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U. S. Securities and Exchange Commission
Washington, D.C. 20549

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FORM 10-KSB

(Mark one)

|/x/ | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2000

|/ / | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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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(State or Other Jurisdiction of Incorporation or Organization No.)

68-0412200(I.R.S. Employer Identification No.)1241 Hawk's Flight Court, El Dorado Hills, CA(Address of Principal Executive Offices)

95762(Zip Code)


Issuer's telephone number (916) 933-3000

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

Title of each class: None
Name of each exchange on which registered: None

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

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Check
whether the issuer: (1) filed all reports to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /x/  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: $3,838,514

State
the aggregate market value of the voting stock held by non-affiliates computed by reference to the price at which the stock was sold or the average bid and asked prices of such
stock, as of a specified date within the past 60 days. As of March 2, 2001, the aggregate market value of the company's common stock held by non-affiliates was $9,095,808.

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 2, 2001, 38,829,350 shares of common
stock were outstanding.

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

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FORM 10-KSB

INDEX

|           |  |                                                                                                                 |  | Page
|---------- |  | --------------------------------------------------------------------------------------------------------------- |  | ----
|PART I     |  |                                                                                                                 |  |     
|Item 1.    |  | Description of Business                                                                                         |  | 3   
|Item 2.    |  | Description of Property                                                                                         |  | 17  
|Item 3.    |  | Legal Proceedings                                                                                               |  | 17  
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                             |  | 17  
|PART II    |  |                                                                                                                 |  |     
|Item 5.    |  | Market for Common Equity and Related Stockholder Matters                                                        |  | 19  
|Item 6.    |  | Management's Discussion and Analysis or Plan of Operation                                                       |  | 22  
|Item 7.    |  | Financial Statements                                                                                            |  | 29  
|Item 8.    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                            |  | 47  
|PART III   |  |                                                                                                                 |  |     
|Item 9.    |  | Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act |  | 48  
|Item 10.   |  | Executive Compensation                                                                                          |  | 51  
|Item 11.   |  | Security Ownership of Certain Beneficial Owners and Management                                                  |  | 55  
|Item 12.   |  | Certain Relationships and Related Transactions                                                                  |  | 57  
|Item 13.   |  | Exhibits, List and Reports on Form 8-K                                                                          |  | 59  
|Signatures |  | 64                                                                                                             

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PART I

Item 1. DESCRIPTION OF THE BUSINESS

OVERVIEW

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

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

The
Company generated approximately $3,839,000 and $3,259,000 in revenue for the years ended December 31, 2000 and 1999, respectively. The Company's business is not seasonal. "See
Part IIItem 7. Financial Statements."

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

RiceX
and RiceX Solubles are registered trade names of the Company. Mirachol® and Max "E"® are registered trademarks of the Company,
and the Company holds patents to the production of Beta Glucan, a micro nutrient enriched rice bran oil process, and a method to treat high cholesterol.

RICEX PRODUCTS

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

|RiceX Stabilized Rice Bran: |  | Stable whole rice bran and germ. This is the basic stabilized rice bran product that is both a food supplement and an ingredient for cereals, baked goods, companion animal feed, health bars, etc., and also the base
material for producing RiceX Solubles, oils and RiceX Fiber Complex.
|--------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|RiceX Stabilized Rice Bran Fine:                                                                                                                                         |  | This is the same product as RiceX Stabilized Rice Bran except that it has been ground to a particle size that will pass through a 20 mesh screen. Used primarily in baking applications.                                                                                                                                               
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Dextrinized Rice Bran:                                                                                                                                                   |  | A carbohydrate converted stabilized rice bran that is more suitably used in baking and mixed health drink applications. This product contains all of the nutrient rich components of stabilized rice bran.                                                                                                                             
|RiceX Solubles:                                                                                                                                                          |  | A highly concentrated soluble carbohydrate and lipid rich fraction component of RiceX with the fiber removed. RiceX Solubles also embodies a concentrated form of the vitamins and nutrients found in stabilized
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 bran is
processed to form RiceX Solubles.                                                                                 
|In addition, further refining RiceX Stabilized Rice Bran into oil and its by-products produces all Max "E" Oil, RiceX Defatted Fiber and Higher Value Fractions ("HVF").
|Max "E" Oil:                                                                                                                                                             |  | Nutrient rich oil made from RiceX Stabilized Rice Bran. This oil has a high flash point, which provides a very long fry life, and it is not readily absorbed into food. In addition, the oil maintains many of the
nutritional benefits of the whole rice bran products.                                                               
|RiceX Defatted Fiber:                                                                                                                                                    |  | Low fat-soluble fiber that does not contain rice bran oil. This is a product designed for use by the baking industry for its high fiber nutritional benefits.                                                                                                                                                                          
|Higher Value Fractions ("HVF"):                                                                                                                                          |  | Nutraceutical-like compounds naturally occurring in Stabilized Rice Bran and Rice Bran Oil that provide specific health benefits. Tocopherols, tocotrienols, and gamma oryzanol are some of the antioxidant-rich fractions
that are found in rice bran and are enhanced by stabilization, with the gamma oryzanol being unique to rice.

INDUSTRY BACKGROUND

THE IMPORTANCE OF RICE

Rice is the staple food for approximately 70% of the world's population, and is the staple food source for several of the world's largest countries. World rice
production is expected to be more than 592 million metric tons in 2000 (according to the United States Department of Agriculture), constituting more than one quarter of all cereal grains produced
worldwide. The United States accounts for less than 2% of the world's production. Ninety percent (90%) of world rice tonnage is produced in 13
countries with aggregate populations of 3.2 billion people (USA Rice Federation, Rice Notes). Approximately 75% of all rice production occurs in five regions: China, India, South East Asia, Africa and
South America that have a combined population of 2.3 billion people (nearly 50% of the world's population) and an average per capita gross domestic product of $2,000 (less than one tenth of the U.S.
average).

Malnutrition
is a common problem in this group of nations, particularly for people located in rural villages where subsistence rice farming is a primary livelihood. Transportation and
storage are poor, consequently locally grown rice is consumed locally and the amount of food available varies widely over time with changes in seasons and weather. Children are especially susceptible
to variations in local

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

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

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

THE RICEX SOLUTION

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

The
Company's processing equipment is designed to be installed on the premises of any two-stage rice mill and is located downstream from the rice polishers. After hulling, the rice is
transported pneumatically to the rice polishing room where the brown rice kernels are tumbled and the rice bran is polished from the surface of each kernel. The bran is separated from the denser
polished rice grains

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and is transported pneumatically to a loop conveyor system designed by the Company. The loop conveyor system immediately carries the fresh, unstabilized rice bran to the RiceX Company stabilizer.
Stabilization is achieved by feeding the fresh rice bran into a specially designed auger food extruder that forces the material under pressure and heat through an orifice. The auger is designed to
create the proper temperature, shear and pressure necessary to selectively deactivate the lipase enzyme and reduce the microbiological load. Process controllers that maintain process conditions within
the prescribed pressure/temperature regime control the system. In case of power failure or interruption of
the flow of fresh bran into the system, the electronic control system is designed to purge the RiceX Company equipment of material in process and safely shut down.

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

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

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

BENEFITS OF RICEX STABILIZED RICE BRAN

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

RICEX STABLIZED RICE BRAN COMPOSITION

Fat

18%-23%Protein

12%-16%Total Dietary Fiber

23%-35%Soluble Fiber

2%-6%Moisture

4%-8%Ash

7%-10%Calories

3.2 kcal/gram


Rice
bran is unique in the plant kingdom. Its protein is hypoallergenic and contains all of the essential amino acids, the necessary building blocks of protein in the body. Rice bran
contains approximately 20% oil, which closely resembles peanut oil in fatty acid composition and heat stability. Rice bran oil contains essentially 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, pp593-691.)

