---

# SECURITIES AND
EXCHANGE COMMISSIONWashington, D.C. 20549

---

# FORM 10-KSB

# (Mark one)

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

# For the fiscal year
ended December 31, 2003

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

# For the transition
period from
               
to

# Commission File Number
0-24285

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

|Delaware                                                      | 68-0412200                          
|------------------------------------------------------------- | ------------------------------------
|(State or other jurisdiction ofincorporation or organization) | (I.R.S. Employer Identification No.)

|1241 Hawks Flight Court, El Dorado Hills,California | 95762     
|---------------------------------------------------- | ----------
|(Address of Principal Executive Offices)             | (Zip Code)

Issuers telephone
number, including area code: (916) 933-3000

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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, $0.001
par value (Title of Class)

---

1



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        
No

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.

State
issuer's revenues for its most recent fiscal year:  $3,511,000

State
the aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was sold, or
the average bid and asked prices of such common equity, as of a specified date within the
past 60 days. As of March 1, 2004, the aggregate market value of the companys common
stock held by non-affiliates was $6,555,000.

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, 2004, shares of common stock outstanding
were 38,060,238.

TRANSITIONAL SMALL BUSINESS
DISCLOSURE FORMAT (CHECK ONE):  Yes          
 No

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---

2



# FORM 10-KSB

# INDEX

PART I

| | Item 1. | DESCRIPTION OF THE BUSINESS
| | ------- | ---------------------------

| | Item 2. | DESCRIPTION OF PROPERTY
| | ------- | -----------------------

| | Item 3. | LEGAL PROCEEDINGS
| | ------- | -----------------

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

PART II

| | Item 5. | MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND SMALL BUSINESS ISSUER
PURCHASES OF                    EQUITY SECURITIES
| | ------- | ----------------------------------------------------------------------------------------------------------------------------------

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

| | Item 7. | FINANCIAL STATEMENTS
| | ------- | --------------------

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

| | Item 8A. | CONTROLS AND PROCEDURES
| | -------- | -----------------------

PART III

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

| | Item 10. | EXECUTIVE COMPENSATION
| | -------- | ----------------------

| | Item 11. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
| | -------- | ----------------------------------------------------------------------------------------------

| | Item 12. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
| | -------- | ----------------------------------------------

| | Item 13. | EXHIBITS AND REPORTS ON FORM 8-K
| | -------- | --------------------------------

| | Item 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES
| | -------- | --------------------------------------

Signatures

Certification

3



# FORWARD-LOOKING
STATEMENTS

This
document contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. All statements other than statements of
historical fact are forward-looking statements for purposes of federal and
state securities laws, including, but not limited to, any projections of earnings, revenue
or other financial items; any statements of the plans, strategies and objectives of
management for future operations; any statements concerning proposed new services or
developments; any statements regarding future economic conditions or performance; any
statements of belief; and any statements of assumptions underlying any of the foregoing.

Forward-looking
statements may include the words may, could, will,
estimate, intend, continue, believe,
expect or anticipate or other similar words. These forward-looking
statements present our estimates and assumptions only as of the date of this annual
report. Except for our ongoing obligation to disclose material information as required by
the federal securities laws, we do not intend, and undertake no obligation, to update any
forward-looking statement.

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

| | increased
competitive pressures from existing competitors and new entrants;
|- | ---------------------------------------------------------------------------

| | increases
in interest rates or our cost of borrowing or a default under any material debt
agreements;
|- | -----------------------------------------------------------------------------------------------------

| | deterioration
in general or regional economic conditions;
|- | ---------------------------------------------------------

| | adverse
state or federal legislation or regulation that increases the costs of compliance, or
adverse findings by a regulator with respect to existing operations;
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | loss
of customers or sales weakness;
|- | ------------------------------------

| | inability
to achieve future sales levels or other operating results;
|- | --------------------------------------------------------------------

| | the
unavailability of funds for capital expenditures; and
|- | ---------------------------------------------------------

| | operational
inefficiencies in distribution or other systems.
|- | ------------------------------------------------------------

For
a detailed description of these and other factors that could cause actual results to
differ materially from those expressed in any forward-looking statement, please see
Risk Factors, beginning at page 13 below.

4



# PART I

|Item  1. | DESCRIPTION OF THE BUSINESS
|-------- | ---------------------------

# OVERVIEW

We were
incorporated under Delaware law in May 1998. We succeeded to the business of our
predecessor corporation, Food Extrusion, Inc., pursuant to a re-incorporation that was
effective upon completion of the merger of the Nevada corporation with the Delaware
corporation on August 4, 1998. Food Extrusion, Inc, 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.
changed its name to The RiceX Company in May 1998. Food Extrusion Montana, Inc., was
incorporated in Montana in December 1996, as our wholly owned subsidiary. In January 1997,
Food Extrusion Montana, Inc. acquired certain assets of Centennial Foods, Inc., an Idaho
corporation in exchange for common stock and the assumption of certain liabilities, which
were paid in full in January 1999.

The
RiceX Process stabilizes rice bran, which is 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. However, without stabilization, the nutritional value of rice bran is lost
shortly after the milling process. This is due to the lipase-induced rancidity caused by
the rice milling process. 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 period of time.

The
RiceX Process has enabled us to develop a variety of nutritional food products, including
our primary product, RiceX Stabilized Rice Bran. The RiceX Stabilized Rice
Bran we produce meets microbiological standards for human consumption. Our customers
include consumer nutrition and healthcare companies, domestic and international food
companies, and companion animal feed manufacturers.

Through
our wholly-owned subsidiary, Food Extrusion Montana, Inc., we are engaged in custom
manufacturing of grain based products for food ingredient companies at its production
facility in Dillon, Montana. Food Extrusion Montana, Inc. 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 Dillon, Montana facility. We believe that these
manufacturing capabilities are unique among grain processors, with custom processing
capabilities suited to numerous food applications.

We
generated approximately $3,511,000 and $5,383,000 in revenue for the years ended December
31, 2003 and 2002, respectively. We reported net loss of $1,292,000 for year ended
December 31, 2003 and net income of $374,000 for year ended December 31, 2002. Our net
operating loss, or NOL, carry-forwards from previous years expire for federal tax purposes
at various dates from 2011 through 2024, and expire for state tax purposes in 2004 through
2013. See Part II  Item 7. Financial Statements.

Our
business is not seasonal. See Part II  Item 7. Financial Statements.

We
occupy 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 our registered trade names. Mirachol®, Max
E® and Max E Glo® are our registered trademarks. In
addition to our trade names and our trademarks, we hold patents to the production of Beta
Glucan and to a micro nutrient enriched rice bran oil process. We also hold patents to a
method to treat high cholesterol, to a method to treat diabetes and the process for
producing Higher Value Fractions, or, HVF from stabilized rice bran.

5



# RICEX PRODUCTS

We
produce stabilized, nutrient-rich rice bran that may be used in a wide variety of new
products. We are pursuing the development of proprietary rice bran products from
stabilized rice bran. Our current products include:

|RiceX Stabilized Rice Bran: | Stable whole rice bran and germ. This is our 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 our RiceX Stabilized Rice Bran,
except that it has been ground to a particle size that will pass through a 20 mesh screen.
It is 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.
|-------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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.

|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: | 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 500 million metric tons in the 2003-2004 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 riceproduction. 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 China, India,
South East Asia, Africa and South America. Combined these regions have a population of 2.3
billion people

6



(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.

# RICE PROCESSING AND RICE
BRAN STABILIZATION

When harvested
from the field, rice is in the form of paddy, or rough rice. In this form, the
rice kernel is fully enveloped by the rice hull. The hull is dried and 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, pp. 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, or 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. Although heat
serves as the basis for most attempts to stabilize rice bran, most of the rice bran
nutrients are lost in this 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 micro
nutrients 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. We believe 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.

Our
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 we designed. The loop conveyor system immediately carries the fresh,
unstabilized rice bran to the RiceX Company

7



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

Bran
leaving our stabilization system is deposited on a food-grade conveyor that tempers the
product and reduces moisture content. We call this bran RiceX Bran. This RiceX
Bran 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 30, 40, 50 and
2,000 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.

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. We have 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 our proprietary 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 approximate composition and caloric content of RiceX Stabilized Rice Bran
is as follows:

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

We
have been assigned five U.S. patents relating to the production or use of Nutraceutical or
HVF products. The patents include patent number 5,512,287 PRODUCTION OF BETA-GLUCAN
AND BETA-

8



GLUCAN PRODUCT, which was
issued on April 30, 1996; patent number 5,985,344 PROCESS FOR OBTAINING
MICRONUTRIENT ENRICHED RICE BRAN OIL, which was issued on Nov. 16, 1999; patent
number 6,126,943 METHOD FOR TREATING HYPERCHOLESTEROLEMIA, HYPERLIPIDEMIA, AND
ATHEROSCLEROSIS, which was issued on Oct. 3, 2000; patent number 6,303,586 B1 SUPPORTIVE
THERAPY FOR DIABETES, HYPERGLYCEMIA AND HYPOGLYCEMIA,which was issued on Oct. 15,
2001 and patent number 6,350,473 B1 METHOD FOR TREATING HYPERCHOLESTEROLEMIA,
HYPERLIPIDEMIA AND ATHEROSCLEROSIS, which was issued on Feb. 26, 2002. We plan to
apply for additional patents in the future as new products, treatments and uses are
developed.

# BUSINESS STRATEGY

Our
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. We will produce stabilized rice bran and related products in
manufacturing facilities we own or through joint venture arrangements. See Supply
and Manufacturing below. We do not intend to sell our proprietary technology or
processing methods. We intend to protect our process and products through both trade
secret protection and through patent and trademark protection. See Patents and
Trademarks below.

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

# DEVELOPED NATIONS

In
developed nations, our focus is on producing and selling ingredients to large consumer
product marketers as health enhancing ingredients for existing or newly developed
products, and as stand-alone products to consumers. During 2002, we entered into a
distribution agreement with Kreglinger Europe to expand our business opportunities into
the United Kingdom and Benelux markets on an exclusive basis. In addition, we have
established relationships with German and Korean companies to introduce our products into
these regions. Although there can be no assurance that our products will be successfully
introduced into these regions, we believe that interest of this type validates the
potential opportunity. In addition, we believe that the relationship reflects the strategy
for our foreign ventures. We intend to seek other opportunities in developed nations by
converting stabilized rice bran grown in those countries into finished goods and into HVFs
with demonstrated health or nutritional benefits.

# DEVELOPING NATIONS

Our
strategic development has been focused on making our nutrient-dense stabilized rice bran
products available to developing countries where nutritional deficiencies are a major
concern, particularly among school-aged children. We remain on the cutting edge in
developing nations by reducing malnutrition and enhancing nutritional growth potential
school-aged children. The school nutritional and diet upgrading programs in developing
countries worldwide represent a $30 to $35 million market opportunity for us. 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.

Our
first international strategic alliance was established in December 2000 with PRODESA and
the Christian Childrens Fund in Guatemala. Under this alliance, we supplied
nutritionally dense ingredients throughout Guatemala over a twelve-month period starting
in January 2001. As a result, our stabilized rice bran product, RiceX Solubles, has been
used as a base for nutritionally enhanced drink for school breakfast and lunch programs to
over 67,000 children in rural communities throughout Guatemala. The twelve-month program
in Guatemala was highly successful in reducing malnutrition in school age children and
enhancing their nutritional growth potential. This proof-of-concept program in Guatemala
generated nearly $2,300,000 in revenues for us for year ended December

9



31, 2001. In 2002, El Salvadors
Ministry of Education in San Salvador purchased our stabilized rice bran product, RiceX
Solubles, for applications in its school nutrition programs for El Salvadorian children.
The agreement, which follows the similar program of Guatemala, resulted in revenues of
approximately $1,000,000 for year ended December 31, 2002. Other similar programs in the
region resulted in receiving payment for RiceX Solubles of approximately $600,000 in
December 2003, which will result in recognizing the revenue in the first half of calendar
year 2004.

We
are in the process of broadening our presence in the international markets. Building on
year 2001 successful proof-of-concept program in Guatemala, we continue to develop and
expand international market development activities in Central America. We have two program
approaches, year-to-year applications and multi-year self sustaining programs. The
year-to-year programs approach call for direct purchase sales contracts financed in part
through the United States governments Public Law 416b programs, with joint
participation by the host country government. Therefore, these commitments require
authorizations by each countrys authorized representatives. Two 416b program
applications have been submitted to the United States Department of Agriculture, or USDA,
for the 2004  2005 fiscal years. One application is for Guatemala, the other for
Honduras. Due to domestic and global uncertainties in government programs, we have
experienced delays in finalizing purchase orders and delivery schedules for RiceX Solubles
into this region. However, we believe that product sales and shipments will continue and
expand into additional Central American countries during 2004 and beyond. There can be no
assurance that any of our applications will be approved by USDA.

We
are working with major rescue and relief agencies, congressional supporters and government
offices of the USDA and the United States Agency for International Development to bring a
multi-year program to provide nutritional drinks to one million children each school day
from a RiceX facility located within the Central American region. We have secured a
financing commitment from Overseas Private Investment Corporation to assist in funding the
facility. However, there can be no assurance that this financial commitment will lead to
building a facility in the Central American region.

We
also intend 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. We plan to introduce our 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 we are 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.

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

# SALES AND MARKETING

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

Our
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

10



applications such as cardiovascular
health, diabetes control, fighting free radicals and general nutritional supplementation.
We have sold RiceX Bran products as ingredients to consumer nutrition and healthcare
companies, national nutritional retailers, and multi-level personal product marketers. We
continue to develop HVFs, the nutraceutical-like compounds found in rice bran that
provides specific health benefits. We have 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. However,
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.

# 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. Foods that are ideally suited
for the addition of RiceX Bran to their products include cereals, snack foods and breads.
We are 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 we estimate that this
represents a $35 to $45 million market share opportunity for us. Premium ingredient
manufacturers are in high demand and we are strategically positioned to take advantage of
this growing and sustainable market opportunity. Our proprietary technology and product
patents represent extremely valuable assets for achieving strategic leverage in this
industry segment.

# PERFORMANCE FEED AND
COMPANION PET FOOD SUPPLEMENTS

We
also market 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 a $12 to $15 million market share opportunity
for our future revenue growth. During 2003, we launched our own equine supplement label
Max E Glo. We have also initiated distribution and line development
discussions with several major domestic premium pet food and equine feed manufacturers and
distributors. However, there can be no assurance that these discussions will be
successful.

