From
January 1990 to April 1994, Mr. Kamdar served as the Company's Executive Vice President. In February 2001, the Company issued Mr. Kamdar non-statutory
stock option agreements to purchase 100,000 shares of common stock at an exercise price of $.39 per share. Market price on the date of grant was $.39 per share. These options were fully vested upon
date of grant. Expiration date of the option agreements are February 22, 2011. Upon the anniversary date of Mr. Kamdar appointment to the Board, in September, 2001 the Company issued him
a non-statutory stock option agreement to purchase 50,000 shares of common stock at an exercise price of $.30 per share. Market price on the date of grant was $.30 per share. The option
will be fully vested at the end of one year, or to the anniversary date. Expiration date of the option agreement is September 23, 2011. See Part III, Item 9, "Director Compensation" for
further discussions. Mr. Kamdar currently owns 1,951,250 shares of the Company's common stock and common stock options, or 2.96%. Since July 1974, Mr. Kamdar has been Chairman of
the Board and Chief Executive Officer of Kamflex Corporation, ("Kamflex"), a manufacturer of extrusion and conveyor equipment. The Company did not purchase any equipment from Kamflex in 2000 and 2001.

54

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Mr. Kenneth
Miller has been a director of the Company since October 2000 and currently is Manager of GBV Intermark Fund LLC. In September 2000, the Company finalized
an agreement with a venture capital firm to convert a $2,500,000 note to equity. On September 29, 2000, the Company converted the note for 3,571,429 shares of common stock and warrants to
purchase 3,571,429 shares of common stock at $.70 per share. The market price on the date of grant was $.55 per share. These warrants are immediately exercisable and have a term of five years. In
connection with this conversion, the Company
also granted additional warrants to purchase up to 4,464,285 shares of common stock at $.70 per share. These additional warrants are exercisable at any time during the five-year period
commencing from the date of grant. The warrant shares are restricted from sale and, or transfer until such time when the Company's revenues at various stages reach an annualized equivalent of
$12,000,000 and $25,000,000. In connection with this transaction, the Company issued common stock and warrants to two principle parties, one of which was GBV Intermark Fund, LLC. In
February 2001, the Company issued Mr. Miller a non-statutory stock option agreement to purchase 50,000 shares of common stock at an exercise price of $.39 per share. Market
price on the date of grant was $.39 per share. The option was fully vested upon date of grant. Expiration date of the option agreements are February 22, 2011. Upon the anniversary date of
Mr. Miller appointment to the Board, in September, 2001 the Company issued him a non-statutory stock option agreement to purchase 50,000 shares of common stock at an exercise price
of $.34 per share. Market price on the date of grant was $.34 per share. The option will be fully vested at the end of one year, or to the anniversary date. Expiration date of the option agreement is
September 29, 2011. See Part III, Item 9, "Director Compensation" for further discussions.

In
November 1999, the Company issued 1,500,000 shares of common stock to three executives pursuant to the exercise of some of their stock options and received promissory notes in
the amount of $1,078,000. In June 2000, the executives rescinded the exercise of these stock options and promissory notes. These stock options were issued in accordance with the Company's
Employee Stock Option program that was ratified by the Board of Directors in 1997.

In
May 2000, the Company issued 1,200,000 shares of common stock to three executives pursuant to the exercise of some of their stock options and received promissory notes in the
amount of $863,000. In June 2000, the executives rescinded the exercise of these stock options and promissory notes. These stock options were issued in accordance with the Company's Employee
Stock Option program that was ratified by the Board of Directors in 1997.

During
June 2000, the Company and three executive officers rescinded the exercise of 2,700,000 stock options priced at $.72 per share and promissory notes in the total amount of
$1,941,000 given as payment for the exercise price. On account of the rescission, the executive officers returned to the Company the shares of common stock purchased pursuant to the exercise of the
options. The rescission of the exercise of the options restores the Company and the executive officers to the positions they occupied prior to the exercise. The 2,700,000 stock options may be
exercised in the future at the $.72 per share exercise price until expired.

The
Company believes that the transactions set forth above were made on terms no less favorable to the Company than could have been obtained from unaffiliated third parties. The Company
intends that all future transactions, including loans, between the Company and its officers, directors, principal stockholders and their affiliates be approved by a majority of the Board of Directors,
including a majority of the independent and disinterested outside directors on the Board of Directors, and be on terms no less favorable to the Company than could be obtained from unaffiliated third
parties.