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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.)

BUSINESS STRATEGY

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

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

DEVELOPED NATIONS

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

DEVELOPING NATIONS

In December 2000, the Company entered into an international joint venture with PRODESA and the Children's Christians Fund for supplying nutritionally dense
ingredients for regional nutritional enhancement and school breakfast/lunch programs at the community level throughout Guatemala. As a result, the Company received an initial order from PRODESA for
$2,500,000 that requires the Company to deliver product to Guatemala over twelve months starting January 2001. Also in December 2000, the Company received $1,240,800 as prepayment for the first six
months of said purchase order to Guatemala.

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

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

SALES AND MARKETING

The Company has targeted four distinct product areas in which RiceX Bran and related products may be used as the primary ingredient. The Company's key
marketing strategy is to form strategic alliances with industry leaders in each of its target markets. This strategy will allow the Company to leverage the research, marketing and distribution
strengths of its partners in order to more economically and efficiently introduce and market products. The Company has formed alliances, or has entered into negotiations to form alliances, in each of
its target markets: Nutraceuticals, Functional Food Ingredients, Performance Feed Supplements and Companion Pet Food Ingredients, and Rice Bran Oils.

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

NUTRACEUTICALS

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

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During
2000, the Company finalized and entered into a joint venture agreement with NutraStar, Incorporated ("NutraStar") for developing and marketing the nutraceuticals and
value-added functional foods markets for human nutrition. NutraStar was granted an exclusive license to sell RiceX products in the nutraceutical market. The license covers the United States on an
exclusive basis and worldwide on a non-exclusive basis. The exclusive license can be expanded on a country-by-country basis. As part of this transaction, Patricia McPeak resigned as President of the
Company and became an officer and shareholder of NutraStar. Ms. McPeak retained her seat on the Company's Board of Directors. She is the spouse of Daniel L. McPeak, Sr., Chairman of the Board and
Chief Executive Officer of the Company. In exchange for the exclusive license in the nutraceutical market, the Company will receive license fees and it became a ten-percent shareholder in NutraStar.
See Part II, Item 7, "Financial Statements," and Part III, "Certain Relationships and Related Transactions" for further discussions of NutraStar.

In
December 2000, the Company entered into an international joint venture with PRODESA and the Children's Christians Fund for supplying nutritionally dense ingredients for regional
nutritional enhancement and school breakfast/lunch programs at the community level throughout Guatemala. As a result, the Company received an initial order from PRODESA for $2,500,000 that requires
the Company to deliver product to Guatemala over twelve months starting January 2001. Also in December 2000, the Company received $1,240,800 as prepayment for the first six months of said purchase
order to Guatemala.

FUNCTIONAL FOOD INGREDIENTS

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

PERFORMANCE FEED AND COMPANION PET FOOD SUPPLEMENTS

The Company also markets RiceX Bran as a feed supplement for animals. RiceX Bran is used as an equine feed supplement and has proven to provide greater muscle
mass, improved stamina, and hair-coat luster when added to a normal diet.

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

During
2000, the Company initiated strategic alliance discussions with several major domestic premium pet food and equine feed manufacturers and distributors. The Company anticipates
the focus during 2001 will be to aggressively finalize a joint venture with a major premium pet and equine product manufacturers.

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.

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

MARKETING METHODS

As of March 2, 2001, the Company has a direct in-house sales representative and has retained the services of a strategic development firm to assist in
establishing and implementing a strategic plan for growth in domestic and international markets. In addition, the Company has recently entered into joint venture agreements with NutraStar and PRODESA
for developing and marketing RiceX Bran products. Shipping and distribution of products are managed and directed by RiceX Company corporate staff and by the direction of several of its processing
locations and subcontract shippers. Additionally, significant alliances are in process of development to help increase sales volume.

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

CUSTOMERS

The Company has in excess of 150 active customer accounts. Currently, the Company's major customers are (1) Wolcott Farms, (2) NutraStar (affiliate), (3)
Pacific Grain, and (4) California Natural Products. The Company depended on these customers for approximately 72% of all sales revenue during 2000. The Company expects PRODESA, see Part I
"Developing Nations", to be a major customer starting in 2001. See Part III, "Certain Relationships and Related Transactions" for further discussions of NutraStar. Loss of any of these companies as a
customer could have a material adverse effect on the Company's business, financial condition and results of operations.

SUPPLY AND MANUFACTURING

The Company purchases unstabilized rice bran from two major suppliers, Farmers' Rice Cooperative and California Pacific Rice Growers. Pursuant to agreements
with these companies, the Company's stabilization machinery is physically attached to the suppliers' rice processing plants and the rice bran by-product is directly transferred to the Company's
machinery for stabilization without the need for shipping. The relationship with the suppliers is symbiotic, as the rice manufacturer searches for raw rice
bran marketing channels while the Company has a ready access to unstabilized bran. These suppliers are currently the only suppliers of unstabilized rice bran to the Company. The Company intends to
enter into additional relationships with rice processors, both in the U.S. and abroad, as part of its overall business strategy. The Company's production capacity currently stands at 2,400 tons per
month. The Company believes that it will be able to obtain additional suppliers due to the benefits suppliers can expect to receive from an agreement with the Company. There can be no assurance that
the Company will obtain additional suppliers.

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

Every
food product manufactured by the Company is produced under published FDA and USDA regulations for "Good Manufacturing Practices." The Vice President of Operations oversees
quality control, a microbiologist and Ph.D. chemist conducts 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. The Company has chosen to
treat the RiceX Process as a trade secret and not to pursue process or process equipment patents on the original processes. However, process improvements will be reviewed for future patent protection.
The Company believes that the unique products, and their biological effects, resulting from RiceX Company Stabilized Rice Bran are patentable. In 1998, the Company filed two provisional U.S. patent
applications relating to RiceX Solubles, RiceX Fiber Complex and HVF products and intends to seek patent protection in selected foreign jurisdictions. The patent applications include "A Method for
Treating Diabetes Mellitus," and "A Method for Treating Hypercholesterolemia, Hyperlipidemia, and Atherosclerosis." The Hypercholesterolemia Treatment issued on October 3, 2000, was assigned patent
number 6,126,943. The Company may apply for additional patents in the future as new products are developed.

RiceX
and RiceX Solubles are registered trade names of the Company. Mirachol® and Max "E"® are registered trademarks of the Company,
and the Company holds patents to the production of Beta Glucan, a micro nutrient enriched rice bran oil process, and a method to treat high cholesterol.

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

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

11

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or selling its systems, any of which could have a material adverse effect on the Company's financial condition and results of operations. In addition, there can be no assurance that a license under a
third party's intellectual property rights will be available on reasonable terms, if at all. See "Factors Affecting Operating ResultsPatents, Licenses and Intellectual Property Claims."

COMPETITION

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

RESEARCH AND DEVELOPMENT

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

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

Expenditures
for research and development for the years ended December 31, 2000 and 1999 totaled $271,000 and $712,000, respectively. Even though expenditures were down for the year
ended 2000 compared to the year ended 1999, the Company expects to continue research and development expenditures to establish the scientific basis for health claims of existing products and to
develop new products and applications.

The
reduction of R&D expenses in 2000 was mostly due to the termination and subsequent transfer of technical employees and associated expenses to a nutraceutical company, NutraStar,
that was granted an exclusive license to sell RiceX Bran products.