# 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. We hold a patent on the process for obtaining micronutrient enriched rice
bran oil and are developing stabilized rice bran marketing models for rice bran oil
production. However, there can be no assurance that any of our marketing models will be
successful.

# MARKETING METHODS

As
of March 1, 2004, we have an Executive Vice President of Sales and Marketing and three
domestic sales representatives. In addition, we have entered into agreements with PRODESA
for Central America markets, and Kreglinger Europe for the United Kingdom and Benelux
markets, for developing and marketing RiceX Bran products. We also continue to work to
develop additional significant alliances in efforts to increase our sales volume.

Pursuant
to the Stabilized Rice Bran Processing Sales and Marketing Agreement between Farmers
Rice Cooperative, or Farmers, a cooperative association organized under the California
Food and Agriculture Code, and us, dated May 1, 2002, Farmers has a non-exclusive license
to use our rice bran processing equipment for production of stabilized rice bran solely
for sale to Farmers customers.

# CUSTOMERS

We
have in excess of 180 active customer accounts. Currently, our major customers are
Integris Corporation, Natural Glo and PGP International. We depended on these customers
for approximately 50% of all

11



sales revenue during 2003. Loss of
any of these customers could have a material adverse effect on our business, financial
condition and results of operations.

# SUPPLY AND MANUFACTURING

We
purchase unstabilized rice bran from one major supplier, Farmers. Pursuant to an agreement
with Farmers, our stabilization machinery is physically attached to Farmers rice
processing plants and the rice bran by-product is directly transferred to our 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 we
have ready access to unstabilized bran. Farmers is currently our only supplier of
unstabilized rice bran. We intend to enter into additional relationships with rice
processors, both in the United States and abroad as part of our overall business strategy.
Our production capacity currently stands at 1,500 tons per month. We believe that we will
be able to obtain additional suppliers due to the benefits suppliers can expect to receive
from an agreement with us. However, there can be no assurance that we will be successful
in securing additional supply agreements.

As
required, we ship RiceX Bran from our facilities in California to our 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. We intend to acquire or construct an additional processing facility when and if
the demand for RiceX Solubles and RiceX Fiber Complex justifies expansion.

Every
food product that we manufacture is produced under published FDA and USDA regulations for
Good Manufacturing Practices. Our Vice President of Operations oversees
quality control and quality assurance testing. Product samples for 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. We have 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. We
believe that the unique products, and their biological effects, resulting from our
Stabilized Rice Bran are patentable. We have been assigned five U.S. patents relating to
the production or use of Nutraceutical or HVF products. The patents include patent number
5,512,287 PRODUCTION OF BETA-GLUCAN AND BETA-GLUCAN PRODUCT, which was issued
on April 30, 1996; patent number 5,985,344 PROCESS FOR OBTAINING MICRONUTRIENT
ENRICHED RICE BRAN OIL, which was issued on Nov. 16, 1999; patent number 6,126,943
METHOD FOR TREATING HYPERCHOLESTEROLEMIA, HYPERLIPIDEMIA, AND ATHEROSCLEROSIS,
which was issued on Oct. 3, 2000; patent number 6,303,586 B1 SUPPORTIVE THERAPY FOR
DIABETES, HYPERGLYCEMIA AND HYPOGLYCEMIA, which was issued on Oct. 15, 2001 and
patent number 6,350,473 B1 METHOD FOR TREATING HYPERCHOLESTEROLEMIA, HYPERLIPIDEMIA
AND ATHEROSCLEROSIS, which was issued on Feb. 26, 2002. We plan to apply for
additional patents in the future as new products, treatments and uses are developed.

RiceX
and RiceX Solubles are our registered trade names. Mirachol®, Max
E® and Max E Glo® are our registered trademarks. In
addition to our trade names and our trademarks, we hold patents to the production of Beta
Glucan and to a micro nutrient enriched rice bran oil process. We also hold patents to a
method to treat high cholesterol, to a method to treat diabetes and to a process for
producing HVF from stabilized rice bran.

We
endeavor to protect our intellectual property rights through patents, trademarks, trade
secrets and other measures. However, there can be no assurance that we will be able to
protect our technology adequately or that competitors will not develop similar technology.
There can be no assurance that any patent application we may file will be issued or that
foreign intellectual property laws will protect our intellectual property rights. Other
companies and inventors may receive patents that contain claims applicable to our system
and processes. The use of our 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 us 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 have

12



a material adverse affect on our
financial condition and results of operations. In the future, litigation may be necessary
to enforce our patents, to protect our trade secrets or know-how or to defend 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 our resources, which could have a material adverse effect on our
financial condition and results of operations. Adverse determinations in such litigation
could result in the loss of our proprietary rights, subject us to significant liabilities
to third parties, requires us to seek licenses from third parties or prevent us from
manufacturing or selling its systems, any of which could have a material adverse effect
on our 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.

# COMPETITION

Although
we believe that we are 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, we compete with
other companies attempting to stabilize rice bran, as well as companies producing other
food ingredients and nutritional supplements. We believe that our only significant
competitor is Producers Rice Mill. This competitor may have greater capital
resources than us; however, we believe that we have more experience in the rice bran
industry. However, there can be no assurance that we will be able to compete successfully
in the rice bran industry. We believe that our 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. We have 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.
We intend 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. However, there can be no assurance that the results of additional clinical
trials will prove successful or that we will be able to develop additional new products.
See Governmental Regulations below.

Expenditures
for research and development for the years ended December 31, 2003 and 2002 totaled
$226,000 and $266,000, respectively. We expect 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, 2004, we had a total of 20 employees, all of whom were full time employees. We
believe that our relations with our employees are good.

# RISK FACTORS

# LIMITED OPERATING HISTORY

There
is limited historical financial information about us upon which to base an evaluation of
our performance or to make a decision regarding an investment in shares of our common
stock. Although we were originally formed in May 1989, commercial manufacturing operations
and marketing efforts did not commence until June 1996. We reported net loss of $1,292,000
for year ended December 31, 2003 and net income of $374,000 for year ended December 31,
2002, and generated almost $800,000 in cash from operations over this same two-year
period. We have shareholders equity of $2,921,000 and aggregated cash and cash
equivalents of $2,219,000 at December 31, 2003. Our management team has developed a
strategic and financially sound business plan to meet the ongoing liquidity needs of our
operations for the year ended December 31, 2004 and thereafter. We believe we have
positioned ourselves to become the foremost premium ingredient supplier in the food
manufacturing and animal feed sectors. However, our 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

13



processes, uncertain market
acceptance and absence of an operating history. Therefore, there can be no assurance that
our business or products will be successful or that we will be able to achieve or
maintain profitable operations. However, there can be no assurance that we will not
encounter unforeseen difficulties that may deplete our capital resources more rapidly
than anticipated.

# MARKET RISKS OF A NEW
BUSINESS

We
have formulated our business plan and strategies based on certain assumptions regarding
the size of the rice bran market, our anticipated share of this market and the estimated
price and acceptance of our products. These assumptions are based on the best estimates of
our management. There can be no assurance that our assessments regarding market size,
potential market share attainable by us, the price at which we will be able to sell our
products, market acceptance of our products or a variety of other factors will prove to be
correct. Any future success 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 our 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 our competitors have
established reputations for successfully developing and marketing their products. Many of
our competitors have greater financial, managerial, and technical resources than we do. If
we are not successful in competing in these markets, we may not be able to attain our
business objectives.

# GOVERNMENTAL REGULATION

The
processing, formulation, packaging, labeling and advertising of our products is 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, or 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.

# RELIANCE ON LIMITED
NUMBER OF PRODUCTS

All
of our products are based on stabilized rice bran. Although we 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 our products, as well as
the products of other companies utilizing our products, could have a significant adverse
impact on us.

# RELIANCE ON ADEQUATE
SUPPLY OF RAW RICE BRAN

Our
proprietary technology is used to stabilize rice bran, which is a by-product from milling
paddy rice to white rice. We currently have a supply arrangement with one of the largest
rice mills in the United States. We are pursuing other supply sources in the United States
and in foreign countries. However, there can be no assurance that we will continue to
secure adequate sources of raw rice bran to meet our requirements to produce stabilized
rice bran products.

# DEPENDENCE ON MARKETING
EFFORTS

We
are dependent on our 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. We must increase the level of awareness of dietary supplements in
general and our products in particular. We 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.

14



# DEPENDENCE ON KEY
EMPLOYEES

We
believe that our 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 our business, financial condition and results of
operations. In addition, our future success will depend upon our ability to continue to
attract and retain qualified management personnel. However, there can be no assurance that
we will be successful in attracting and retaining such personnel.

# PATENTS, LICENSES AND
INTELLECTUAL PROPERTY CLAIMS

Our
success depends in part on its ability to obtain patents, licenses and other intellectual
property rights for its products and technology. We have five United States patents and we
may decide to file corresponding international applications. We hold patents to the
production of Beta Glucan and to a micro nutrient enriched rice bran oil process. We also
hold patents to a method to treat high cholesterol, to a method to treat diabetes and to a
process for producing HVF from stabilized rice bran. The process of seeking patent
protection may be long and expensive, and there can be no assurance that patents will be
issued, that we will be able to protect our technology adequately, or that competition
will not be able to develop similar technology. There currently are no claims or lawsuits
pending or threatened against us 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 have a material adverse affect on our business,
financial condition and results of operations. In the future, litigation may be necessary
to enforce our patents, to protect our trade secrets or know-how or to defend 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 our efforts, which could have a material adverse affect on our financial
condition and results of operations. Adverse determinations in any litigation could result
in the loss of our proprietary rights, subjecting us to significant liabilities to third
parties, require us to seek licenses from third parties or prevent us from manufacturing
or selling our systems, any of which could have a material adverse affect on our 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 us on reasonable
terms, if at all.

# THIN MARKET; POSSIBLE
VOLATILITY OF STOCK PRICE

Our
common stock has been traded on the OTC Bulletin Board since May 1996 under the symbol
RICX. We believe that many factors could cause the price of our common stock
to fluctuate, perhaps substantially, including

| |  | announcements
of developments related to our business,
| | - | ------------------------------------------------------

| |  | fluctuations
in our quarterly or annual operating results,
| | - | ----------------------------------------------------------

| |  | failure
to meet securities analysts', or public expectations,
| | - | -------------------------------------------------------------

| |  | general
conditions in the international marketplace and the worldwide economy,
| | - | ------------------------------------------------------------------------------

| |  | announcements
of technological innovations or new systems or enhancements by us or our competitors,
| | - | ---------------------------------------------------------------------------------------------------

| |  | developments
in patents or other intellectual property rights, and
| | - | ------------------------------------------------------------------

| |  | developments
in our relationships with customers and suppliers.
| | - | ---------------------------------------------------------------

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

Under
our Certificate of Incorporation, our Board of Directors, or Board, has the authority,
without action by our stockholders, to fix certain terms of, and to issue, shares of
Preferred Stock. We are incorporated under Delaware law. Certain provisions of our
Certificate of Incorporation and certain provisions of Delaware law may have the effect of
delaying, deterring or preventing a change in control of our company. Other provisions in
our

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. Furthermore, our Board is divided into three classes of directors. Each class
of directors serves for a staggered three-year term after the initial classification and
election. This may make it more difficult for a third party to gain control of our Board.
By virtue of these provisions, our Board 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 our common stock and
reduce the possibility that an investor may receive a premium for his or her shares in a
tender offer. See Part III  Item 9 Directors, Executive Officers, Promoters
and Control Persons.

|Item 2. | DESCRIPTION OF PROPERTY
|------- | -----------------------

We currently
lease a 5,600 square foot office facility at 1241 Hawks Flight Court, El Dorado
Hills, California, and a 3,500 square foot warehouse and shipping facility at 1261
Hawks Flight Court, El Dorado Hills, California. Our subsidiary, Food Extrusion
Montana, Inc., owns a 15,700 square foot production facility in Dillon, Montana. The
leases for the El Dorado Hills facilities expire in September 2006. We have aggregate
annual lease payments for the El Dorado Hills facilities approximating $60,000, net of
sub-lease payment collections approximating $65,000 per year. In November 1999, we entered
into a sub-lease agreement with a company, NutraCea (formally NutraStar), for a portion
(7,800 square feet) of the facility located at 1261 Hawks Flight Court, El Dorado
Hills, California. The sub-lease with NutraCea (formally NutraStar) expires in September
2006.

We
believe that our facilities are adequate for our anticipated needs through 2004 and that
the properties are adequately covered by insurance.

|Item 3. | LEGAL PROCEEDINGS
|------- | -----------------

From
time to time we are involved in litigation incidental to the conduct of our business.
While the outcome of lawsuits and other proceedings against us cannot be predicted with
certainty, in the opinion of management, individually or in the aggregate, is expected to
result in a material effect on our financial position or results of operations.

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

There
were no matters submitted to our security holders for a vote during the Quarter ended
December 31, 2003.

# PART II

|Item 5. | MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER
PURCHASES OF EQUITY SECURITIES
|------- | --------------------------------------------------------------------------------------------------------------

The
principal United States market for our common stock is the OTC Bulletin Board. These
quotations reflect inter-dealer process, without retail mark-up, mark-down or commissions
and may not represent actual transactions. The following table sets forth the range of
high and low sales prices reported by the OTC Bulletin Board for such common stock for the
periods indicated:

|COMMON STOCK   | HIGH             | LOW             
|-------------- | ---------------- | ----------------
|2003          
|First Quarter  | $           0.23 | $           0.14
|Second Quarter | $           0.35 | $           0.14
|Third Quarter  | $           0.40 | $           0.20
|Fourth Quarter | $           0.33 | $           0.15
|               |                  |                 
|2002           |                  |                 
|First Quarter  | $           0.39 | $           0.27
|Second Quarter | $           0.49 | $           0.24
|Third Quarter  | $           0.36 | $           0.22
|Fourth Quarter | $           0.30 | $           0.15

16



There were approximately 271 holders
of record of our common stock as of March 1, 2004.

# DIVIDENDS

We
have neither paid, nor declared, any dividends since our inception. We do not intend to
declare any such dividends in the foreseeable future. Our 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 a 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 the assets of the
corporation exceed 1 1/4 times its liabilities, and the current assets of the corporation
equal or exceed its current liabilities. However, 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 1 1/4 times its current liabilities.