55

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Item 13. EXHIBITS AND REPORTS ON FORM 8-K

|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         |  | Form of Registration Rights Agreement between the Company and certain officers and directors. (1)                                                                                 
|4.2         |  | Form of Warrant Agreement between the Company and certain investors dated February 9, 1996. (1)                                                                                   
|4.3         |  | Letter Agreement between the Company and certain investors dated January 15, 1999. (5)                                                                                            
|4.4         |  | Shareholders Agreement between CF Corporation (formerly Centennial Foods, Inc.) and the Company dated March 19, 1997. (1)                                                         
|4.5         |  | Amendment No. 1 to the Shareholders Agreement between CF Corporation and the Company dated January 15, 1999. (5)                                                                  
|4.6         |  | Registration Rights Agreement between the Company and CF Corporation dated January 22, 1999. (5)                                                                                  
|4.7         |  | Form of Directors Stock Option Agreement. (1)(3)                                                                                                                                  
|4.8         |  | 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)                           
|4.9         |  | Creditor Agreement between Centennial Foods, Inc., the Company and Ike Lynch dated October 14, 1996. (1)                                                                          
|4.10        |  | Creditor Agreement between Centennial Foods, Inc., the Company and Montana Department of Environmental Quality dated October 18, 1996. (1)                                        
|4.11        |  | 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)
|4.12        |  | Assignment of Subordination Agreements and Negotiable Collateral between Seattle-First National Bank and Company 19 General Partnership dated March 4, 1996.(1)                   
|4.13        |  | Creditor Agreement between Centennial Foods, Inc. and Company 19 General partnership dated October 14, 1996. (1)                                                                  
|4.14        |  | Form of Subordination Agreement between certain creditors of Centennial Foods, Inc. in favor of Seafirst. (1)                                                                     
|4.15        |  | Creditor's Agreement between Centennial Foods and Montana Department of Commerce dated October 11, 1996. (1)                                                                      
|4.16        |  | Form of Creditor's Agreement between Centennial Foods, Inc. and certain convertible note holders. (1)                                                                             
|4.17        |  | Amended and Restated Loan Agreement between the Company and FoodCeuticals dated as of December 31, 1998. (5)                                                                      
|4.18        |  | Promissory Note in the amount of $1,850,000 payable to FoodCeuticals dated December 31, 1998. (5)                                                                                 
|4.19        |  | Registration Rights Agreement between the Company and FoodCeuticals dated December 31, 1998. (5)                                                                                  
|4.20        |  | Warrant Agreement number 98-1 between the Company and FoodCeuticals dated December 31, 1998. (5)                                                                                  
|4.21        |  | Warrant Agreement number 99-1 between the Company and FoodCeuticals dated January 15, 1999. (5)                                                                                   
|4.22        |  | Security Agreement between the Company and FoodCeuticals dated December 31, 1998. (5)                                                                                             

56

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|4.23 |  | Form of Warrant Agreement between the Company and certain former officers of the Company dated as of December 1998. (5)                                                                                                                                                                                                                 
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.24 |  | Subscription Agreement between the Company and Heldomo, A.G. dated September 10, 1998. (5)                                                                                                                                                                                                                                              
|4.25 |  | Warrant Agreement between the Company and Heldomo, A.G. dated September 10, 1998. (5)                                                                                                                                                                                                                                                   
|4.26 |  | Warrant Agreement between the Company and Dorchester Group dated April 26, 1999. (6)                                                                                                                                                                                                                                                    
|4.27 |  | 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)                                                                                                                                                                                    
|4.28 |  | Warrant Agreement between the Company and JDK & Associates dated November 1, 1999. (6)                                                                                                                                                                                                                                                  
|4.29 |  | 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)
|4.30 |  | Form of Subscription Agreement to the Private Placement Offering 1999. (6)                                                                                                                                                                                                                                                              
|4.31 |  | Form of Warrant Agreement to the Private Placement Offering 1999. (6)                                                                                                                                                                                                                                                                   
|4.32 |  | 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)                                                                                                                                                                                       
|4.33 |  | Warrant agreement between the Company and GBV Intermark Fund, LLC dated September 29, 2000. (9)                                                                                                                                                                                                                                         
|4.34 |  | Warrant agreement between the Company and Gilbert L. McCord, Sr. dated September 29, 2000. (9)                                                                                                                                                                                                                                          
|4.35 |  | Definitive agreement between the Company and Intermark Partners, LLC dated September 29, 2000. (9)                                                                                                                                                                                                                                      
|4.36 |  | Form of Warrant Agreement between the Company and certain former employees dated as of March 31, 2000. (10)                                                                                                                                                                                                                             
|4.37 |  | 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)                                                                                                                                                                              
|4.38 |  | Warrant agreement between the Company and Intermark Partners Strategic Management, LLC representing the Class I Warrant dated October 2, 2000. (10)                                                                                                                                                                                     
|4.39 |  | Warrant agreement between the Company and Intermark Partners Strategic Management, LLC representing the Class II Warrant dated October 2, 2000. (10)                                                                                                                                                                                    
|4.40 |  | Warrant agreement between the Company and Intermark Partners Strategic Management, LLC representing the Class III Warrant dated October 2, 2000. (10)                                                                                                                                                                                   
|4.41 |  | 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, September 23 and 29, 2001. (12)                                                                                                                                    
|4.42 |  | Preferred Stock Subscription Agreement between the Company and Alliance Consumer International, subsequently named NutraStar, Inc., dated December 10, 2001.                                                                                                                                                                            
|4.43 |  | Alliance Consumer International, Inc. Exchange Offer For The Common Stock Of NutraStar dated December 11, 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)                                                                                                                                                                                                                                                