EMPLOYEES

As of March 2, 2001, the Company has a total of 17 employees, all of which are full time employees. The Company believes that its relations with its employees
are good.

12

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FORWARD-LOOKING STATEMENTS

When used in this report, the words "believe," "expect," "anticipate" and similar expressions, together with other discussion of future trends or results, are
intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Such statements are subject to certain risks and uncertainties, including those discussed below that could cause actual results to differ materially from those
projected. These forward-looking statements speak only as of the date hereof. All of these forward-looking statements are based on estimates and assumptions made by management of the Company which,
although believed to be reasonable, are inherently uncertain and difficult to predict; therefore, undue reliance should not be placed upon such statements. The following important factors, among
others, could cause the Company's results of operations to be adversely affected in future periods: (i) increased competitive pressures from existing competitors and new entrants; (ii) increases in
interest rates or the Company's cost of borrowing or a default under any material debt agreements; (iii) deterioration in general or regional economic conditions; (iv) adverse state or federal
legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations; (v) loss of customers or sales weakness; (vi) inability to
achieve future sales levels or other operating results; (vii) the unavailability of funds for capital expenditures; and (viii) operational inefficiencies in distribution or other Company systems. Many
of such factors are beyond the control of the Company. There can be no assurance that the Company will not incur new or additional unforeseen costs in connection with the ongoing conduct of its
business. Accordingly, any forward-looking statements included herein do not purport to be predictions of future events or circumstances and may not be realized. In addition, assumptions relating to
budgeting, marketing, advertising, litigation and other management decisions are subjective in many respects and thus susceptible to interpretations and periodic revisions based on actual experience
and business developments, the impact of which may cause the Company to alter its marketing, capital expenditure or other budgets, which may in turn affect the Company's financial positions and
results of operations.

LIMITED OPERATING HISTORY

There is limited historical financial information about the Company upon which to base an evaluation of the Company's performance or to make a decision
regarding an investment in shares of the Company's common stock. The Company has shareholders' equity of $2,581,000, incurred a loss of $2,468,000 and generated cash of $1,881,000 in operating
activities for the year ended December 31, 2000. The Company's cash and cash equivalents aggregated $968,000 at December 31, 2000. The Company commenced manufacturing and marketing activities in June
1996 and has developed a specific operating plan to meet the ongoing liquidity of the Company's operations both for the year ended December 31, 2000 and thereafter. The Company's business could be
subject to any or all of the problems, expenses, delays and risks inherent in the establishment of a new business enterprise including limited capital resources, possible delays in product
development, possible cost overruns due to price and cost increases in raw product and manufacturing processes, uncertain market acceptance and absence of an operating history. Therefore, there can be
no assurance that the Company's business or products will be successful or that the Company will be able to achieve or maintain profitable operations. There can be no assurance that the Company will
not encounter unforeseen difficulties that may deplete its capital resources more rapidly than anticipated.

The
Company's major focuses over the past two years have resulted in improving shareholders' equity by almost $7,400,000 and retiring $14,577,000 of debt obligations that matured
during 2000 and 1999, $4,350,000 and $10,227,000 respectively. Shareholders' equity improved to $2,581,000 on December 31, 2000 compared to negative $4,755,000 on December 31, 1998. In September 2000
the Company finalized an agreement with a venture capital firm and converted a $2,500,000 note to equity

13

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by issuing 3,571,429 shares of common stock and warrants to purchase 3,571,429 shares of common stock at $.70 per share. During December 2000, the Company retired its final debt payment of $1,850,000
with revenues and operating profits generated during 2000.

The
Company is now debt-free and positioned to focus on business development. The operating plan includes improved gross margins from reduced costs by improved production efficiencies
and product sales mix and by increased sales. Management also implemented spending controls, which reduced overhead costs. Additionally, significant alliances are in the process of development, which
are to help increase sales volume. The Company's management believes that its operating plan currently being implemented, is sufficient to meet the Company's liquidity needs for the year ended
December 31, 2001.

MARKET RISKS OF A NEW BUSINESS

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

COMPETITION

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

GOVERNMENTAL REGULATION

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

14

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RELIANCE ON LIMITED NUMBER OF PRODUCTS

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

RELIANCE ON ADEQUATE SUPPLY OF RAW RICE BRAN

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

DEPENDENCE ON MARKETING EFFORTS

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

DEPENDENCE ON KEY EMPLOYEES

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

PATENTS, LICENSES AND INTELLECTUAL PROPERTY CLAIMS

The Company's success depends in part on its ability to obtain patents, licenses and other intellectual property rights for its products and technology. The
Company has one provisional U.S. patent application pending and the Company may decide to file corresponding international applications. The process of seeking patent protection may be long and
expensive, and there can be no assurance that patents will be issued, that the Company will be able to protect its technology adequately, or that competition will not be able to develop similar
technology. The Company believes the basis on which it has filed its current pending patent application is reasonable; however, there can be no assurance that any patent application filed will result
in issued patents or that the Company will choose to pursue each patent application to issuance. There currently are no claims or lawsuits pending or threatened against the Company regarding possible
infringement claims, but there can be no assurance that infringement claims by third parties, or claims for indemnification resulting from infringement claims, will not be asserted in the future or
that such assertions, if proven to be true, will not materially adversely affect the Company's business, financial condition and results of operations. In the future, litigation may be necessary to
enforce patents issued to the Company, to protect trade secrets or know-how owned by the Company or to defend the Company against claimed infringement of the rights of others and to determine the
scope and validity of the proprietary rights of others. Any

15

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litigation could result in substantial cost and diversion of effort by the Company, which could have a material adverse affect on the Company's financial condition and results of operations. Adverse
determinations in any litigation could result in the Company's loss of proprietary rights, subjecting the Company to significant liabilities to third parties, require the Company to seek licenses from
third parties or prevent the Company from manufacturing or selling its systems, any of which could have a material adverse affect on the Company's financial condition and results of operations. There
can be no assurance that a license under a third party's intellectual property rights will be available to the Company on reasonable terms, if at all.

COMPUTER ISSUES RELATING TO YEAR 2000

In the past, many computer systems and software products were coded to accept only two digit entries in the date code field. Beginning in the "Year 2000",
these date code fields must accept four digit entries in order to distinguish Year 2000 and beyond dates. As a result, computer systems and/or software used by many companies had to be upgraded to
comply with Year 2000 requirements. The Company evaluated the impact of the Year 2000 issue as it affected its business operations and
interfaces with customers and vendors. The only two suppliers of raw rice bran to the Company reported to the Company that they had an active Year 2000 program in place and that they expected no
interruptions in raw rice bran supply due to Year 2000 computer problems. The Company also surveyed its other major vendors and major customers to determine if the Year 2000 would pose a disruption in
service from them. The Company received no notice that the Year 2000 would pose a problem for its vendors or major customers, and essentially all of the Company's critical systems include new hardware
and packaged software recently purchased from large vendors who represented that these systems are Year 2000 compliant.

Subsequent
to the end of 1999, the Company's operations are fully functioning and have not experienced any significant issues related to the Year 2000. While the Company is encouraged
by the results of its Year 2000 efforts, monitoring for any potential problems continued throughout 2000.

Although
the Company does not believe any continued exposure exists, the company has a contingency plan for possible Year 2000 issues and will continue to update these plans based on
assessments of any subsequent Year 2000 issues as additional information becomes available.