# RECENT SALES OF
UNREGISTERED SECURITIES

In
1998, in conjunction with RiceXs re-incorporation in Delaware, we increased our
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. Our Board is authorized to establish the rights, preferences and
privileges of each series of our preferred stock, when issued. At December 31, 2003, an
aggregate of 38,060,238 shares of common stock were outstanding, and an additional
21,222,716 shares of our common stock were reserved for future issuance upon the exercise
of stock options and warrants.

During
2003, 2002 and 2001, we did not issue or sell any shares of our common stock.

# SECURITIES AUTHORIZED
FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

Securities
authorized for issuance under equity compensation plans at December 31, 2003 are as
follows:

|Plan category                                              | Number of securities tobe issued upon theexercise of outstandingoptions, warrants and
rights | Weighted-averageexercise price ofoutstanding options,warrants and rights | Number of securities remainingavailable for future issuance underequity compensation (excluding
securities reflected in the first column)
|---------------------------------------------------------- | -------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------ | -----------------------------------------------------------------------------------------------------------------------------------------
|Equity compensation plans approved by security holders     | 6,774,111                                                                                    | $0.66                                                                    | 3,225,889                                                                                                                                
|Equity compensation plans not approved by security holders | 0                                                                                            | $0.00                                                                    | 0                                                                                                                                        
|Total                                                      | 6,774,111                                                                                    |                                                                          | 3,225,889                                                                                                                                

|Item 6. | MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
|------- | ---------------------------------------------------------

The
following is a discussion of our consolidated financial condition as of December 31, 2003
and the results of operations for the fiscal years ended December 31, 2003, 2002 and 2001,
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.

# CRITICAL ACCOUNTING
POLICIES

A
summary of our significant accounting policies is included in Note 1 to our Notes to
Consolidated Financial Statements. We believe the application of these accounting policies
on a consistent basis enables us to provide timely and reliable financial information
about our earnings results, financial condition and cash flows.

17



The
preparation of financial statements in accordance with generally accepted accounting
principles requires management to make judgments, estimates and assumptions regarding
uncertainties that affect the reported amounts presented and disclosed in the financial
statements. Our management reviews these estimates and assumptions based on historical
experience, changes in business conditions and other relevant factors that they believe to
be reasonable under the circumstances. In any given reporting period, actual results could
differ from the estimates and assumptions used in preparing our financial statements.

Critical
accounting policies are those that may have a material impact on our financial statements
and also require management to exercise significant judgment due to a high degree of
uncertainty at the time the estimate is made. Our management has discussed the development
and selection of our accounting policies, related accounting estimates and the disclosures
set forth below with the Audit Committee of our Board of Directors. We believe our
critical accounting policies include those addressing revenue recognition, allowance for
doubtful accounts, and inventories.

# Revenue Recognition

Revenues
from product sales are recognized when products are shipped and when the risk of loss has
transferred to the buyer. Deposits are deferred until either the product has shipped or
conditions relating to the sale have been substantially performed.

# Allowance for Doubtful
Accounts

We continuously
monitor collections from our customers and maintain an allowance for doubtful accounts
based upon our historical experience and any specific customer collection issues that we
have identified. While such credit losses have historically not exceeded our expectations
and the provisions established, there is a risk that credit losses in the future will
exceed those that have occurred in the past, in which case our operating results would be
adversely affected.

# Inventory Valuation

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

# EXECUTIVE SUMMARY

# 2003 Highlights

| |  | Domestic
Market Revenue  Even though total revenues were down in 2003 on a comparative basis
to last year, we experienced a successful launch of a new product label in the equine
market, Max E Glo. We have teamed up with nine national and regional distributors to
distribute Max E Glo to the United States and Canada. We have re-secured a supply
agreement with one of our largest customers who temporarily left us to purchase from
another supplier and subsequently returned. In 2003, we increased sales in our Stabilized
Rice Bran Fine, or SRB Fine product line. This product line is distributed into the
functional food market as well as used as a specialty product in the equine market. Our
human functional food SRB sales increased $76,000, which includes human SRB Regular and
human SRB Fine, compared to last year, and our animal SRB Fine sales into the specialty
equine market increased $81,000, even though total SRB sales showed a decrease
comparatively.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | International
Market Revenue  During 2003, we were successful in receiving a direct purchase
sales contract, which is financed in part through the United States governments
Public Law 416b programs for Central America. We received payment of approximately
$600,000 in December 2003. The revenue for this purchase will be recognized in 2004 when
the shipments are received in Guatemala.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Cash
Balance and Cash Flow  Our cash balance at December 31, 2003 was $2,219,000. We
continue to generate cash from operations. For the year ended December 31, 2003, cash was
provided from operating activities totaling $385,000 on a reported net loss of
$1,292,000. Change in our total cash position at December 31, 2003 was up $295,000
compared to the balance of $1,924,000 at December 31, 2002.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

18



# 2003 Challenges

| |  | Domestic
Market Revenue  Total revenue was down $1,872,000 compared to last year. Sales were
down in every product category except SRB Fine. Despite our product launch of Max E Glo
into the equine market in 2003, our total equine revenues were down, mainly because of a
temporary loss of a large customer to another supplier. Domestic sales of Solubles also
were down in 2003, because of lower demand from a major customer.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | International
Market Revenue  Our Central American sales were zero in 2003 compared to $1,128,000
in 2002. This change was caused mostly by timing of shipments compared to 2002. In late
December 2003, we began shipments to Central America that were slated for delivery in
January 2004.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Price
pressure  We experienced price pressure in the equine market in 2003. We anticipate
similar pressure will continue as new entrants enter the market over time.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 2004 Expectations

| |  | Revenue
growth  We expect to build on our positive efforts and momentum into the domestic
human functional foods market. We anticipate an 11% increase in pounds sold for domestic
functional foods. We project increases in our domestic animal market, an increase of
approximately 4 million pounds, or 75%. This increase is projected to include sales from
a major customer who has returned to us, increased sales from our recent new product
launch, and overall increased awareness of stabilized rice bran into the equine market in
the United States and Canada. Sales to Central America will increase approximately
$600,000 from zero in 2003 based on timing of our customer needs in 2004. Two
applications for direct purchase sales contracts financed in part through the United
States governments Public Law 416b have been submitted to the United States
Department of Agriculture for the 2004  2005 fiscal years. One application is for
Guatemala, the other for Honduras. We may not recognize revenues from these applications,
if successfully awarded, until 2005.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Price
pressure  We experienced price pressure in the equine market in 2003 and anticipate
similar price pressure in the equine market in 2004 as rice bran products have emerged
from certain competitors during 2003.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | SG&A
cost reduction  We expect to trim overall Sales, General and Administrative, or SG&A,
expenses by 13% in 2004 by reducing fixed overhead costs by 20% and controlling expense
items in line with our commitment to operate efficiently and effectively in our current
business environment.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
following highlights our financial data for December 31, 2003, 2002 and 2001.

# Selected Financial
Summary (in thousands except
share data)

|Consolidated Operating Results                | 2003            | 2002            | 2001           
|--------------------------------------------- | --------------- | --------------- | ---------------
|Revenue                                       | $         3,511 | $         5,383 | $         6,299
|Gross Margin                                  | 1,646           | 3,277           | 3,853          
|                                              | 47%             | 61%             | 61%            
|Research and development expenses             | 226             | 267             | 201            
|Selling, general and administrative expenses  | 2,174           | 2,029           | 1,702          
|Stock option and warrant expense              | 9               | 12              | 12             
|Professional and investor relations fees      | 544             | 589             | 877            
|Bad debt expense                              | -               | -               | -              
|Net income (loss)                             | $       (1,292) | 374             | $         1,129
|Earnings per share                            | (0.03)          | 0.01            | 0.03           
|Weighted average number of shares outstanding | 38,301,484      | 38,792,194      | 38,826,350     

|Consolidated Balance Sheets                  | 2003            | 2002            | 2001           
|-------------------------------------------- | --------------- | --------------- | ---------------
|Cash and cash equivalents                    | $         2,219 | $         1,924 | $         1,603
|Total assets                                 | 4,069           | 4,907           | 4,660          
|Total liabilities and convertible debt       | 608             | 589             | 563            
|Deferred revenue, advance payments           | 540             | -               | 221            
|Shareholders' equity                         | $         2,921 | $         4,318 | $         3,876
|Number of shares outstanding at December 31, | 38,060,238      | 38,680,724      | 38,829,350     

We
have developed a strategic and financially sound business plan to meet our ongoing
liquidity needs for the year ended December 31, 2004 and thereafter. The operating plan
includes improved gross margins from

19



reduced costs by improved production
efficiencies and product sales mix and by increased sales and expanded marketing efforts
domestically and internationally. We also implemented spending controls, which reduced
some overhead costs. Additionally, significant alliances are in process to help increase
sales volume. We believe that we have positioned ourselves to become the foremost premium
ingredient supplier in the food manufacturing and animal feed sectors. 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 of this Annual Report on Form 10-KSB.

# YEAR ENDED DECEMBER 31,
2003 AND DECEMBER 31, 2002

Consolidated
revenues for the year ended December 31, 2003 were $3,511,000, a decrease of $1,872,000,
or 35% on a comparative basis to year ended December 31, 2002. We experienced an increase
of $76,000 in sales to our domestic human SRB Regular and Fine markets and an increase of
$81,000 to our domestic animal SRB Fine market, while sales from our domestic SRB Regular
and Central American Solubles markets as well as our domestic Fiber market decreased
$2,029,000 in total during year ended December 31, 2003, to equal a net decrease in
revenues of 1,872,000 compared to the same period last year.

We
are in the process of broadening our presence in the international markets. Building on
the year 2001 successful proof-of-concept program in Guatemala, we continue to develop and
expand our international market development activities in Central America. In 2002, El
Salvadors Ministry of Education in San Salvador purchased stabilized rice bran
product RiceX Solubles from us for applications in its school nutrition programs for El
Salvadorian children. The agreement, which follows the similar program of Guatemala,
resulted in revenues of approximately $1,000,000 for year ended December 31, 2002. We
recognized no revenue in the Central America region during 2003. Because of timing with
customer shipment arrival dates and contractual obligations for door-to-door delivery
assurance of the 2003 program, revenue will be recognized upon delivery of the product to
the Central American region in 2004 for the 2003 purchase order. We began shipments in
late December, 2003.

Gross
margins for year ended December 31, 2003 were $1,646,000, or 47%, compared to $3,277,000,
or 61%, during the same period last year. The decrease in percentage as well as gross
margin dollars was the result of decreased sales in all but one product category (SRB
Fine), product sales mix and unabsorbed costs at our Montana manufacturing facility. Gross
margins on our different products vary widely and the gross margins are impacted from
period to period by sales mix and utilization of production capacity. We experienced a
drop in sales of our higher margin product lines. We also experienced unfavorable price
pressure in our SRB Regular equine market, attributable to emerging competition in 2003.

Research
and Development, or R&D, expenses decreased $41,000, to $226,000 for year ended
December 31, 2003 compared to the same period in 2002. The change in R&D expenses is
mostly due to the reduced activity in research and development. R&D expenses were
mostly based on allocating SG&A costs dedicated to research personnel and process
research.

SG&A
expenses were $2,174,000 for year ended December 31, 2003, an increase of $145,000. The
increase was due primarily to expenses relating to our expanding sales and marketing
functions. Included was $100,000 of commission expense related to a Central American
purchase order and a portion related to marketing to the equine market and product launch
in July 2003. This increase had been anticipated by management based upon their 2003
business development plan.

Professional
fees decreased $57,000, to $440,000, for year ended December 31, 2003 compared to last
year. The decrease is primarily due to lower legal fees from reduced general corporate
legal activity in 2003, and reduced consulting fees, mainly from discontinuing the
retention of a sales consultant after the expiration of a consulting agreement ended in
January 2003.

Investor
relations fees increased $12,000, to $104,000, for year ended December 31, 2003. The
increase was primarily associated with expenses related to an investor relations firm and
web page design work performed and paid in 2003. Investor relations fees this year
included expenses related to printing and distribution of our annual report, SEC reporting
requirements and expenses related to finalizing the purchase and control of our web site
files.

20



We
had a net loss of $1,292,000 for year ended December 31, 2003, or $0.03 per share,
compared to $374,000 for 2002, or $.01 per share. The net loss is due to decreased total
revenues, lower utilization of production capacity, effects of unfavorable price pressure
in the equine market, decreases in domestic Solubles sales, and no sales to Central
America through year ended December 31, 2003. There were positive trends in our domestic
functional food product lines as well as our domestic SRB Fine product line distributed to
the equine market.

The
provision of income taxes on the statements of income consists of a $1,650 minimum state
income tax. The California net operating losses have been suspended for 2002 and 2003,
which caused us in 2002 to prepay but subsequently receive a refund on actual income
versus projected income. Our provision for 2003 is $15,000 for year ended December 31,
2003, which was booked as prepaid expenses. We expect a refund of this provision except
for a California State corporate income tax minimum of $1,600 in 2004.

Deferred
taxes arise from temporary differences in the recognition of certain expenses for tax and
financial statement purposes. At December 31, 2003, 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, 2003, net operating loss carryforwards were
approximately $12,500,000 for federal tax purposes that expire at various dates from 2011
through 2024 and $8,800,000 for state tax purposes that expire in 2004 through 2013.

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.

# YEAR ENDED DECEMBER 31,
2002 AND DECEMBER 31, 2001

Consolidated
revenues for the year ended December 31, 2002 were $5,383,000, a decrease of $916,000, or
15% on a comparative basis to year ended December 31, 2001. We experienced an increase of
$358,000, or 10%, in sales from its domestic markets, while sales from our international
markets, primarily Central America, decreased $1,275,000 during year ended December 31,
2002 compared to the same time period in 2001.

We
are in the process of broadening our presence in the international markets, by building on
the year 2001 successful proof-of-concept program in Guatemala, which generated nearly
$2,300,000 in revenues for us for year ended December 31, 2001. We continue to develop and
expand our international market development activities in Central America. In 2002, El
Salvadors Ministry of Education in San Salvador purchased stabilized rice bran
product RiceX Solubles from us for applications in its school nutrition programs for El
Salvadorian children. The agreement, which follows the similar program of Guatemala,
resulted in revenues of approximately $1,000,000 for year ended December 31, 2002.