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|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 |  | Security Agreement between CF Corporation, Food Extrusion Montana, Inc. and the Company dated March 19, 1997. (1)                                                          
|10.14 |  | Commercial Lease and Deposit Receipt between Roebbelen Land Company and the Company dated December 23, 1991. (1)                                                           
|10.15 |  | First Amendment of Lease between Roebbelen Land Company and the Company dated January 19, 1994. (1)                                                                        
|10.16 |  | Second Amendment of Lease between Roebbelen Land Company and the Company dated July 11, 1996. (1)                                                                          
|10.17 |  | Third Amendment of Lease Agreement between Roebbelen Land Company and the Company dated February 1, 1998. (1)                                                              
|10.18 |  | Lease Agreement between Roebbelen Land Company and the Company dated July 11, 1996. (1)                                                                                    
|10.19 |  | First Amendment of Lease between Roebbelen Land Company and the Company dated September 1996. (1)                                                                          
|10.20 |  | Second Amendment of Lease Agreement between Roebbelen Land Company and the Company dated February 1, 1998. (1)                                                             
|10.21 |  | Asset Purchase Agreement between Centennial Foods, Inc., Food Extrusion Montana, Inc. and the Company dated January 2, 1997. (1)                                           
|10.22 |  | Executive Employment Agreement for Daniel L. McPeak Jr., Executives Todd C. Crow and Ike Lynch have similar employment agreements. (3)                                     
|10.23 |  | Intermark Partners, LLC Addendum to Letter of Intent to Invest, Agreement in Principal dated November 16, 1999. (6)                                                        
|10.24 |  | Intermark Partners, LLC Supplemental Agreement dated March 10, 2000. (7)                                                                                                   
|10.25 |  | Consulting Agreement between The RiceX Company, Inc. and JDK & Associates, Inc. dated October 20, 1999. (3)(8)                                                             
|10.26 |  | Termination of Consulting Agreement between The RiceX Company, Inc. and JDK & Associates, Inc. dated February 2000. (3)(7)                                                 
|10.27 |  | Stabilized Rice Bran Processing, Sales, and Marketing Agreement between Farmers' Rice Cooperative and the Company dated May 1, 1999. (3)(6)*                               
|10.28 |  | Stabilized Rice Bran Processing, Sales, and Marketing Agreement between California Pacific Rice Milling, Inc. and the Company effectively dated January 1, 2000. (7)       
|10.29 |  | Licensing Agreement between NutraStar, Inc. and the Company. (7)                                                                                                           
|10.30 |  | Sublease Agreement between the Company and NutraStar, Inc. effective November 1, 1999. (8)                                                                                 
|10.31 |  | Settlement and General Release among three executive officers and The RiceX Company effective June 30, 2000. (8)                                                          

58

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|10.32 |  | Employment Agreement between Daniel L. McPeak, Sr. and the Company dated April 1, 2000. (3)(10)                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.33 |  | Consulting Agreement executed as of February 22, 2001, by and between The RiceX Company and Dr. Glenn H. Sullivan (3)(11)                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.34 |  | Consulting Agreement between JDK and Associates, Inc. and the Company executed as of March 15, 2001. (12)                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.35 |  | Exclusive Distribution Agreement between the Company and NutraStar, Inc., dated December 21, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.36 |  | License Agreement between the Company and NutraStar Technologies, Inc. dated January 9, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.37 |  | Indemnity Agreement between the Company and NutraStar, Inc. dated December 13, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.38 |  | Contract for Services between the Company and Dr. Glenn H. Sullivan dated January 1, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|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)
|21    |  | List of Subsidiaries (6)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

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SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized:

|                     |  | THE RICEX COMPANY
|-------------------- |  | -----------------
|Date: March 29, 2002 |  | By:              
|Date: March 29, 2002 |  | By:              

In
accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates
indicated.

|Date: March 29, 2002 |  | By: |  | /s/ Kirit S. KamdarKirit S. Kamdar
Director      
|-------------------- |  | --- |  | -------------------------------------------------
|Date: March 29, 2002 |  | By: |  | /s/ Steven W. SaundersSteven W. Saunders
Director
|Date: March 29, 2002 |  | By: |  | /s/ Kenneth L. MillerKenneth L. Miller
Director  

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