THIN MARKET; POSSIBLE VOLATILITY OF STOCK PRICE

The Company's Common Stock has been traded on the OTC Bulletin Board since May 1996 under the symbol "RICX". The Company believes that factors such as
announcements of developments related to the Company's business, fluctuations in the Company's quarterly or annual operating results, failure to meet securities analysts' expectations, general
conditions in the international marketplace and the worldwide economy, announcements of technological innovations or new systems or enhancements by the Company or its competitors, developments in
patents or other intellectual property rights and developments in the Company's relationships with customers and suppliers could cause the price of the Company's common stock to fluctuate, perhaps
substantially. In recent years the stock market has experienced extreme price fluctuations, which have often been unrelated to the operating performance of affected companies. Such fluctuations could
adversely affect the market price of the Company's common stock.

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

Under the Company's Certificate of Incorporation, the Board of Directors of the Company has the authority, without action by the Company's stockholders, to fix
certain terms of, and to issue, shares of Preferred Stock. The Company is incorporated under Delaware law. Certain provisions of the

16

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

THE COMPANY

The Company was incorporated under Delaware law in May 1998 and succeeded to the business of its predecessor corporation, Food Extrusion, Inc., pursuant to a
reincorporation that was effective upon completion of the merger of the Nevada corporation with the Delaware corporation on August 4, 1998. Food Extrusion, Inc., ("FoodEx CA"), was incorporated in
California in May 1989 and subsequently merged in a stock-for-stock exchange into Core Iris, a Nevada corporation and subsequently changed its name to Food Extrusion, Inc. ("Food Extrusion, Inc.").
Food Extrusion, Inc. changed its name to The RiceX Company in May 1998. Food Extrusion Montana, Inc. ("FoodEx MT"), was incorporated in Montana in December 1996, as a wholly owned subsidiary of the
Company. In January 1997, FoodEx MT acquired certain assets of Centennial Foods, Inc., an Idaho corporation ("Centennial") in exchange for 310,000 (adjusted to 1,891,156 in July 1999) shares of $.001
par value common stock of Food Extrusion, Inc. and the assumption of certain liabilities totaling approximately $1,320,000. These obligations were paid in full in January 1999. See "Recent Sales of
Unregistered Securities".

Item 2. DESCRIPTION OF PROPERTY

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

FoodEx
MT owns a 15,700 square foot production facility in Dillon, Montana, which, at December 31, 1998, was pledged as collateral for a $368,999 non interest bearing loan from
the State of Montana, Department of Commerce, that was repaid in full in January 1999.

The
Company believes that its facilities are adequate for its proposed needs through 2001 and that the properties are adequately covered by insurance.

Item 3. LEGAL PROCEEDINGS

The Company is not involved in any material pending legal proceedings, other than routine litigation incidental to the Company's business, to which the Company
is a party or of which any of its property is subject.

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

The annual Meeting of Stockholders of the Company was held on June 30, 2000. At the time of the meeting, proxies representing 27,798,078 votes were cast
approving the election of Joseph R.

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Bellantoni and Milton A. Koffman as directors of the Company. The final tabulation of votes cast for, against, or withheld, as well as the number of abstention and broker non-votes for each
nominee for the office as a director were as follows:

|                     |  | Votes      |  |   |  |       
|-------------------- |  | ---------- |  | - |  | ------
|
|
|Joseph R. Bellantoni |  | 27,798,078 |  |  |  | 82,980
|Milton A. Koffman    |  | 27,798,078 |  |  |  | 82,980

Messrs.
Bellantoni and Koffman voluntarily resigned as members of the Board of Directors of the Company prior to the expiration of their terms in office. In December 1998, the Company
entered into a loan agreement and related promissory note with a previously unrelated party (the "Lender") to borrow $1,850,000. A provision in the loan agreement granted the Lender the right to
designate two (2) members of the Company's Board of Directors while the promissory note was outstanding and the Lender designated Messrs. Bellantoni and Koffman as members of the Board of Directors.
On December 31, 2000 the Company retired the note, and the Lender's directors, Messrs. Bellantoni and Koffman, tendered their resignations to the Company effective December 31, 2000.

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PART II

Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

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

COMMON STOCK

HIGH

LOW2000First Quarter

$
1.13

$
0.59Second Quarter

$
0.75

$
0.41Third Quarter

$
0.63

$
0.31Fourth Quarter

$
0.69

$
0.251999First Quarter

$
1.56

$
0.66Second Quarter

$
1.16

$
0.53Third Quarter

$
1.00

$
0.53Fourth Quarter

$
1.44

$
0.47


There
are approximately 287 holders of record of the Company's common stock as of March 2, 2001.

DIVIDENDS

The Company has not paid, nor declared, any dividends since its inception and does not intend to declare any such dividends in the foreseeable future. The
Company's ability to pay dividends is subject to limitations imposed by Delaware law and, as a quasi-California corporation, to the more restrictive provision of California law. Under Delaware law,
dividends may be paid to the extent that the corporation's assets exceed its liabilities and it is able to pay its debts as they become due in the usual
course of business. California law generally prohibits a corporation from paying dividends unless the retained earnings of the corporation immediately prior to the distribution exceed the amount of
the distribution. Alternatively, a corporation may pay dividends if (i) the assets of the corporation exceed 1 1/4 times its liabilities; and (ii) the current assets of the corporation equal or exceed
its current liabilities, but if the average pre-tax earnings of the corporation before interest expense for the two years preceding the distribution was less than the average interest expense of the
corporation for those years, the current assets of the corporation must exceed 1 1/4 times its current liabilities.

RECENT SALES OF UNREGISTERED SECURITIES

In 1998, in conjunction with RiceX's reincorporation in Delaware, the Company increased its authorized number of common shares from 50,000,000 shares to
100,000,000 shares and authorized 10,000,000 shares of preferred stock which may be issued from time to time, in one or more series, and authorized its Board of Directors to establish the rights,
preferences and privileges of each such series, when issued. At December 31, 2000, an aggregate of 26,671,369 shares of the Company's common stock was reserved for future issuance upon the exercise of
stock options and warrants.

During
2000, the Company issued and sold 168,000 shares of its common stock to private placement investors for $116,400, net of financing fees of $9,600. Also in connection with the
transaction, the investors received warrants to purchase up to 168,000 shares of the Company's common stock. The warrants are exercisable at $1.00 per share during the first year from the date of
issuance, $1.25 per share during the second year from the date of issuance and at an exercise price of $1.50 per share during the third year from the date of issuance. The warrants expire three years
from

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the date of issuance. The shares were issued without registration under the Securities Act in reliance on the exemption from registration provided by Section 4(2) of the Securities Act.

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

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

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

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

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

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

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

During
1999, the Company issued 2,242,152 (2,105,111 to private placement investors and 137,041 issued as a finders fee in connection with these transactions) shares of common stock
and warrants to purchase 2,105,111 shares of common stock in conjunction with a $6,000,000 dollar private placement for $1,455,082. These warrants, which expire three years from issue date, have an
exercise price for the

20

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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, 1999, all warrants issued in conjunction with this private placement
were outstanding. The shares were issued without registration under the Securities Act in reliance on the exemption from registration provided by Section 4(2) of the Securities Act.

In
May 1999, the Company issued 25,000 shares of common stock to a consultant for services rendered. The value of the common stock was $25,000 and was included in professional fees
for the year ended December 31, 1999. The shares were issued without registration under the Securities Act in reliance on the exemption from registration provided by Section 4(2) of the Securities
Act.

In
January 1997, the Company acquired the assets of FoodEx Montana ("FoodEx MT") in exchange for 310,000 shares of the Company's common stock and the assumption of certain liabilities
totaling $1,320,000 that were retired in January 1999. The seller also was given the option to sell the common shares back to the Company ("Put Option") at a price of $5.00 per share in November 1998
or sooner upon the occurrence of certain events. The shares were issued without registration under the Securities Act in reliance on the exemption from registration provided by Section 3(a)(10) of the
Securities Act.