Gross
margins for year ended December 31, 2002 were $3,277,000, or 61%, compared to $3,853,000
or 61%, during the same period in 2001. The consistency in percentage was the result of
continued plant efficiencies, favorable product sales mix, and lower raw material costs.
Gross margins on our various products vary widely and the gross margins are impacted from
period to period by sales mix and utilization of production capacity. We expect that gross
margins will improve as sales volumes increase.

R&D
expenses increased $66,000 for year ended December 31, 2002 compared to the same period
last year. R&D expenditures increased from $201,000 for year ended December 31, 2001
to $267,000 for year ended December 31, 2002. The change in R&D expenses was mostly
due to the absence of reimbursement from a customer for R&D expenditures in process
research, which occurred in the same period in 2001.

SG&A
expenses were $2,029,000 for year ended December 31, 2002, compared to $1,702,000 for year
ended December 31, 2001, an increase of $327,000. The increase was due mostly to expenses
relating to our expanding sales and marketing functions. These increase had been
anticipated by management based upon their 2002 business development plan.

Professional
fees decreased $211,000 to $497,000 for year ended December 31, 2002 from $708,000 for the
prior years period. The decrease is primarily due to lower legal and consulting fees
as well as adjustments for reclassification of professional fees compared to year ended
December 31, 2001.

21



Investor
relations fees decreased from $169,000 for year ended December 31, 2001 to $92,000
for year ended December 31, 2002. The decrease of $77,000 was primarily associated with
expenses related to an investor relations firm in 2001. Investor relations fees this
period include expenses related to printing and distribution of our annual report, SEC
reporting requirements and expenses related to a public relations firm.

Interest
expense for period ended December 31, 2002 was zero, compared to $6,000 in the same period
in 2001. These expenses in 2001 are finance charges related to director and officer
insurance financing. There were no finance charges of this type in 2002. We have been out
of long-term debt since December of 1999, and have not incurred any significant interest
expenses.

We
had net income of $374,000 for year ended December 31, 2002, or $0.01 per share, compared
to net income of $1,129,000 or $0.03 per share, a decrease of $755,000 over the same
period in 2001. The decrease is primarily due to decreased revenues of $916,000, off-set
by decreased cost of goods sold of $339,000, lower utilization of production capacity, and
reduced sales to Central America through year ended December 31, 2002.

The
provision for income taxes on the statements of income consists of $33,500 and $1,600 for
the years ended December 31, 2002 and 2001, respectively. The California net operating
losses have been suspended for 2002 and 2003 which results in the Company having state
income tax expense in 2002.

Deferred
taxes arise from temporary differences in the recognition of certain expenses for tax and
financial statement purposes. At December 31, 2002, 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, 2002, net operating loss carryforwards were
approximately $11,400,000 for federal tax purposes that expire at various dates from 2011
through 2020 and $9,300,000 for state tax purposes that expire in 2004 through 2012.

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.

# LIQUIDITY AND CAPITAL
RESOURCES

As
of December 31, 2003, our source of liquidity was cash and cash equivalents in the amount
of $2,219,000. As of December 31, 2002, our cash and cash equivalent balance was
$1,924,000, showing a positive change in cash and cash equivalents of $295,000. We believe
our cash reserve is adequate to meet future operating requirements.

We
have developed a strategic and financially sound business plan to meet our ongoing
liquidity needs for the year ended December 31, 2004 and thereafter. We believe that we
have positioned ourselves to become a significant premium ingredient supplier in the food
manufacturing and animal feed sectors. Our cash position has not required cash from
financing activities in order to fund operations in the four years since retiring all our
debt.

In
2002, our Board approved resolutions authorizing us to repurchase up to a total of
$1,000,000 of our own stock on the open market for a period of one year. We repurchased
628,544 shares of our own common stock at a cost of $165,000, on the open market during
the year ending December 31, 2003, bringing the total of all repurchased shares of our
common stock, including purchases in 2002, to 769,112. This repurchase program expired in
October 2003.

We
remain on the cutting edge in developing nations by reducing malnutrition and enhancing
nutritional growth potential school-aged children. Our first international strategic
alliance was established in December 2000 with PRODESA and the Christian Childrens
Fund in Guatemala. Under this alliance we supplied nutritionally dense ingredients
throughout Guatemala over a twelve month period starting in January 2001. As a result, our
stabilized rice bran product, RiceX Solubles, has been used as a base for nutritionally
enhanced drink for school breakfast and lunch programs to over 67,000 children in rural
communities throughout Guatemala. The twelve-month program in Guatemala was highly
successful in reducing malnutrition in school age children and enhancing their nutritional
growth potential. This proof-of-concept program in Guatemala generated nearly $2,300,000
in revenues for us for year ended December 31, 2001. In 2002, El Salvadors Ministry
of Education in San Salvador purchased stabilized rice bran product, RiceX Solubles, for
applications in its school nutrition programs for El

22



Salvadorian children. The agreement,
which follows the similar program of Guatemala, resulted in revenues of approximately
$1,000,000 for year ended December 31, 2002. A follow up on PL 416b program for Guatemala
resulted in receiving payment for RiceX Solubles of approximately $600,000 in December
2003, which will result in recognizing revenue in the first half of calendar year 2004.

We
are in the process of broadening our presence in the international markets. Building on
year 2001 successful proof-of-concept program in Guatemala, we continue to develop and
expand international market development activities in Central America. We have two program
approaches, year-to-year applications and multi-year self sustaining programs. The
year-to-year programs approach call for direct purchase sales contracts financed in part
through the United States governments Public Law 416b programs, with joint
participation by the host country government. Therefore, these commitments require
authorizations by each countrys authorized representatives. Two 416b program
applications have been submitted to the USDA for the 2004  2005 fiscal years. One
application is for Guatemala, the other for Honduras. Due to domestic and global
uncertainties in government programs, we have experienced delays in finalizing purchase
orders and delivery schedules for RiceX Solubles into this region. However, management
believes that product sales and shipments will continue and expand into additional Central
American countries during 2004 and beyond. However, there can be no assurance any of our
applications will be approved by USDA.

We
are working with major rescue and relief agencies, congressional supporters and government
offices of the USDA and the United States Agency for International Development to bring a
multi-year program to provide nutritional drinks to one million children each school day
from a RiceX facility located within the region. We have secured a financing commitment
from Overseas Private Investment Corporation to assist in funding the facility. However,
there can be no assurance that this financial commitment will lead to building a facility
in the Central American region.

We
continue to focus our market development activities on nutritionally dense ingredients in
the international market place first in Latin America and then in Asian countries. These
market segments currently represent multimillion dollar potential market opportunities. We
also continue to initiate strategic alliance discussions to identify and formulate
potential joint venture opportunities 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. However, there can be no assurance
that we will obtain additional strategic alliances.

We
also hope 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. We plan to introduce our stabilization process systems in large rice mills located
in Central and South America, Africa, China, India and Southeast Asia. We have had
preliminary discussions regarding the demonstration of our system and the end products for
this technology with a number of companies and governments including other countries in
Central America, India, China, Argentina, Venezuela, Brazil, Malaysia and certain African
countries. However, there can be no assurance that these discussions will lead to
implementation of the RiceX Process with these companies or governments.

These
efforts could significantly increase demand for our products beyond our current production
capacity. While we believe we can increase our production capacity to meet sales demand,
significant additional capital could be required to meet such expansion requirements. We
have sufficient cash reserves to meet all anticipated short term operating requirements.
However, the timing and amount of any long-term capital requirements cannot be predicted
at this time.

23



|Item 7. | FINANCIAL STATEMENTS
|------- | --------------------

# THE RICEX COMPANY

# INDEX TO FINANCIAL
STATEMENTS

|                                                                                             | Page
|-------------------------------------------------------------------------------------------- | ----
|                                                                                             |     
|Independent Auditor's Report                                                                 | 25  
|                                                                                             |     
|Financial Statements                                                                         |     
|                                                                                             |     
|Consolidated Balance Sheets as of December 31, 2003 and 2002                                 | 26  
|Consolidated Statements of Operations
   for the years ended December 31, 2003 and 2002      | 27  
|Consolidated Statement of Shareholders' Equity (Deficit)
   as of December 31, 2003 and 2002 | 28  
|Consolidated Statements of Cash Flows
   for the years ended December 31, 2003 and 2002      | 29  
|Notes to Consolidated Financial Statements                                                   | 30  

24



INDEPENDENT
AUDITORS REPORT

The Board of Directors

The RiceX Company

We have audited the accompanying
consolidated balance sheets of The RiceX Company and Subsidiary (the Company) as of
December 31, 2003 and 2002, 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 as of December 31, 2003 and 2002,
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, CaliforniaFebruary 20, 2004

25



# THE RICEX COMPANY
CONSOLIDATED BALANCE SHEETS

# ASSETS

|                                                                                                            | DECEMBER 31,
|----------------------------------------------------------------------------------------------------------- | ------------
|
|CURRENT ASSETS:                                                                                             |             
|Cash and cash equivalents                                                                                   | $2,219,091  
|Trade accounts receivable, net of allowance
        for doubtful accounts, $20,000 in 2003
        and 2002 | 679,243     
|Inventories                                                                                                 | 340,513     
|Deposits and other current assets                                                                           | 76,214      
|Total current assets                                                                                        | 3,315,061   
|PROPERTY AND EQUIPMENT, net                                                                                 | 694,161     
|OTHER ASSETS, net                                                                                           | 59,586      
|                                                                                                            | $4,068,808  

# LIABILITIES AND
SHAREHOLDERS' EQUITY

|CURRENT LIABILITIES:                                                                                                                                                                   |                |               
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | --------------
|Accounts payable and accrued liabilities                                                                                                                                               | $      607,742 | $      577,709
|Deferred revenue                                                                                                                                                                       | 539,899        | 11,261        
|Total current liabilities                                                                                                                                                              | 1,147,641      | 588,970       
|COMMITMENTS AND CONTINGENCIES (Note 5)                                                                                                                                                
|SHAREHOLDERS' EQUITY (DEFICIT)                                                                                                                                                        
|Preferred stock, par value $.00l per share,
        10,000,000 shares authorized,
        no shares issued and outstanding                                                             | -              | -             
|Common stock, par value $.001 per share,
        100,000,000 shares authorized, 38,060,238 and
        38,680,724 shares issued and outstanding in
        2003 and 2002, respectively | 38,060         | 38,681        
|Additional paid-in capital                                                                                                                                                             | 29,154,428     | 29,315,287    
|Accumulated deficit                                                                                                                                                                    | (26,271,321)   | (24,978,898)  
|Deferred expenses relating to equity issuance                                                                                                                                          | -              | (57,418)      
|Total shareholders' equity                                                                                                                                                             | 2,921,167      | 4,317,652     
|                                                                                                                                                                                       | $   4,068,808  | $   4,906,622 

The accompanying
notes are an integral part of these statements.

26



# THE RICEX COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS

|                                              | YEARS ENDED DECEMBER 31,
|--------------------------------------------- | ------------------------
|
|REVENUES:                                     |                         
|Sales                                         | $   3,511,295           
|Royalties                                     | -                       
|                                              |                         
|                                              | 3,511,295               
|                                              |                         
|COST OF SALES                                 | 1,865,055               
|                                              |                         
|                                              | 1,646,240               
|                                              |                         
|RESEARCH AND DEVELOPMENT EXPENSES             | 226,452                 
|SELLING, GENERAL AND ADMINISTRATIVE EXPENSES  | 2,180,963               
|STOCK OPTION AND WARRANT EXPENSE              | 3,000                   
|INVESTOR RELATIONS                            | 104,423                 
|PROFESSIONAL FEES                             | 440,039                 
|                                              |                         
|(Loss) Income from operations                 | (1,308,637)             
|                                              |                         
|OTHER INCOME (EXPENSE):                      
|Interest and other income                     | 17,864                  
|                                              |                         
|(Loss) Income before income taxes             | (1,290,773)             
|                                              |                         
|INCOME TAX EXPENSE                            | 1,650                   
|Net (loss) income                             | $(1,292,423)            
|BASIC AND DILUTED EARNINGS PER SHARE,        
|Net (loss) income per share                   | $           (.03)       
|WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING | 38,301,484              

The accompanying notes
are an integral part of these statements.

27



# THE RICEX COMPANY 
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY (DEFICIT)

YEARS ENDED DECEMBER
31, 2003 AND 2002

|                           | Common StockShares          
          
  Amount | Additional Paid-In Capital | Accumu-lated Deficit | Deferred Expenses Related to Equity Issuance | Total Share-holders' Equity (Deficit)
|-------------------------- | ------------------------------------------------ | -------------------------- | -------------------- | -------------------------------------------- | -------------------------------------
|
|Balance, December 31, 2001 | 38,829,350                                       | $ 38,829                   | $ 29,363,588         | $ (25,352,994)                               | $ (173,038)                          
|                           |                                                  |                            |                      |                                              |                                      
|Stock repurchase           | (148,626)                                        | (148)                      | (60,301)             | -                                            | -                                    
|                           |                                                  |                            |                      |                                              |                                      
|Amortization of warrants  
|issued to former employees | -                                                | -                          | 12,000               | -                                            | -                                    
|                           |                                                  |                            |                      |                                              |                                      
|Amortization of warrants  
|issued for consulting fees | -                                                | -                          | -                    | -                                            | 76,556                               
|                           |                                                  |                            |                      |                                              |                                      
|Amortization of prepaid   
|processing fees            | -                                                | -                          | -                    | -                                            | 39,064                               
|                           |                                                  |                            |                      |                                              |                                      
|Net income for the year    | -                                                | -                          | -                    | 374,100                                      | -                                    
|                           |                                                  |                            |                      |                                              |                                      
|Balance, December 31, 2002 | 38,680,724                                       | 38,681                     | 29,315,287           | (24,978,898)                                 | (57,418)                             
|                           |                                                  |                            |                      |                                              |                                      
|Stock repurchase           | (628,544)                                        | (621)                      | (163,859)            | -                                            | -                                    
|                           |                                                  |                            |                      |                                              |                                      
|Amortization of warrants  
|issued to former employees | -                                                | -                          | 3,000                | -                                            | -                                    
|                           |                                                  |                            |                      |                                              |                                      
|Amortization of warrants  
|issued for consulting fees | -                                                | -                          | -                    | -                                            | 57,418                               
|                           |                                                  |                            |                      |                                              |                                      
|Amortization of prepaid   
|processing fees            | -                                                | -                          | -                    | -                                            | -                                    
|                           |                                                  |                            |                      |                                              |                                      
|Net loss for the year      | -                                                | -                          | -                    | (1,292,423)                                  | -                                    
|                           |                                                  |                            |                      |                                              |                                      
|Balance, December 31, 2003 | 38,060,238                                       | $ 38,060                   | $ 29,154,428         | $  (26,271,321)                              | $            -                       

The accompanying
notes are an integral part of these statements.

28



# THE RICEX COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                       | YEARS ENDED DECEMBER 31,
|------------------------------------------------------ | ------------------------
|
|CASH FLOW FROM OPERATING ACTIVITIES:                   |                         
|Net income (loss)                                      | $(1,292,423)            
|Adjustments to reconcile net income (loss) to         
|net cash from operating activities:                   
|Depreciation and amortization                          | 380,019                 
|Amortization of shares and warrants issued            
|for services, prepaid interest, and debt issuance cost | 60,419                  
|Net changes in operating assets and liabilities       
|Trade accounts receivable                              | 686,232                 
|Inventories                                            | (33,202)                
|Deposits and other current assets                      | 24,968                  
|Accounts payable and accrued liabilities               | 18,772                  
|Deferred revenue                                       | 539,898                 
|                                                       |                         
|Net cash from operating activities                     | 384,683                 
|                                                       |                         
|CASH FLOWS FROM INVESTING ACTIVITIES:                 
|Purchases of property and equipment, and other assets  | 75,177                  
|Proceeds from sale of equipment                        | -                       
|Net cash from investing activities                     | 75,177                  
|                                                       |                         
|CASH FLOWS FROM FINANCING ACTIVITIES:                 
|Repurchase of common stock                             | (164,480)               
|Net cash from financing activities                     | (164,480)               
|NET INCREASE IN CASH                                  
|AND CASH EQUIVALENTS                                   | 295,381                 
|CASH AND CASH EQUIVALENTS, beginning of year           | 1,923,710               
|CASH AND CASH EQUIVALENTS, end of year                 | $ 2,219,091             

The accompanying notes
are an integral part of these statements.

29



# 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 and fiber concentrate forms 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.

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
2003, three major customers each accounted for 22%, 17%, and 7% of sales, respectively.
Accounts receivable includes amounts due from two customers comprising of 29% and 24% of
the total outstanding.

In
2002, three major customers each accounted for 28%, 21%, and 17% of sales, respectively.
Accounts receivable includes amounts due from two customers comprising of 68% and 10% of
the total outstanding. Approximately 17% of total sales were the result of exports to El
Salvador.

30



# THE RICEX COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

# NOTE 1 
DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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.

Allowance for doubtful accounts  The
Company provides an allowance for accounts receivable it believes it may not collect in
full. It evaluates collectibility of its accounts based on a combination of factors. In
circumstances where it is aware of a specific customers inability to meet its
financial obligations such as bankruptcy, it records a specific reserve. For all other
customers, the Company recognized reserves for bad debts based on current and historical
collection experience. Accounts receivable are considered delinquent based on contractual
terms. The Company does not charge interest on delinquent accounts.

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 years   
|---------------------- | -----------
|Equipment              | 5 - 7 years
|Leasehold improvements | 7 years    
|Furniture and fixtures | 5 - 7 years

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

Revenue recognition 
Revenues from product sales are recognized as products are shipped and when the risk of
loss has transferred to the buyer. Deposits are deferred until either the product has
shipped or conditions relating to the sale have been substantially performed.

Shipping and Handling Shipping and handling expenses and reimbursement of shipping and handling expenses are
captured in SG&A.

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

Stock options  At
December 31, 2003, the Company has one stock-based employee compensation plan, which is
described more fully in Note 5. The Company accounts for this plan under the recognition
and measurement principles of APB Opinions No. 25, Accounting for Stock Issued to
Employees, and related Interpretations. No stock-based employee compensation cost is
reflected in net income, as all options granted under those plans had an exercise price
equal to the market value of the underlying common stock on the date of grant. The
following table illustrates the effect on net income and earnings per share if the Company
had applied the fair value recognition provisions of FASB Statement No. 123, Accounting
for Stock-Based Compensation, to stock-based employee compensation.

31



# THE RICEX COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

# NOTE 1 - DESCRIPTION OF
BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

|                                                     | DECEMBER 31,     
|---------------------------------------------------- | -----------------
|
|Net income, as reported                              | $ (1,292,423)    
|Deduct:  Total stock-based employee                 
|compensation expense determined                     
|under fair value based method for all awards         | (45,600)         
|                                                     |                  
|Pro forma net income                                 | $ (1,338,023)    
|                                                     |                  
|Earnings per share:                                 
|Basic and diluted net income per share - as reported | $           (.03)
|Basic and diluted net income per share - pro forma   | $           (.04)
|                                                     |                  
|Weighted average fair value of options granted      
|to employees during the year                         | $             .15

Net income per share 
Basic net income 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.

Income taxes  Deferred
income tax assets and liabilities result from the future tax consequences associated with
temporary differences between the carrying 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 2002 financial information to conform to
the 2003 presentation.

Recent accounting
pronouncements  In January 2003, the FASB issued Interpretation No. 46,
Consolidation of Variable Interest Entities(VIE). It defined a VIE as a
corporation, partnership, trust, or any other legal structure used for the business
purpose that either a) does not have equity investors with voting rights or b) has equity
investors that do not provide sufficient financial resources for the entity to support its
activities. This interpretation will require a VIE to be consolidated or deconsolidated by
a company if that company is subject to a majority of the risk of loss from the VIEs
activities or entitled to receive a majority of the entitys residual return. Most of
the provisions of Interpretation No. 46 have been delayed until March 31, 2004. The
Company does not have any VIE and accordingly the implementation of the Interpretation and
will not have any impact on the Companys financial position or results of
operations.

32



# THE RICEX COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

# NOTE 1 
DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

In
April 2003, the FASB issued Statement No. 149, Amendment of Statement 133 on Derivative
Instruments and Hedging Activities. This Statement amends and clarifies financial
accounting and reporting for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as derivatives) and for
hedging activities under FASB Statement No. 133, Accounting for Derivative Instruments
and Hedging Activities.This Statement is effective for contracts entered into or
modified after June 30, 2003. Adoption of the Statement did not result in an impact on the
Companys statement of financial position or results of operations.

In
May 2003, the FASB issued Statement No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This Statement
establishes standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity. It requires that an
issuer classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances). Many of those instruments were previously classified as
equity. This Statement is effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003, except for mandatory redeemable financial
instruments of nonpublic entities. Adoption of the Statement did not result in an impact
on the Companys statement of financial position or results of operations.

# Note 2  Inventory

Inventory consists of the following:

|               | DECEMBER 31, |         
|-------------- | ------------ | --------
|
|Finished goods | $240,708     | $232,625
|Packaging      | 99,805       | 74,686  
|               |              |         
|               | $340,513     | $307,311
|               |              |         

# NOTE 3  PROPERTY
AND EQUIPMENT

|                              | DECEMBER 31,
|----------------------------- | ------------
|
|Land and buildings            | $    380,154
|Equipment                     | 4,593,237   
|Leasehold improvements        | 381,642     
|Furniture and fixtures        | 208,071     
|Construction in progress      | -           
|                              | 5,563,104   
|Less accumulated depreciation
|and amortization              | (4,868,943) 
|                              | $    694,161

33



# THE RICEX COMPANY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

# NOTE 4 - ACCOUNTS
PAYABLE AND ACCRUED LIABILITIES

|                          | DECEMBER 31,
|------------------------- | ------------
|
|Trade accounts payable    | $   203,591 
|Other accrued liabilities | 404,151     
|Deferred revenue          | 539,899     
|                          | $ 1,147,641 

# NOTE 5 
COMMITMENTS AND CONTINGENCIES

The Company leases office, laboratory
and warehouse space under operating leases which expire in 2006. The Company has the
unilateral right to terminate the facilities operating leases with six months
written notice. Rent expense under operating leases was $59,577 and $60,189 for the years
ended December 31, 2003 and 2002, respectively.

The following is a schedule of future
minimum lease payments required under the above leases: Fiscal year ending each December

|2004  | $124,277
|----- | --------
|2005  | 126,592 
|2006  | 94,944  
|Total | $345,813

# NOTE 6 
SHAREHOLDERS EQUITY

A.    
          Common and preferred stock

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, 2003, an
aggregate of 21,222,716 shares of the Companys common stock was reserved for future
issuance upon the exercise of stock options and warrants.

B.    
          Stock issued for services

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 was amortized to cost of goods sold over the three year
period. During 2003 and 2002, the Company amortized zero and $39,064, respectively.

34



# THE RICEX COMPANY NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

# NOTE 6 
SHAREHOLDERS EQUITY (continued)

C.    
          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 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.

D.     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, 2003, all warrants issued in
conjunction with this private placement have expired.

E.    
          Repurchase of common stock

In
2002, the Board of Directors approved resolutions authorizing us to repurchase up to a
total of $1,000,000 of its own stock on the open market for a period of one year. The
Company repurchased 620,486 shares of the Companys own stock on the open market
during the year ending December 31, 2003. The total amount of shares of common stock
repurchased under these resolutions as of December 31, 2003 was 769,112. The repurchase
program expired in October 2003.

F.    
          Warrants and non-qualified stock options issued

At December 31, 2003,
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, 2002                                 | 21,499,369       | $0.70 - $2.00            | 1 - 5 years    
|                                                         |                  |                          |                
|Expired during the year                                  | (3,168,446)      | $0.75 - $2.00            | 3 - 5 years    
|                                                         |                  |                          |                
|Balance, December 31, 2002                               | 18,330,923       | $0.70 - $1.65            | 1 - 5 years    
|                                                         |                  |                          |                
|Canceled during the year                                 | (4,091,207)      | $0.75 - $1.50            | 3 - 5 years    
|                                                         |                  |                          |                
|Balance, December 31, 2003                               | 14,239,716       | $0.70 - $2.00            | 1 - 5 years    

The balance outstanding at December
31, 2003 and 2002 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.

35



# THE RICEX COMPANY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

# NOTE 6  SHAREHOLDERS'
EQUITY (continued)

G.     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, 2003, options to purchase 6,983,000 shares of common
stock had been granted under the Plan and 3,017,000 shares were available for future
grants. Options granted pursuant to the plan have lives of 10 years from the date subject
to earlier expiration in certain cases, such as termination of the grantees' employment.
Options vest 1/3 on the date of the grant, 1/3 on the first anniversary, and 1/3 on the
second anniversary. Stock option information is as follows:

|                                         | Number of Shares | Weighted- Average Exercise Price
|---------------------------------------- | ---------------- | --------------------------------
|Shares under option at January 1, 2002   | 5,669,000        | $          .73                  
|Granted                                  | 1,180,000        | .34                             
|Shares under option at December 31, 2002 | 6,849,000        | .66                             
|Granted                                  | 330,000          | .24                             
|Forfeited                                | (196,000)        | .32                             
|Shares under option at December 31, 2003 | 6,983,000        | $          .65                  
|Options exercisable at December 31, 2003 | 6,774,111        | $          .66                  

The weighted average fair value of
the options granted in 2003 and 2002 were $0.15 and $0.21 respectively.

|            | Options Outstanding | Options Exercisable
|----------- | ------------------- | -------------------
|
|0.20-0.30   | 610,000             | 8.86               
|0.36-0.40   | 1,460,000           | 7.73               
|0.72-0.79   | 4,773,000           | 5.76               
|1.81        | 140,000             | 4.7                
|            |                     |                    
|$.20 - 1.81 | 6,983,000           | 6.42               
|            |                     |                    

# Pro Forma Information
related to Option Grants

Pro
forma information regarding net income and earnings per share is required by SFAS 123 for
awards granted after December 31, 1995, as if the Company had accounted for its
stock-based awards to employees under the fair value method of SFAS 123. The fair value of
the Companys stock-based awards to employees was estimated using a Black-Scholes
option pricing model. The Black-Scholes options valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions and are
fully transferable. In

36



# THE RICEX COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

addition, the Black-Scholes model
requires the input of highly subjective assumptions including the expected stock price
volatility. Because the Companys stock-based awards to employees have
characteristics significantly different from those of traded options, and because changes
in the opinion, the existing models do not necessarily provide a reliable single measure
of the fair value of its stock-based awards to employees. The effects of applying SFAS 123
in this pro forma disclosure are not indicative of future amounts. The fair value of the
Companys options grants under the 1997 plan was estimated assuming no expected
dividends and the following weighted-average assumptions:

|                        | 2003  | 2002 
|----------------------- | ----- | -----
|                        |       |      
|Expected life (years)   | 3     | 3    
|Expected volatility     | 103%  | 100% 
|Risk-free interest rate | 1.50% | 3.44%

# NOTE 7  EMPLOYEE
BENEFIT PLAN

The Company has a 401(k) plan, The
RiceX Company 401(k) Plan & Trust, which requires an employee to have completed
one year of service and attained the age of 21 to participate in the plan. 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 $36,000 and $36,000 in 2003 and 2002, respectively.

# NOTE 8  RELATED
PARTY TRANSACTIONS

Ms.
          Patricia McPeak, the spouse of Daniel L. McPeak, Sr., Chairman of the Board of
          the RiceX Company and its Chief Executive Officer, 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 the President of
          The RiceX Company. Ms. McPeak, who resigned that position on March 31, 2000,
          retained her seat on the Board until June 29, 2001, at which time her term
          expired.

Ms.
          McPeak is an officer and director of NutraCea (formally NutraStar) a California
          Corporation. NutraStar changed its name to NutraCea in November, 2003. In late
          2001 the Company entered into an Exclusive Distribution Agreement and Licensing
          Agreement with NutraStar. These agreements were terminated in July 2002 with
          NutraStar for its failure meet certain performance requirements as specified in
          the Exclusive Distribution Agreement. Also 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. The
          Company has recognized sales to NutraCea of $229,000 and $444,000 during 2003
          and 2002, respectively.

In
connection with the conversion of a $2,500,000 note to equity (note 6) 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 until the expiration of his term in June 2003. The shares of RiceX common
stock and warrants issued to GBV Intermark Fund, LLC, were acquired by Intermark Group
Holdings, LLC, on April 4, 2002 in a private transaction. The principle owner of Intermark
Group Holdings, LLC was elected to the Companys Board of Directors in June 2003.