In
1998, the Put Option was amended to permit the holder of the 310,000 shares to receive additional common stock which, when added to the current value of the 310,000 shares, had an
aggregate fair value of $1,550,000. The number of shares to be issued would be based on an average 30 days market price of the Company's common stock. At the same time the Put Option was amended, the
Company issued 100,000 shares of common stock to the seller for the patent to Beta Glucan technology and the Mirachol Registered Trademark, which were not part of the FoodEx MT assets acquired in
January 1997. The shares were issued without registration under the Securities Act in reliance on the exemption from registration provided by Section 4(2) of the Securities Act.

In
July 1999, the Company issued 1,581,156 shares of common stock to the seller to finalize the Put Option, as amended, in connection with the asset purchase agreement discussed
above. Accordingly, the number of additional shares issued was calculated on the Company's common stock 30 days average market value. The shares were issued without registration under the Securities
Act in reliance on the exemption from registration provided by Section 4(2) of the Securities Act.

In
July 1999, the Company issued 250,000 shares of common stock to a vendor in lieu of $234,000 cash to guarantee direct supplies for three years. The shares were issued without
registration under the Securities Act in reliance on the exemption from registration provided by Section 4(2) of the Securities Act.

In
November 1999, the Company entered into a contract with a company to provide investor relations for a period of one year. The Company issued 1,600,000 shares of common stock with a
fair market value of $1,262,400. Additionally, the Company issued warrants to purchase 1,000,000 shares of common stock. In February 2000, the agreement was terminated and the Company has not
finalized its negotiations with the investor relations firm determining the return of the balance of the unearned stock and warrants. The shares were issued without registration under the Securities
Act in reliance on the exemption from registration provided by Section 4(2) of the Securities Act.

In
November 1999, the Company issued 1,500,000 shares of common stock to three executives pursuant to the exercise of some of their stock options and received promissory notes in the
amount of $1,078,000. In June 2000, the executives rescinded the exercise of these stock options and promissory notes. These stock options were issued in accordance with the Company's Employee Stock
Option Plan that were ratified by the Board of Directors in 1997. The shares were issued without registration under the Securities Act in reliance on the exemption from registration provided by
Section 4(2) of the Securities Act.

21

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In December 1999, Monsanto Corporation ("Monsanto") agreed to convert its note from the Company with an outstanding principal balance of $5,000,000 into 7,167,479 shares of common
stock and $54,441 cash. In February 1997, a 1996 loan agreement ("Loan Agreement") with Monsanto pursuant to which it had advanced $5,000,000 to the Company, to be converted to common stock was
renegotiated. The renegotiated loan, due in November 1999, was non-interest bearing and convertible into shares of the Company's common stock at the lower of $5.00 per share, or the price per share
the Company received in a sale of its common stock in a financing of at least $1,000,000 occurring closest and prior to a notice of intent to convert. The Company recorded a charge against operations
of $1,325,000 in 1997 for the beneficial conversion feature as a result of the fair market value of the stock being greater than the conversion rate on the scheduled dates the Company received the
proceeds pursuant to the Loan Agreement. As a result of this charge, the effective interest rate of the loan is greater than the interest rate currently available to the Company for similar debt;
therefore no imputed interest has been calculated on this loan. The shares were issued without registration under the Securities Act in reliance on the exemption from registration provided by Section
4(2) of the Securities Act.

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

The following is a discussion of the consolidated financial condition of The RiceX Company as of December 31, 2000 and the results of operations for the fiscal
years ended December 31, 2000 and 1999, which should be read in conjunction with, and is qualified in its entirety by, the consolidated financial statements and notes thereto included elsewhere in
this report.

When
used in this report, the words "believe," "expect," "anticipate" and similar expressions, together with other discussion of future trends or results, are intended to identify
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Such statements are subject to certain risks and uncertainties, including those discussed below that could cause actual results to differ materially from those projected. These
forward-looking statements speak only as of the date hereof. All of these forward-looking statements are based on estimates and assumptions made by management of the Company which, although believed
to be reasonable, are inherently uncertain and difficult to predict; therefore, undue reliance should not be placed upon such statements. The following important factors, among others, could cause the
Company's results of operations to be adversely affected in future periods: (i) increased competitive pressures from existing competitors and new entrants; (ii) increases in interest rates or the
Company's cost of borrowing or a default under any material debt agreements; (iii) deterioration in general or regional economic conditions; (iv) adverse state or federal legislation or regulation
that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations; (v) loss of customers or sales weakness; (vi) inability to achieve future sales levels
or other operating results; (vii) the unavailability of funds for capital expenditures; and (viii) operational inefficiencies in distribution or other Company systems. Many of such factors are beyond
the control of the Company. There can be no assurance that the Company will not incur new or additional unforeseen costs in connection with the ongoing conduct of its business. Accordingly, any
forward-looking statements included herein do not purport to be predictions of future events or circumstances and may not be realized. In addition, assumptions relating to budgeting, marketing,
advertising, litigation and other management decisions are subjective in many respects and thus susceptible to interpretations and periodic revisions based on actual experience and business
developments, the impact of which may cause the Company to alter its marketing, capital expenditure or other budgets, which may in turn affect the Company's financial positions and results of
operations.

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OVERVIEW

Since its formation in 1989, the Company has been engaged in extensive research and development activities that resulted in the development of the RiceX
Process to stabilize rice bran. During 1996, 1997 and 1998, the Company accelerated its research, including clinical trials; product development; equipment development; procurement of manufacturing
facilities; development of markets and distribution methods; negotiation of strategic alliances; patent applications; raising capital; and development of corporate infrastructure, including executive
recruitment activities. The Company commenced commercial operations in 1996 with revenues for the year aggregating approximately $908,000 and the Company reporting a net loss of approximately
$5,024,000 for the year ended December 31, 1996. Revenues for year ended December 31, 2000 grew to $3,839,000 with the Company reporting a net loss of $2,468,000.

The
following highlights the Company's financial data for December 31, 2000, 1999 and 1998.

Selected Financial Summary
(in thousands except share data)

|Consolidated Operating Results                     |  | 2000 |            | 1999 |   | 1998       |  
|-------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | -
|Revenue                                            |  | $    | 3,839      |      | $ | 3,259      |  
|Gross margins                                      |  |      | 1,754      |      |   | 1,043      |  
|                                                   |  |      | 46         | %    |   | 32         | %
|Research and development expenses                  |  |      | 271        |      |   | 712        |  
|Selling, general and administrative expenses       |  |      | 1,178      |      |   | 1,329      |  
|Stock option and warrant compensation to employees |  |      | 92         |      |   | 104        |  
|Professional and investor relations fees           |  |      | 1,509      |      |   | 688        |  
|Bad debt expense                                   |  |      | 250        |      |   | 157        |  
|Net income (loss)                                  |  | $    | (2,468     | )    | $ | (3,246     | )
|Earnings per share                                 |  |      | (0.07      | )    |   | (0.13      | )
|Weighted average number of shares outstanding      |  |      | 36,727,443 |      |   | 24,486,683 |  
|                                                   |  |      |            |      |   |            |  

|Consolidated Balance Sheets                  |  | 2000 |            | 1999 |   | 1998       | 
|-------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | 
|Cash and cash equivalents                    |  | $    | 968        |      | $ | 1,030      | 
|Total assets                                 |  |      | 4,539      |      |   | 4,958      | 
|Total liabilities and convertible debt       |  |      | 616        |      |   | 4,890      | 
|Deferred revenue, advance payments           |  |      | 1,341      |      |   |           | 
|Shareholders' equity                         |  | $    | 2,581      |      | $ | 67         | 
|Number of shares outstanding at December 31, |  |      | 38,829,350 |      |   | 36,393,784 | 
|                                             |  |      |            |      |   |            | 

The
Company's major focuses over the past two years have resulted in improving shareholders' equity by almost $7,400,000 and retiring $14,577,000 of debt obligations that matured
during 2000 and 1999, $4,350,000 and $10,227,000 respectively. Shareholders' equity improved to $2,581,000 on December 31, 2000 compared to negative $4,755,000 on December 31, 1998. In September 2000
the Company finalized an agreement with a venture capital firm and converted a $2,500,000 note to equity by issuing 3,571,429 shares of common stock and warrants to purchase 3,571,429 shares of common
stock at $.70 per share. During December 2000, the Company retired its final debt payment of $1,850,000 with revenues and operating profits generated during 2000.