# NOTE 9  INCOME
TAXES

The provision for income taxes on the
statements of income consists of $1,650 and $33,500 for the years ended December 31, 2003
and 2002, respectively. The California net operating losses have been suspended for 2002
and 2003 which results in the Company having state income tax expense in 2002.

37



# THE RICEX COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

|                                | DECEMBER 31,           
|------------------------------- | -----------------------
|
|Net operating loss carryforward | $ 4,768,000            
|Options and warrants            | -                      
|Accrued reserves                | 326,000                
|Research costs                  | 770,000                
|Fixed assets                    | 228,000                
|Other                           | -                      
|                                |                        
|                                | 6,092,000              
|Less valuation allowance        | (6,092,000)            
|                                |                        
|                                | $
                    -
|                                |                        

Deferred
taxes arise from temporary differences in the recognition of certain expenses for tax and
financial statement purposes. At December 31, 2003, 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, 2003, net operating loss carryforwards were
approximately $12,500,000 for federal tax purposes that expire at various dates from 2011
through 2024 and $8,800,000 for state tax purposes that expire in 2004 through 2013.

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.

The
provision for income taxes differs from the amount computed by applying U.S. federal
statutory tax rate (34% in 2003 and 2002) to income before taxes as follows:

|                                        | DECEMBER 31,  
|--------------------------------------- | --------------
|
|Computed expected tax                   | $  (438,863)  
|Change in valuation allowance           | 1,220,000     
|Change in carryovers and tax attributes | (781,137)     
|State minimum taxes                     | 1,650         
|                                        | $        1,650

38



# THE RICEX COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

# NOTE 10 
SUPPLEMENTAL CASH FLOW INFORMATION AND NON CASH FINANCING ACTIVITIES

The
provision for income taxes differs from the amount computed by applying U.S. federal
statutory tax rate (34% in 2003 and 2002) to income before taxes as follows:

|                                             | YEARS ENDED DECEMBER 31,
|-------------------------------------------- | ------------------------
|
|Supplemental cash flow information:          |                         
|Cash paid (refunded) for income taxes        | $(18,816)               
|                                             |                         
|Non cash investing and financing activities:
|Amortization/issuance of common stock and   
|warrants for services                        | $ 60,419                

# 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, 2003
|----------------------------- | ----------------------------
|
|Basic EPS                     |                             
|Net income (loss)             | $(1,292,423)                
|Effect of Dilutive Securities
|Stock options                 |                             
|Diluted EPS                  
|Net income plus assumed      
|conversions                   | $(1,292,423)                

Options and warrants to purchase
21,222,716 shares of common stock at a range of $.20  $1.81 a share were
outstanding during 2003. 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 during the year.

|                              | Year Ended December 31, 2002
|----------------------------- | ----------------------------
|
|Basic EPS                     |                             
|Net income                    | $    374,100                
|Effect of Dilutive Securities
|Stock options                 |                             
|Diluted EPS                  
|Net income plus assumed      
|conversions                   | $    374,100                

Options and warrants to purchase
24,979,923 shares of common stock at a range of $.30  $1.81 a share were
outstanding during 2002. 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 during the year.

# NOTE 12  FAIR
VALUE OF FINANCIAL INSTRUMENTS

The fair value of the Companys
financial instruments approximated carrying value at December 31, 2003 and 2002. 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.

39



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

| | None
| | ----

|Item 8A. | CONTROLS AND PROCEDURES
|-------- | -----------------------

We
carried out an evaluation, under the supervision and with the participation of management,
including the Companys principal executive officer and principal financial officer,
of the effectiveness of the design and operation of the Companys disclosure controls
and procedures (as defined under Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended) as of the end of the year covered by this report. Based
upon that evaluation, the Companys principal executive officer and principal
financial officer concluded that the Companys disclosure controls and procedures are
effective in timely altering them to material information relating to us (including the
Companys consolidated subsidiary) that is required to be included in the
Companys periodic Security Exchange Commission reports.

There
was no change in the Companys internal control over financial reporting that
occurred during the period covered by this report that has materially affected, or is
reasonably likely to materially affect, the Companys internal control over financial
reporting.

# PART III

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

|NAME                   | AGE | POSITION                                          
|---------------------- | --- | --------------------------------------------------
|                       |     |                                                   
|Daniel L. McPeak, Sr   | 69  | Class III Director, CEO, and Chairman of the Board
|Kirit S. Kamdar(1)(2)  | 61  | Class I Director                                  
|Steven W. Saunders(1)  | 48  | Class I Director                                  
|Kenneth L. Miller(3)   | 59  | Class II Director                                 
|James Lintzenich(1)(2) | 50  | Class II Director                                 
|Todd C. Crow           | 55  | Class III Director, Vice President Finance & CFO  
|Ike E. Lynch           | 58  | Vice President of Operations                      
|Daniel L. McPeak, Jr   | 44  | Vice President and General Manger                 

---

|(1) | Member
of the Compensation Committee
|--- | ------------------------------------

|(2) | Member
of the Audit Committee
|--- | -----------------------------

|(3) | Member of the Board of Directors and Compensation and Audit Committees until
          the expiration of his term, June 26, 2003
|--- | --------------------------------------------------------------------------------------------------------------------------------

# DIRECTORS AND EXECUTIVE OFFICERS

DANIEL
L. MCPEAK. Mr. McPeak co-founded our company in February 1989 and has served as Chairman
of our Board since our formation. In November 1998, Mr. McPeak was re-appointed to act as
our Chief Executive Officer, or CEO. Mr. McPeak previously served as our CEO from May 1989
to April 1997. Mr. McPeak will serve as a Class III Director until the election of
Directors in 2004. Mr. McPeak is the father of Daniel L. McPeak, Jr., our Vice President
and General Manager.

40



KIRIT
S. KAMDAR. Mr. Kamdar has served as a Class I Director of our company since August 1998.
He will serve as a Class I Director until the next election of Class I Directors in 2005.
From January 1990 to September 1992, Mr. Kamdar also served as a director on our Board,
and from January 1990 to April 1994 as our 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 our company since August
1998. He will serve as a Class I Director until the next election of Class I Directors in
2005. Mr. Saunders has been 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 served as a Class II Director of our company from October 2000 until
the expiration of his term, June 26, 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.

JAMES
C. LINTZENICH. Mr. Lintzenich has served as a Class II Director of our Company
since June 2003. He will serve as a Class II Director until the next election of Class II
Directors in 2006. From August 2000 to April 2000 Mr. Lintzenich served as President and
Chief Operating Officer of SLM Corporation (Sallie Mae), an educational loan institution.
From December 1982 to July 2000, Mr. Lintzenich held various senior management and
financial positions including Chief Executive Officer and Chief Financial Officer of USA
Group, Inc., a guarantor and servicer of educational loans. Mr. Lintzenich currently
serves on the Board of Directors of the Student Loan Marketing Association (an SLM Corp
subsidiary) and the Lumina Foundation for Education.

TODD
C. CROW. Mr. Crow has served as a Class III Director of our company since June 2001. He
will serve as a Class III Director until the next election of Class III Directors in 2004.
Mr. Crow joined us in May 1996 and has been our Vice President of Finance and Chief
Financial Officer since November 1998, and our Secretary since January 1999. From
September 1997 to November 1998, Mr. Crow was our Controller. From May 1996 to September
1997, he was our Chief Financial Officer. Mr. Crow also served as a director of our
company from June 1996 to January 1997. From 1989 until joining us, 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 our company, and President and Chief Operating Officer of Food
Extrusion Montana, Inc. He has held these positions 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 our the acquisition of Centennial Foods in 1997.

DANIEL
L. MCPEAK, JR. Mr. McPeak joined our company in July 1996, and has been our 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 us, 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., our CEO and Chairman of the Board.

41



# BOARD OF DIRECTORS

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

# BOARD COMMITTEES

Our
Board has established an Audit Committee and a Compensation Committee.

Our Audit
Committee, consisting of Kirit Kamdar, Kenneth L. Miller, until his term expired June 26,
2003, and James C. Lintzenich, facilitates and maintains open communications among our
Board, our Audit Committee, senior management and our independent auditors. Our Audit
Committee also serves as an independent and objective party to monitor our financial
reporting process and internal control system. In addition, our Audit Committee reviews
and appraises the efforts of our independent auditors. Our Audit Committee meets
periodically with management and our independent auditors. The Audit Committee held three
meetings in fiscal year 2003 and all members participated. Our Board has determined that
the chair of our Audit Committee, Mr. Lintzenich, meets the Securities and Exchange
Commissions definition of audit committee financial expert. Mr. Lintzenich is
independent, as such term is used in Item 7(d)(3)(iv) of Schedule 14A under
the Securities Exchange Act of 1934, as amended.

Our
Compensation Committee, consisting of Kirit Kamdar, Steven Saunders, Kenneth L. Miller,
until his term expired June 26, 2003, and James C. Lintzenich, establishes salary,
incentive and other forms of compensation for our CEO, and administers our 1997 Stock
Option Plan. Our Compensation Committee meets periodically with management and our
independent auditors. The Compensation Committee held one meeting in fiscal year 2003.

# SECTION 16(a) BENEFICIAL
OWNERSHIP REPORTING COMPLIANCE

Based
upon a review of our records, we are not aware of any of our officers or directors that
failed to timely file one or more reports disclosing beneficial ownership of our
securities as required under Section 16(a) of the Securities Exchange Act of 1934, as
amended, during the fiscal year ended December 31, 2003.

# CODE OF ETHICS

We
have a Code of Ethics that applies to our chief executive officer, our chief financial
officer and our principal accounting officer, as well as to other senior management and
senior financial staff of our company, and complies with the requirements imposed by the
Sarbanes-Oxley Act of 2002 and the rules issued thereunder for codes of ethics applicable
to such officers. Our Board has reviewed and will continue to evaluate its role and
responsibilities with respect to the new legislative and other requirements of the
Securities and Exchange Commission. Interested persons can obtain a copy of our Code of
Ethics by writing to: Investor Relations c/o The RiceX Company, 1241 Hawks Flight
Court, El Dorado Hills, California 95762.

|Item 10. | EXECUTIVE COMPENSATION
|-------- | ----------------------

The
following table sets forth the total compensation for our CEO and each of our current
executive officers whose total salaries and bonuses for fiscal 2002 and 2003 exceeded
$100,000 or would have exceeded $100,000 on an annualized basis. We refer to collectively
to these executives as the Named Executive Officers.

42



# SUMMARY COMPENSATION
TABLE

|                          |      | Annual Compensation | Long Term Compensation | All Other Compensation
|------------------------- | ---- | ------------------- | ---------------------- | ----------------------
|
|
|
|
|
|Daniel L. McPeak, Sr. (1) | 2003 | $ 269,000           | (2)                    | --                    
|Chairman of the Board     | 2002 | $ 269,000           | (2)                    | 175,000               
|Chief Executive Officer   | 2001 | $ 250,000           | (2)                    | 200,000               
|                          |      |                     |                        |                       
|Ike E. Lynch              | 2003 | $ 149,000           | (2)                    | --                    
|VP Operations and Chief   | 2002 | $ 149,000           | (2)                    | 125,000               
|Operating Office of Food  | 2001 | $ 135,000           | (2)                    | --                    
|Extrusion Montana        
|                          |      |                     |                        |                       
|Todd C. Crow (3)          | 2003 | $ 149,000           | (2)                    | --                    
|Chief Financial Officer   | 2002 | $ 149,000           | (2)                    | 175,000               
|                          | 2001 | $ 135,000           | (2)                    | 150,000               
|                          |      |                     |                        |                       
|Daniel L. McPeak, Jr. (4) | 2003 | $ 149,000           | (2)                    | --                    
|Executive VP,             | 2002 | $ 149,000           | (2)                    | 125,000               
|General Manager           | 2001 | $ 135,000           | (2)                    | --                    

---

|(1) | Mr.
McPeak was CEO from May 1989 to April 1997 and from November 1998 to           present.
|--- | -------------------------------------------------------------------------------------------

|(2) | Other
Annual Compensation is less than 10% of Salary.
|--- | -----------------------------------------------------

|(3) | Mr.
Crow           was Chief Financial Officer from May 1996 to September 1997 and from
November           1998 to present.
|--- | ---------------------------------------------------------------------------------------------------------------------------

|(4) | Mr.
McPeak, Jr. was Vice President of Sales and Marketing from July 1996 to           October
1997 and from November 1998 to present Executive Vice President, General Manager.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# OPTION ACTIVITY IN 2003
TO EXECUTIVES

The
following table sets forth for each of the Named Executive Officers certain information
concerning stock options activity granted during 2003.

# OPTION/SAR GRANTS IN
LAST FISCAL YEAR

|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
|---- | -------------------------------------------------------- | ----------------------------------------------------------------- | --------------------- | ------------------- | ---------------
|None |                                                          |                                                                   |                       |                     |                

# 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, 2003 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 our common stock on December 31, 2003.

# AGGREGATE OPTION/SAR
EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES

|     |  |  | Number of | Value of Unexercised
|---- |  |  | --------- | --------------------
|
|
|None |  |  |           |                     

43



# DIRECTOR COMPENSATION

On
July 9, 1997, our Board adopted a non-employee director compensation plan pursuant to
which non-employee directors are compensated. Under the terms of the plan, non-employee
directors receive a $15,000 annual retainer, which is paid in annual installments for
participation at up to six meetings of our Board. Non-employee directors also receive an
immediately exercisable, nonqualified stock option to purchase 50,000 shares of our common
stock, which is granted upon appointment to our Board. In addition, non-employee directors
also receive an immediately exercisable, nonqualified stock option to purchase 15,000
shares of our common stock to be granted on the day of each annual stockholders
meeting during the non-employee directors service on our Board. The options are to
be granted as free-standing options and not under the 1997 Stock Option Plan. The exercise
price will be the fair market value of a share of our common stock on the date of grant.
Directors are also reimbursed for reasonable expenses incurred in attending meetings of
our Board and Board committees.

On
April 27, 1999, our Board voted to temporarily suspend the grant of options and the
payment of the annual retainer to members of our Board. The annual retainer remains
suspended.

Effective
February 22, 2001, the options program was reinstated and amended. The amendments include
issuing options to purchase 50,000 shares of our common stock to each Board member on the
anniversary of their appointment as a Board member. These options are to be granted under
the 1997 Stock Option Plan. 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.