The
Company is now debt-free and positioned to focus on business development. The operating plan includes improved gross margins from reduced costs by improved production efficiencies
and product sales mix and by increased sales. Management also implemented spending controls, which

23

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reduced overhead costs. Additionally, significant alliances are in process of development to help increase sales volume. The Company's management believes that its operating plan currently being
implemented, is sufficient to meet the Company's liquidity needs for the year ended December 31, 2001. For a complete understanding of these activities, this Management's Discussion and Analysis
should be read in conjunction with Part I. Item 1Description of Business and Part II. Item 7Financial Statements to this Form 10-KSB.

YEAR ENDED DECEMBER 31, 2000 AND DECEMBER 31, 1999

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

Product
volume movement through December was up 507,000 lbs., or 5%, from 10,755,000 lbs. in 1999 to 11,262,000 lbs. in 2000. Year to date product volume was up in all categories, SRB
Regular, SRB Fine, RiceX Fiber and RiceX Solubles. SRB Regular volume was up 3%, RiceX Solubles volume was up 72%, RiceX Fiber volume was up 31%, and SRB Fine volume was up 4% compared to the same
period last year.

Gross
margins through period ended December 31, 2000 were $1,754,000, or 46%, compared to $1,043,000, or 32%, during the same period last year. The improvement in gross margin dollars
of $696,000 over 1999 is attributed to the increase in sales volume of higher margin RiceX Bran products, the new multi-year supplier volume/pricing contracts, and increased production use of the
FoodEx Montana plant, thereby reducing unabsorbed costs through December 31, 2000.

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

Selling,
General, & Administration expenses were $1,178,000 and $1,329,000 in 2000 and 1999 respectively, a decrease of $150,000, or 11%. Selling, general, and administration
activities in 2000 were directed at raising capital, establishing new supplier agreements, development of direct sales efforts,

24

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and developing domestic and international sales alliances. Management also implemented spending controls which reduced overhead costs.

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

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

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

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

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

YEAR ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998

Although revenues increased overall by 10% to $3,259,000 from $2,950,000, RiceX Bran product sales grew by more than 23%. Revenues from all product categories
increased over last year. The sale of RiceX SRB Regular and SRB Fine increased $355,000 and $38,000, respectively. Gains in the sales of RiceX Solubles and RiceX Fiber Complex increased $129,000 and
$102,000, respectively. While the sales of RiceX Bran products accounted for approximately 99% and 89% of total sales in 1999 and 1998, respectively, the mix of such products differed significantly.
In 1999, RiceX SRB Regular sales, primarily for the equine market, accounted for 70% of revenue versus 65% in 1998. RiceX SRB Fine, RiceX Solubles and RiceX Fiber accounted for 30% of sales in 1999
versus 24% of sales in 1998. Cereal processing for H.J. Heinz's organic infant cereal accounted for zero sales in 1999 versus $302,000 (11%) of sales in 1998. In 1998, the Company completed its
production contract with H.J. Heinz and no future sales to this customer are anticipated. Management is currently seeking contracts to replace the infant cereal production.

25

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The gross margin on the sale of products was 32% and 10% in 1999 and 1998, respectively. Gross margins improvement over last year was due primarily to production efficiencies, new
operating agreements with suppliers, and product sales mix. The gross margins in 1998 were affected by an inventory valuation adjustment of $533,000. The adjustment was attributed mostly to the
write-off of
dated inventory. The Company expects that gross margins will improve as production capacity and sales grow.

Research
and development expenditures totaled $712,000 in 1999, down 33% from $1,057,000 in 1998. The decrease resulted from scaled back research and development efforts and costs
associated with the termination of a member of the prior management team. In 1998 the Company's research and development activities included the design of the RiceX Process for stabilizing rice bran,
product development and testing and clinical studies to test the efficacy of RiceX in ameliorating the effect of certain diseases. The Company also successfully developed rice bran oil for the
Nutrilite Division of Amway Corporation. In 1999, the Company successfully completed a joint venture pilot program with Monsanto to stabilize rice bran in India.

Selling,
general and administrative expenses decreased $1,357,000 (51%) to $1,328,000 in 1999 from $2,685,000 in 1998. Selling, general and administrative activities in 1998 were
directed at raising capital, establishing manufacturing facilities, developing a direct sales effort, reestablishing executive management and building corporate infrastructure. Most of these efforts
carried through to 1999. Approximately $1,000,000 (83%) of the decrease in selling, general and administrative expenses was attributed to the salaries of, and the severance payments to the three
executive officers that left the Company's employment in December 1998.

The
years ended December 31, 1999 and 1998 included non-cash charges totaling $104,000 and $980,000, respectively, for stock option and warrant compensation to employees. The non-cash
charge of $104,000 in 1999 is for the vested portion of issued options held by the current executive officers. The 1998 non-cash charge of $980,000 included $592,000 relating to the vested portion of
previously issued options held by executive officers and $389,000 compensation expense associated with the fair value of the warrants issued to these officers as part of their severance agreement.

Professional
fees in 1999 were $688,000 compared to $358,000 in 1998. The increase in the 1999 professional fees was primarily due to increased investor relations fees paid to an
investor relations firm. Other costs in 1999 were due to annual audit costs, fees connected with patent searches and applications, and consulting fees. The 1998 professional fees included mostly legal
and accounting fees associated with the reincorporation and merger, SEC registration, private placement, and debt financing in December 1998.

Interest
expense in 1999 was $1,325,000 compared to $539,000 in 1998. The increase was primarily due to debt financing costs in connection with the December 1998 debt acquisition. In
both 1999 and 1998, this primarily represents the amortization of certain debt issuance costs and accrued interest.

The
Company's net loss for 1999 totaled $3,246,000, or $.13 per share, compared to $5,298,000, or $.26 per share for 1998. As discussed above, the decrease in the Company's net loss
reflects improvements in revenues and gross margins and significant reductions in overhead expenses.

LIQUIDITY AND CAPITAL RESOURCES

The cash balances at December 31, 2000 decreased $62,000 to $968,000 from $1,030,000 at December 31, 1999. The Company has, for the first time since inception,
generated cumulative positive cash flows. The cash flows from operations showed substantial improvement on a comparative basis from the same period last year. For year ended December 31, 2000, cash
flows from operations were $1,881,000 versus negative $1,655,000 at December 31, 1999, an improvement of $3,536,000.

26

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In 2000, the Company retired $4,350,000 of current obligations. Prior to the year 2000, the Company had been substantially dependent upon private placements of its equity securities
and debt financing to fund its operating cash requirements. In September 2000, the Company converted a $2,500,000 note to equity (described in the following paragraph). The Company used revenues and
operating profits to make the final payment on a $1,850,000 note to a shareholder that made the Company debt-free as of December 31, 2000.