# EMPLOYMENT AGREEMENTS

MCPEAK,
SR. EMPLOYMENT AGREEMENT. We entered into an Employment Agreement with Daniel L. McPeak,
Sr. in April 2000, pursuant to which Mr. McPeak agreed to serve as Chairman of our Board,
and as our CEO. The employment agreement provides that Mr. McPeak will receive an annual
base salary of $250,000. The agreement terminates on March 31, 2003, unless Mr.
McPeaks employment is terminated earlier. In April 2003 the Board of Directors
extended Mr. McPeaks employment agreement until such time the Board of Directors
notifies Mr. McPeak that his extended employment agreement will terminate in ninety days.
Mr. McPeak has chosen to retire effective March 31, 2004. Thereafter, for a five-year
period commencing April 1, 2004 and ending on March 31, 2008, the employment agreement
will convert to a consulting agreement. During the consulting period, we will pay Mr.
McPeak a consulting fee of $125,000 per year. If during the consulting period, our annual
sales revenues reach or exceed $12,000,000, the consulting fee will 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 term 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 the term, in the event of Mr. McPeaks death or
termination by us for Cause (as defined in the employment agreement). In
addition, the agreement may be terminated if we terminate Mr. McPeak without cause. 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 agreement. Within six months of first receiving
notice of a Change in Control (as defined in the employment agreement), Mr.
McPeak may elect to retire from service and render, on a non-exclusive basis, only such
consulting and advisory services to us as he may reasonably accept. In such an event, he
is also entitled to continue receiving his benefits and salary until the latter of six
months after the date of such election, subsequent full-time employment with another
enterprise, or the expiration of the term of the agreement.

LYNCH
EMPLOYMENT AGREEMENT. In May 1999, we entered into an employment agreement with Ike E.
Lynch, pursuant to which Mr. Lynch agreed to serve as our Vice President of Operations and
the Chief Operating Officer of our subsidiary, Food Extrusion Montana. The employment
agreement provides that Mr. Lynch will receive an annual base salary of $125,000 increased
to $135,000 on May 1, 2000, and will be reviewed annually. The employment agreement
terminates on May 1, 2004, unless it is terminated earlier. 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 by
the mutual written agreement of the parties or in the event of Mr. Lynchs
disability. For the purposes of the employment agreement, disability means Mr.
Lynchs inability, due to physical or mental impairment, to perform his duties and
obligations, despite reasonable accommodation by us, for a period exceeding three months.
Mr. Lynchs employment may also terminated in the event of his death, notice by us of
termination for cause (as defined in the agreement), or written notice by us of
termination without

44



cause,
upon fourteen (14) days notice. Mr. Lynch is entitled to compensation for early
termination. If Mr. Lynch is terminated without cause, we will pay to Mr. Lynch, as
liquidated damages and in lieu of any and all other claims which Mr. Lynch may have
against us, 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, we entered into an employment agreement with Todd C.
Crow, pursuant to which Mr. Crow agreed to serve as our Chief Financial Officer. Mr.
Crows employment agreement provides that he will receive an annual base salary of
$125,000 increased to $135,000 on May 1, 2000, and will be reviewed annually. The
agreement was extended and terminates on May 1, 2009, unless it is terminated earlier. 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 by the mutual written agreement of the parties or in the event
of Mr. Crows disability. For the purposes of the employment agreement,
disability means Mr. Crows inability, due to physical or mental
impairment, to perform his duties and obligations, despite reasonable accommodation by us,
for a period exceeding three months. Mr. Crows employment may also be terminated in
the event of his death, notice by us of termination for cause (as defined in the
agreement), or written notice by us of termination without cause, upon fourteen (14) days
notice. Mr. Crow is entitled to compensation for early termination. If Mr. Crow is
terminated without cause, we will pay to him, as liquidated damages and in lieu of any and
all other claims which Mr. Crow may have against us, 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, we entered into employment agreement with Daniel L.
McPeak, Jr., pursuant to which Mr. McPeak agreed to serve as our Executive Vice President
and General Manager. The McPeak, Jr. employment agreement provides that Mr. McPeak will
receive an annual base salary of $125,000 increased to $135,000 on May 1, 2000, and will
be reviewed annually. The McPeak, Jr. employment agreement was extended and terminates on
May 1, 2009, unless it is terminated earlier. 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 by the
mutual written agreement of the parties or Mr. McPeaks disability. For the purposes
of the employment agreement, disability means Mr. McPeaks inability, due
to physical or mental impairment, to perform his duties and obligations, despite
reasonable accommodation by us, for a period exceeding three months. Mr. McPeaks
employment may also be terminated in the event of his death, notice by us of termination
for cause (as defined in the agreement), or written notice by us of termination without,
cause upon fourteen (14) days notice. Mr. McPeak is entitled to compensation for early
termination. If Mr. McPeak is terminated without cause, we will pay to him, as liquidated
damages and in lieu of any and all other claims which Mr. McPeak may have against us, 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

Our
Board adopted the 1997 Stock Option Plan, or the 1997 Plan, in November 1997 and the
stockholders approved the 1997 Plan in May 1998. At our meeting of the stockholders held
on June 29, 2001, the stockholders approved increasing authorized shares of common stock
to be issued under the 1997 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, 2003, a total of 3,017,000 shares are available for future grants. 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, or the Code, to our employees. The 1997
Plan also provides for the grant of options that are not intended to qualify as incentive
stock options under Section 422A of the Code to our employees, non-employee directors and
consultants. 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 our common stock on the date of
grant, and the exercise price of any nonqualified stock option may not be less than 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 our companys outstanding capital
stock. Shares subject to an

45



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 plan. Our Board administers the 1997 Plan.
Under the 1997 Plan, options vest not less than 20% per year and have 10-year terms
(except with respect to 10% stockholders which have five-year terms). If we sell
substantially all of our assets, are a party to a merger or consolidation in which we are
not the surviving corporation, then we have the right to accelerate unvested options and
will give the option holder written notice of the exercisability and specify a time
period in which the option may be exercised. All options will terminate in their entirety
to the extent not exercised on or prior to the date specified in the written notice
unless an agreement governing any change of control provides otherwise.

|ITEM 11. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
|-------- | ----------------------------------------------------------------------------------------------

The
following table sets forth certain information as of March 1, 2004, or the Reference Date,
with respect to the beneficial ownership of our common stock, by each person known by us
to own beneficially more than five percent of our 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 38,060,238 shares of our common stock
outstanding and unexercised warrants and options representing 21,197,716 shares.

|Name (1)                                               | Amount & Nature of Beneficial Owner (2) |     | Percent of Class
|------------------------------------------------------ | --------------------------------------- | --- | ----------------
|Monsanto                                               |                                         |     |                 
|800 N. Lindbergh, St. Louis, MO 63167                  | 7,167,479                               |     | 12.10%          
|Daniel L. McPeak, Sr., Chairman of the Board and Chief
|Executive Officer                                      | 5,949,095                               | (3) | 10.04%          
|Intermark Group Holdings, LLC                         
|10707 Club Chase, Fishers, IN 46038                    | 5,803,574                               | (4) | 9.79%           
|Gilbert L. McCord, Sr                                 
|7029 E. Hill Road, Grand Blac, MI 48439                | 5,803,571                               | (5) | 9.79%           
|Glenn H. Sullivan                                     
|13778 Driftwood Drive, Carmel, IN 46033                | 3,919,715                               | (6) | 6.61%           
|Kirit Kamdar, Director                                 | 2,051,250                               | (7) |                 
|Steven W. Saunders, Director                           | 1,100,000                               | (7) |                 
|James C. Lintzenich, Director                          | 50,000                                  | (7) |                 
|Todd C. Crow, Chief Financial Officer                  | 1,335,000                               | (7) |                 
|Ike E. Lynch, V.P. Operations                          | 1,564,409                               | (7) |                 
|Daniel L. McPeak, Jr., V.P. General Manager            | 1,090,500                               | (7) |                 
|                                                       |                                         |    
|All directors and executive officers, as a group      
|(7 persons)                                            | 18,943,828                              |     | 31.97%          

---

|(1) | Except
as otherwise noted, the address for each person is c/o The RiceX Company, 1241 Hawk's
Flight Court, El Dorado       Hills, California 95762.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Unless
otherwise noted, we believe that all persons named in the table have sole voting and
investment power with respect       to all shares of common stock listed as beneficially
owned by them.  A person is deemed to be the beneficial holder of       securities that
can be acquired by such person within 60 days from the Reference Date upon the exercise
of warrants or       options.  Each beneficial owner's percentage ownership is determined
by including shares, underlying options or warrants       which are exercisable by such
person currently, or within 60
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

46



| | days following the Reference Date, and excluding shares
      underlying options and warrants held by any other person.
| | -----------------------------------------------------------------------------------------------------------------------

|(3) | Includes
options to purchase 2,375,000 shares of common stock, 1,708,225 shares in Mr. McPeak's
name and 1,665,870 shares       in his wife's name, Ms. Patricia McPeak, and 200,000
shares held in a joint trust.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Includes
warrants to purchase 4,017,859 shares of common stock.  The warrants are currently
exercisable. Warrants to       purchase 2,232,144 shares are restricted from sale and, or
transfer until such time when our revenues at various stages       reach an annualized
equivalent of $12,000,000 and $25,000,000.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Includes
warrants to purchase 4,017,857 shares of common stock.  The warrants are currently
exercisable. Warrants to       purchase 2,232,143 shares are restricted from sale and, or
transfer until such time when our revenues at various stages       reach an annualized
equivalent of $12,000,000 and $25,000,000. According to Bankruptcy Plan Confirmation
filed the shares       of common stock and warrants held by Gilbert L. McCord, Sr. are
used as collateral to a personal loan which Mr. McCord has       defaulted. The lien
holder has been granted the right to own or sell 1,346,964 shares of common stock and
warrants to       purchase 3,030,669 shares of common stock.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Represents
warrants to purchase 3,919,715 shares of common stock.  The warrants are currently
exercisable. Warrants to       purchase 2,600,000 shares are restricted from sale and, or
transfer until such time when our revenues at various stages       reach an annualized
equivalent of $12,000,000 and $25,000,000.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Includes
options for the purchase of common stock as follows: Kirit S. Kamdar, 300,000; Steven W.
Saunders, 300,000; James       C. Lintzenich, 50,000; Todd C. Crow, 1,335,000; Ike E.
Lynch, 1,165,000, also includes 14,409 shares of common stock and       52,000 options
for the purchase of common stock held by Mr. Lynch's wife to which Mr. Lynch disclaims
beneficial       ownership; Daniel L. McPeak, Jr., 1,085,000.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 12. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
|-------- | ----------------------------------------------

Mr.
Daniel McPeak, Sr. has served the Chairman of our Board since our formation in 1989.  In
November 1998, Mr. McPeak was re-appointed as our CEO.  Mr. McPeak previously served as
our CEO from May 1989 to April 1997.  Mr. McPeak is the spouse of Ms. Patricia McPeak
(see below) and the father of Daniel L. McPeak, Jr.  On January 2, 2002, we issued Mr.
McPeak a non-statutory stock option agreement to purchase 175,000 shares of common stock
at an exercise price of $0.36 per share.  One third of the option shares were fully
vested upon date of grant.  One third of the option shares vest and become exercisable at
$0.36 per share on the first anniversary of the award date.  One third of the option
shares vest and become exercisable at $0.36 per share on the second anniversary of the
award date.  The market price on the date of grant was $0.36 per share.  The expiration
date of the option agreement is January 2, 2012. See Part III, Item 9, "Director
Compensation" for further discussions.  These stock options were issued in accordance
with our Employee Stock Option program, which was ratified by our Board in 1997.

Ms.
Patricia McPeak, the spouse of Daniel L. McPeak, Sr., Chairman of our Board and our Chief
Executive Officer, served as a director on our Board from our formation in 1989 until the
expiration of her term on June 29, 2001.  From February 1989 to March 2000, Ms. McPeak
also served the President of our company.  Ms. McPeak, who resigned that position on
March 31, 2000, retained her seat on our Board until June 29, 2001, at which time her
term expired.

Ms.
McPeak is an officer and director of NutraCea (formally NutraStar) a California
Corporation. NutraStar changed its name to NutraCea in November, 2003. In late 2001 we
entered into an Exclusive Distribution Agreement and Licensing Agreement with NutraStar.
These agreements were terminated in July 2002 with NutraStar for its failure meet certain
performance requirements as specified in the Exclusive Distribution Agreement. Also
during December 2001 we agreed to cancel $190,000 of NutraStar's indebtedness in exchange
for 190,000 shares of NutraStar California's Series A preferred stock. We have recognized
sales to NutraCea of $229,000 and $444,000 during 2003 and 2002, respectively. See Part
II, Item 7, "Financial Statements" for further discussions of NutraStar.

Mr.
Kirit Kamdar has been a director of our company since August 5, 1998 and was a director
of our company from January 1990 to September 1992.  From January 1990 to April 1994, Mr.
Kamdar served as our Executive Vice President. Upon the anniversary date of Mr. Kamdar's
appointment to our Board, in September, 2003, we issued him a non-statutory stock option
agreement to purchase 50,000 shares of common stock at an exercise price of $0.30 per
share.  Market price on the date of grant was $0.30 per share.  The option will be fully

47



vested at the end of one year, or on
the anniversary date.  The expiration date of the option agreement is September 23, 2013.
On the anniversary date of Mr. Kamdar's appointment to our Board, in September 2002, we
issued a non-statutory stock option agreement to purchase 50,000 shares of common stock
at an exercise price of $0.26 per share.  Market price on the date of grant was $0.26 per
share.  The option will be fully vested at the end of one year, or on the anniversary
date.  The expiration date of the option agreement is September 23, 2012.  See Part III,
Item 9, "Director Compensation" for further discussions.  Mr. Kamdar currently owns
2,051,250 shares of our common stock and common stock options, or 3.46%.  Since July
1974, Mr. Kamdar has been Chairman of the Board and Chief Executive Officer of Kamflex
Corporation, a manufacturer of extrusion and conveyor equipment.