In
September 2000, the Company finalized an agreement with a venture capital firm to convert a $2,500,000 note to equity. On September 29, 2000, the Company converted the note for
3,571,429 shares of common stock and warrants to purchase 3,571,429 shares of common stock at $.70 per share. These warrants are immediately exercisable and have a term of five years. In connection
with this conversion, the Company also granted additional warrants to purchase up to 4,464,285 shares of common stock at $.70 per share. These additional warrants are exercisable at any time during
the five-year period commencing from the date of grant. The warrant shares are restricted from sale and, or transfer until such time when the Company's revenues at various stages reach an annualized
equivalent of $12,000,000 and $25,000,000.

In
October 2000, the principal parties of the above described agreement have consented with a member and business partner of the venture capital firm to develop and implement a long
term strategic business plan to take the Company forward. In connection with this service, the Company issued warrants to purchase 2,600,000 shares of common stock at $.70 per share. The Company has
valued these warrants using the Black-Scholes Option Pricing Model for a total of $353,000 and recorded as a contra equity account. The warrants relating to developing the strategic plan will be
amortized into
expense beginning October 1, 2000. These warrants are immediately exercisable and have a term of five years. The Company also agreed to grant additional warrants to purchase up to 3,250,000 shares of
common stock at $.70 per share. These additional warrants will be exercisable at any time during the five-year period commencing from the date of grant. The warrant shares are restricted from sale
and, or transfer until such time when the Company's revenues at various stages reach an annualized equivalent of $12,000,000 and $25,000,000.

During
2000, the Company issued 182,137 (168,003 to private placement investors and 14,134 issued as a finders fee in connection with these transactions) shares of common stock and
warrants to purchase 182,137 shares of common stock in conjunction with a $6,000,000 private placement for $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, 2000, all warrants issued in conjunction with this private
placement were outstanding.

During
2000, the Company finalized and entered into a joint venture agreement with NutraStar, Incorporated ("NutraStar") for developing and marketing the nutraceutical and value-added
functional foods markets for human nutrition. NutraStar was granted an exclusive license to sell RiceX products in the nutraceutical market. The license covers the United States on an exclusive basis
and worldwide on a non-exclusive basis. The exclusive license can be expanded on a country-by-country basis. As part of this transaction, Patricia McPeak resigned as President of the Company and
became an officer and shareholder of NutraStar. Ms. McPeak retained her seat on the Company's Board of Directors. She is the spouse of Daniel L. McPeak, Sr., Chairman of the Board and Chief Executive
Officer of the Company. In exchange for the exclusive license in the nutraceutical market, the Company will receive license fees and it became a ten-percent shareholder in NutraStar. During 2000, the
Company recognized sales to NutraStar of $622,000 and recorded cash receipts from NutraStar of $502,000. By year-end 2000 NutraStar had not finalized its pending funding, consequently the Company
established a reserve against a receivable from NutraStar. At December 31, 2000, the Company has a receivable from NutraStar for approximately $330,000 net of allowance for doubtful accounts of
$250,000. The Company received payments from NutraStar totaling $286,000 after December 31, 2000 further

27

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reducing this receivable balance. The Company also has a deposit of $100,000 included in deferred revenue at December 31, 2000 from NutraStar. See Part II, Item 7, "Financial
Statements" and Part III, "Certain Relationships and Related Transactions" for further discussions of NutraStar.

In
December 2000, the Company entered into an international joint venture with PRODESA and the Children's Christians Fund for supplying nutritionally dense ingredients for regional
nutritional enhancement and school breakfast/lunch programs at the community level throughout Guatemala. As a result, the Company received an initial order from PRODESA for $2,500,000 that requires
the Company to deliver product to Guatemala over twelve months starting January 2001. Also in December
2000, the Company received $1,240,800 as prepayment for the first six months of said purchase order to Guatemala.

For
2001, the Company expects to expand its sales and marketing efforts, research and development, and professional and legal fees for patent and trademark applications. The Company
has various ongoing business development strategies that target international markets and domestic premium pet food and equine feed markets.

During
2000, initial market development focused on nutritionally dense ingredients in the international market place: first in Latin America and then Asian countries. These market
segments currently represent multi billion dollar potential market opportunities. Also during 2000, the Company initiated strategic alliance discussions with major domestic premium pet food and equine
feed manufacturers and distributors. Domestic markets for these segments currently represent a potential opportunity of over $250 million annually. The Company anticipates the focus during 2001 will
be to aggressively finalize a joint venture with a major premium pet and equine product producer. The Company hopes the results of these successful alliances will have a significant financial effect
on the Company's annual revenues and profit lines. There can be no assurance the Company will obtain additional strategic partners.

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

These
efforts could significantly increase demand for the Company's products beyond the Company's current production capacity. While the Company believes it can increase its
production capacity to meet current sales demand, significant additional capital could be required to meet such expansion requirements.

The
timing and amount of any capital requirements cannot be predicted at this time. There can be no assurance that any financing will be available on acceptable terms. If such
financing is not available on satisfactory terms, the Company may be unable to develop or expand its business, develop new products, or develop new markets at the rate desired and its operating
results may be adversely affected. Equity financing could result in additional dilution to existing shareholders.

28

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Item 7. FINANCIAL STATEMENTS

THE RICEX COMPANY
INDEX TO FINANCIAL STATEMENTS

|                                                                                           |  | Page
|------------------------------------------------------------------------------------------ |  | ----
|Independent Auditor's Report                                                               |  | 30  
|Consolidated Balance Sheets as of December 31, 2000 and 1999                               |  | 31  
|Consolidated Statements of Operations for the years ended December 31, 2000 and 1999       |  | 32  
|Consolidated Statements of Shareholders' Equity (Deficit) as of December 31, 2000 and 1999 |  | 33  
|Consolidated Statements of Cash Flows for the years ended December 31, 2000 and 1999       |  | 34  
|Notes to Consolidated Financial Statements                                                 |  | 35  

29

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INDEPENDENT AUDITOR'S REPORT

The
Board of Directors The RiceX Company

We have audited the accompanying consolidated balance sheets ofThe RiceX Companyand Subsidiary as of December
31, 2000 and 1999, 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 generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The RiceX Company and Subsidiary at
December 31, 2000 and 1999, and the results of its consolidated operations and its consolidated cash flows for the years then ended in conformity with generally accepted accounting principles.