Mr.
James C. Lintzenich has been a director of our company since June 2003 and currently is
the principle owner of Intermark Group Holdings, LLC. On April 4, 2002 in a private
transaction, Intermark Group Holdings, LLC purchased 1,785,715 shares of our common stock
and warrants to purchase 1,785,715 shares of our common stock at $0.70 per share from GBV
Intermark Fund LLC. The warrants are immediately exercisable and have a term of five
years.  In connection with this transaction, Intermark Group Holdings, LLC also acquired
warrants to purchase up to 2,232,144 shares of our common stock at $0.70 per share,
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 as our
revenues at various stages reach an annualized equivalent of $12,000,000 and $25,000,000.
   In June 2003, on Mr. Lintzenich's election to our Board, we issued him nonqualified
options to purchase 50,000 shares of our common stock at an exercise price of $0.25 per
share.  The market price of our common stock on the date of grant was $0.25 per share.
 The options will be fully vested at the end of one year on the anniversary date of the
grant and the expiration date of the options is June 23, 2013.  See Part III, Item 9,
"Director Compensation" for further discussions. See Part II, Item 7, "Financial
Statements" for further discussions on this transaction.

We
believe that the transactions set forth above were made on terms no less favorable to us
than could have been obtained from unaffiliated third parties.  We intend that all future
transactions, including loans, between our officers, directors, principal stockholders
and their affiliates, and us be approved by a majority of our Board, including a majority
of the independent and disinterested outside directors who serve on our Board.  In
addition, we intend that all such transactions be on terms no less favorable to us than
could be obtained from unaffiliated third parties.

|Item 13. | EXHIBITS AND REPORTS ON FORM 8-K
|-------- | --------------------------------

| | (a) | INDEX
TO EXHIBITS
| | --- | -----------------

|Exhibit No | Description of Exhibit
|---------- | ----------------------

| | 
| | 

|3.1 |  | Certificate
of Incorporation of the Company. (1)
|--- |  | ------------------------------------------------

|3.2 |  | Bylaws.
(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 |  | Form
of Directors Stock Option Agreement. (1)(3)
|--- |  | ------------------------------------------------

|4.4 |  | 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)
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.5 |  | Registration
Rights Agreement between the Company and FoodCeuticals dated December 31, 1998. (4)
|--- |  | ------------------------------------------------------------------------------------------------

|4.6 |  | Warrant
Agreement number 98-1 between the Company and FoodCeuticals dated December 31, 1998. (4)
|--- |  | ------------------------------------------------------------------------------------------------

|4.7 |  | Warrant
Agreement number 99-1 between the Company and FoodCeuticals dated January 15, 1999. (4)
|--- |  | -----------------------------------------------------------------------------------------------

|4.8 |  | Form
of non-statutory Stock Option Agreement issued under the 1997 Stock Option Plan between
the               Company and employees dated October 1, 1999. (3)(5)
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.9 |  | Warrant
Agreement between the Company and JDK & Associates dated November 1, 1999. (5)
|--- |  | --------------------------------------------------------------------------------------

|4.10 |  | 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)(5)
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

48



|4.11 |  | Form
of Subscription Agreement to the Private Placement Offering 1999. (5)
|---- |  | --------------------------------------------------------------------------

|4.12 |  | Form
of Warrant Agreement to the Private Placement Offering 1999. (5)
|---- |  | ---------------------------------------------------------------------

|4.13 |  | Warrant
agreement between the Company and GBV Intermark Fund, LLC dated September 29, 2000. (7)
|---- |  | -----------------------------------------------------------------------------------------------

|4.14 |  | Warrant
agreement between the Company and Gilbert L. McCord, Sr. dated September 29, 2000. (7)
|---- |  | ----------------------------------------------------------------------------------------------

|4.15 |  | Definitive
agreement between the Company and Intermark Partners, LLC dated September 29, 2000. (7)
|---- |  | --------------------------------------------------------------------------------------------------

|4.16 |  | Form
of Warrant Agreement between the Company and certain former employees dated as of March
31,               2000. (8)
|---- |  | ------------------------------------------------------------------------------------------------------------------------

|4.17 |  | 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)(8)
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.18 |  | Warrant
agreement between the Company and Intermark Partners Strategic Management, LLC
representing               the Class I Warrant dated October 2, 2000. (8)
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.19 |  | Warrant
agreement between the Company and Intermark Partners Strategic Management, LLC
representing               the Class II Warrant dated October 2, 2000. (8)
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.20 |  | Warrant
agreement between the Company and Intermark Partners Strategic Management, LLC
representing               the Class III Warrant dated October 2, 2000. (8)
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.21 |  | 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. (9)
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.22 |  | Preferred
Stock Subscription Agreement between the Company and Alliance Consumer International,
              subsequently named NutraStar, Inc., dated December 10, 2001. (10)
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.23 |  | Alliance
Consumer International, Inc. Exchange Offer For The Common Stock Of NutraStar dated
              December 11, 2001. (10)
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------

|4.24 |  | Put/Call
agreement between the Company and NutraStar, Inc. dated January 15, 2002. (11)
|---- |  | ---------------------------------------------------------------------------------------

|4.25 |  | Form
Non-statutory Stock Option Agreement issued under the 1997 Stock Option Plan between the
              Company and employees dated January 2, 2000. (12)
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.26 |  | Form
of Non-statutory Stock Option Agreement issued September 23, 2002 between the Company and
the               Board of Directors.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------

|10.1 |  | Form
of Indemnification Agreement by and among the Company and certain officers and directors.
(1)(3)
|---- |  | -----------------------------------------------------------------------------------------------------

|10.2 |  | Commercial
Lease and Deposit Receipt between Roebbelen Land Company and the Company dated December
              23, 1991. (1)
|---- |  | ------------------------------------------------------------------------------------------------------------------------------

|10.3 |  | First
Amendment of Lease between Roebbelen Land Company and the Company dated January 19, 1994.
(1)
|---- |  | ---------------------------------------------------------------------------------------------------

|10.4 |  | Second
Amendment of Lease between Roebbelen Land Company and the Company dated July 11, 1996. (1)
|---- |  | -------------------------------------------------------------------------------------------------

|10.5 |  | Third
Amendment of Lease Agreement between Roebbelen Land Company and the Company dated
February 1,               1998. (1)
|---- |  | ---------------------------------------------------------------------------------------------------------------------------

|10.6 |  | Lease
Agreement between Roebbelen Land Company and the Company dated July 11, 1996. (1)
|---- |  | ---------------------------------------------------------------------------------------

|10.7 |  | First
Amendment of Lease between Roebbelen Land Company and the Company dated September 1996.
(1)
|---- |  | -------------------------------------------------------------------------------------------------

|10.8 |  | Second
Amendment of Lease Agreement between Roebbelen Land Company and the Company dated
February 1,               1998. (1)
|---- |  | ----------------------------------------------------------------------------------------------------------------------------

|10.9 |  | Executive
Employment Agreement for Daniel L. McPeak Jr., Executives Todd C. Crow and Ike Lynch have
              similar employment agreements. (3)
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------

|10.10 |  | Stabilized
Rice Bran Processing, Sales, and Marketing Agreement between Farmers' Rice Cooperative
              and the Company dated May 1, 2002. (3)(12)*
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------

|10.11 |  | Sublease
Agreement between the Company and NutraStar, Inc. effective November 1, 1999. (6)
|----- |  | ------------------------------------------------------------------------------------------

|10.12 |  | Employment
Agreement between Daniel L. McPeak, Sr. and the Company dated April 1, 2000. (3)(8)
|----- |  | ----------------------------------------------------------------------------------------------

|10.13 |  | Consulting
Agreement between JDK and Associates, Inc. and the Company executed as of March 15, 2001.
              (9)
|----- |  | ----------------------------------------------------------------------------------------------------------------------

|10.14 |  | Exclusive
Distribution Agreement between the Company and NutraStar, Inc., dated December 21, 2001.
              (10)
|----- |  | ---------------------------------------------------------------------------------------------------------------------

|10.15 |  | License
Agreement between the Company and NutraStar Technologies, Inc. dated January 9, 2002. (10)
|----- |  | --------------------------------------------------------------------------------------------------

49



|10.16 |  | Indemnity
Agreement between the Company and NutraStar, Inc. dated December 13, 2001. (10)
|----- |  | -----------------------------------------------------------------------------------------

|10.17 |  | Contract
for Services between the Company and Dr. Glenn H. Sullivan dated January 1, 2002. (10)
|----- |  | -----------------------------------------------------------------------------------------------

|10.18 |  | Agreement
on Exclusive Distribution in Europe between the Company and KREGLINGER EUROPE N.V. dated
              October 1, 2002.
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------

|21 |  | List
of  Subsidiaries (6)
|-- |  | -------------------------

|23.1 |  | Consent
of Independent Accountants
|---- |  | ----------------------------------

|31.1 |  | Certification
of the Chief Executive Officer of The RiceX Company dated March 30, 2004.
|---- |  | ---------------------------------------------------------------------------------------

|31.2 |  | Certification
of the Chief Financial Officer of The RiceX Company dated March 30, 2004.
|---- |  | ---------------------------------------------------------------------------------------

|32.1 |  | Written
Statement of the Chief Executive Officer of The RiceX Company dated March 30, 2004.
|---- |  | -------------------------------------------------------------------------------------------

|32.2 |  | Written
Statement of the Chief Financial Officer of The RiceX Company dated March 30, 2004.
|---- |  | -------------------------------------------------------------------------------------------

---

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

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

|(3) |  | Represents
a management contract or compensatory plan or arrangement.
|--- |  | ---------------------------------------------------------------------

|(4) |  | Previously
filed as an exhibit to the Company's Form 10-KSB filed with the Commission on April 15,
              1999.
|--- |  | ----------------------------------------------------------------------------------------------------------------------

|(5) |  | Previously
filed as an exhibit to the Company's Form 10-KSB filed with the Commission on March 30,
              2000 and incorporated herein by reference.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) |  | Previously
filed as an exhibit to the Company's Form 10-QSB filed with the Commission on August 18,
              2000 and incorporated herein by reference.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) |  | Previously
filed as an exhibit to the Company's Form 10-QSB filed with the Commission on November
              14, 2000 and incorporated herein by reference.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) |  | Previously
filed as an exhibit to the Company's Form 10-KSB filed with the Commission on April 17,
              2001 and incorporated herein by reference.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) |  | Previously
filed as an exhibit to the Company's Form 10-QSB filed with the Commission on August 10,
              2001 and incorporated herein by reference and incorporated herein by
reference.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10) |  | Previously
filed as an exhibit to the Company's Form 10-KSB filed with the Commission on March 29,
              2002 and incorporated herein by reference.
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------

|(11) |  | Previously
filed as an exhibit to the Company's Form 10-QSB filed with the Commission on May 10,
              2002 and incorporated herein by reference.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|(12) |  | Previously
filed as an exhibit to the Company's Form 10-QSB filed with the Commission on August 12,
              2002 and incorporated herein by reference.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------

|(13) |  | Previously
filed as an exhibit to the Company's Form 10-KSB filed with the Commission on March 31,
              2003 and incorporated herein by reference.
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------

*   Confidential treatment granted
as to certain portions.

| | (b) |  | REPORTS
ON FORM 8-K
| | --- |  | -------------------

As
reported on October 24, 2003, Press release of Registrant's common stock buy-back plan
expired.

|Item 14. |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|-------- |  | --------------------------------------

During
the last two fiscal years, Moss Adams LLP has billed our company the following fees for
its services:

|                       | Fiscal Year EndingDecember 31,
|---------------------- | ------------------------------
|                       | 2003                          
|Audit-Related Fees (1) | $59,125                       

50



|Tax Fees (2)       | $10,350     | $10,150    
|------------------ | ----------- | -----------
|All Other Fees (3) | $         0 | $         0

(1)       
          Audit-Related fees includes fees billed by Moss Adams LLP for professional
          services rendered for auditing our annual consolidated financial statements for
          years ended December 31, 2003 and 2002 and the reviews of the unaudited interim
          financial statements included in our Quarterly Reports on Forms 10-QSB for the
          years ended December 31, 2003 and 2002.

(2)       
          Tax fees includes fees billed by Moss Adams LLP for professional services other
          than audit fees for the years ended December 31, 2003 and 2002. These fees were
          primarily for income tax reporting services.

(3)       
          All Other Fees would include fees for any professional services with respect to
          financial information systems design and implementation for the years ended
          December 31, 2003 and 2002. Moss Adams LLP did not perform any of these other
          services for years ended December 31, 2003 and 2002.

# Audit Committee
Pre-Approval Policies

Rules
adopted by the Securities and Exchange Commission in order to implement requirements of
the Sarbanes-Oxley Act of 2002 require public company audit committees to pre-approve
audit and non-audit services. The Audit Committee has adopted a detailed policy for the
pre-approval of all audit, audit related and tax services, and permissible non-audit
services provided by the independent auditors. The policy provides for an annual review of
an audit plan and budget for the upcoming annual financial statement audit, and entering
into an engagement letter with the independent auditors covering the scope of the audit
and the fees to be paid. The Audit Committee may also from time-to-time review and approve
in advance other specific audit, audit related or permissible non-audit services. In
addition, the Audit Committee may from time-to-time give pre-approval for audit services,
audit related services, tax services or other non-audit services by setting forth such
pre-approved services on a schedule containing a description of, budget for, and time
period for such pre-approved services. The policies require the Audit Committee to be
informed of each service, and the policies do not include any delegation of the Audit
Committees responsibilities to management. The Audit Committee may delegate
pre-approval authority to one or more of its members. The member to whom such authority is
delegated willreport any pre-approval decisions to the Audit Committee at its next
scheduled meeting.

# 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 30, 2004 | By:   /s/ Daniel L. McPeak
         Daniel L. McPeak
         Chairman of the Board and
         Chief Executive Officer
|--------------------- | ------------------------------------------------------------------------------------------------------------------------

|Date:  March 30, 2004 | By:   /s/ Todd C. Crow
         Todd C. Crow
         Director
         Vice President, Finance and
         Chief Financial Officer
|--------------------- | ------------------------------------------------------------------------------------------------------------------------------------

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.

51



|Date:  March 30, 2004 | By:   /s/ Kirit S. Kamdar
         Kirit S. Kamdar
         Director
|--------------------- | --------------------------------------------------------------------

|Date:  March 30, 2004 | By:   /s/ Steven W. Saunders
         Steven W. Saunders
         Director
|--------------------- | --------------------------------------------------------------------------

|Date:  March 30, 2004 | By:   /s/ James C. Lintzenich
         James C. Lintzenich
         Director
|--------------------- | ----------------------------------------------------------------------------

52