/s/
Moss Adams LLP

Stockton,
California
February 23, 2001

30

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THE RICEX COMPANY

CONSOLIDATED BALANCE SHEETS

December 31,

|                                       |                                                                                                                                                                | 2000                       |           | 1999        |          
|-------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | --------- | ----------- | ---------
|ASSETS                                 |                                                                                                                                                               
|CURRENT ASSETS:                        |                                                                                                                                                                |                            |           |             |          
|                                       | Cash and cash equivalents                                                                                                                                      |                            | $         | 967,743     |          
|                                       | Trade accounts receivable, net of allowance for doubtful accounts, $267,516 and $17,516 in 2000 and 1999, respectively                                         |                            |           | 641,680     |          
|                                       | Inventories                                                                                                                                                    |                            |           | 312,834     |          
|                                       | Deposits and other current assets                                                                                                                              |                            |           | 45,852      |          
|                                       |                                                                                                                                                                |                            |           |             |          
|                                       |                                                                                                                                                                | Total current assets       |           |             | 1,968,109
|PROPERTY AND EQUIPMENT, net            |                                                                                                                                                                |                            | 2,478,881 |             |          
|OTHER ASSETS                           |                                                                                                                                                                |                            | 91,986    |             |          
|                                       |                                                                                                                                                                |                            |           |             |          
|                                       |                                                                                                                                                                | $                          | 4,538,976 |             | $        
|                                       |                                                                                                                                                                |                            |           |             |          
|LIABILITIES AND SHAREHOLDERS' EQUITY   |                                                                                                                                                               
|CURRENT LIABILITIES:                   |                                                                                                                                                                |                            |           |             |          
|                                       | Note payable to shareholder                                                                                                                                    |                            | $         |            |          
|                                       | Accounts payable and accrued liabilities                                                                                                                       |                            |           | 617,124     |          
|                                       | Deferred revenue                                                                                                                                               |                            |           | 1,340,800   |          
|                                       |                                                                                                                                                                |                            |           |             |          
|                                       |                                                                                                                                                                | Total current liabilities  |           |             | 1,957,924
|CONVERTIBLE NOTE                       |                                                                                                                                                                |                            |          |             |          
|                                       |                                                                                                                                                                |                            |           |             |          
|                                       |                                                                                                                                                                | Total liabilities          |           |             | 1,957,924
|                                       |                                                                                                                                                                |                            |           |             |          
|COMMITMENTS AND CONTINGENCIES (Note G) |                                                                                                                                                                |                            |          |             |          
|SHAREHOLDERS' EQUITY (DEFICIT)         |                                                                                                                                                                |                            |           |             |          
|                                       | Preferred stock, par value $.00l per share, 10,000,000 shares authorized, no shares issued and outstanding                                                     |                            |           |            |          
|                                       | Common stock, par value $.001 per share, 100,000,000 shares authorized, 38,829,350 and 36,393,784 shares issued and outstanding in 2000 and 1999, respectively |                            |           | 38,829      |          
|                                       | Additional paid-in capital                                                                                                                                     |                            |           | 29,351,588  |          
|                                       | Accumulated deficit                                                                                                                                            |                            |           | (26,481,645 | )        
|                                       | Deferred expenses relating to equity issuance                                                                                                                  |                            |           | (327,720    | )        
|                                       | Note receivable from shareholder                                                                                                                               |                            |           |            |          
|                                       |                                                                                                                                                                |                            |           |             |          
|                                       |                                                                                                                                                                | Total shareholders' equity |           |             | 2,581,052
|                                       |                                                                                                                                                                |                            |           |             |          
|                                       |                                                                                                                                                                | $                          | 4,538,976 |             | $        
|                                       |                                                                                                                                                                |                            |           |             |          

The
accompanying notes are an integral part of these statements.

31

---

THE RICEX COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended December 31,

|                                                   |                            | 2000     |            | 1999       |           
|-------------------------------------------------- | -------------------------- | -------- | ---------- | ---------- | ----------
|Revenues                                           |                            |          |            |            |           
|                                                   | Sales                      |          | $          | 3,820,239  |           
|                                                   | Royalties                  |          |            | 18,275     |           
|                                                   |                            |          |            |            |           
|                                                   |                            |          | 3,838,514  |            |           
|Cost of sales                                      |                            |          | 2,084,740  |            |           
|                                                   |                            |          |            |            |           
|                                                   |                            |          | 1,753,774  |            |           
|Research and development expenses                  |                            |          | 271,357    |            |           
|Selling, general and administrative expenses       |                            |          | 1,178,246  |            |           
|Stock option and warrant compensation to employees |                            |          | 92,160     |            |           
|Investor relations                                 |                            |          | 1,165,482  |            |           
|Professional fees                                  |                            |          | 343,762    |            |           
|Bad debt expense                                   |                            |          | 250,000    |            |           
|                                                   |                            |          |            |            |           
|                                                   | Loss from operations       |          |            | (1,547,233 | )         
|Other income (expense):                            |                            |          |            |            |           
|                                                   | Interest and other income  |          |            | 103,333    |           
|                                                   | Interest and other expense |          |            | (1,023,881 | )         
|                                                   |                            |          |            |            |           
|                                                   |                            | Net loss |            | $          | (2,467,781
|                                                   |                            |          |            |            |           
|Basic and diluted earnings per share;              |                            |          |            |            |           
|                                                   | Net loss per share         |          | $          | (.07       | )         
|                                                   |                            |          |            |            |           
|Weighted average number of shares outstanding      |                            |          | 36,727,443 |            |           
|                                                   |                            |          |            |            |           

The
accompanying notes are an integral part of these statements.

32

---

THE RICEX COMPANY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

Years ended December 31, 2000 and 1999

|                                                                              |  |            |   |   |        |   |   |            |   | Deferred
Expenses
Related to
Equity
Issuance |             |   |   |            |  
|----------------------------------------------------------------------------- |  | ---------- | - | - | ------ | - | - | ---------- | - | -------------------------------------------- | ----------- | - | - | ---------- | -
|
|
|
|Balance, December 31, 1998                                                    |  | 22,027,997 |   | $ | 22,028 |   | $ | 18,030,155 |   | $                                            | (20,767,518 | ) | $ | (2,039,783 | )
|Issuance of common stock and warrants for services                            |  | 25,000     |   |   | 25     |   |   | 24,975     |   |                                              |            |   |   |           |  
|Issuance of warrants in conjunction with bridge loan                          |  |           |   |   |       |   |   | 58,500     |   |                                              |            |   |   |           |  
|Amortization of prepaid interest                                              |  |           |   |   |       |   |   |           |   |                                              |            |   |   | 323,593    |  
|Amortization of debt issuance                                                 |  |           |   |   |       |   |   |           |   |                                              |            |   |   | 696,299    |  
|Issuance of additional common stock for put extension                         |  | 1,581,156  |   |   | 1,581  |   |   | (1,581     | ) |                                              |            |   |   |           |  
|Issuance of common stock pursuant to the exercise of stock options            |  | 1,500,000  |   |   | 1,500  |   |   | 1,078,500  |   |                                              |            |   |   |           |  
|Issuance of common stock in private placement, net of finders fee of $123,743 |  | 2,242,152  |   |   | 2,242  |   |   | 1,452,840  |   |                                              |            |   |   |           |  
|Issuance of stock options to employees                                        |  |           |   |   |       |   |   | 103,950    |   |                                              |            |   |   |           |  
|Conversion of debt to equity                                                  |  | 7,167,479  |   |   | 7,168  |   |   | 4,938,394  |   |                                              |            |   |   |           |  
|Issuance of common stock for prepaid processing fees                          |  | 250,000    |   |   | 250    |   |   | 234,125    |   |                                              |            |   |   | (195,313   | )
|Issuance of common stock for investor relations fee                           |  | 1,600,000  |   |   | 1,600  |   |   | 1,262,400  |   |                                              |            |   |   | (913,527   | )
|Issuance of warrants for investor relations fee                               |  |           |   |   |       |   |   | 69,872     |   |                                              |            |   |   |           |  
|Net loss for the year                                                         |  |           |   |   |       |   |   |           |   |                                              | (3,246,346  | ) |   |           |  
|                                                                              |  |            |   |   |        |   |   |            |   |                                              |             |   |   |            |  
|Balance, December 31, 1999                                                    |  | 36,393,784 |   |   | 36,394 |   |   | 27,252,130 |   |                                              | (24,013,864 | ) |   | (2,128,731 | )
|Issuance of common stock and warrants for services                            |  | 82,000     |   |   | 82     |   |   | 73,918     |   |                                              |            |   |   |           |  
|Amortization of prepaid interest                                              |  |           |   |   |       |   |   |           |   |                                              |            |   |   | 323,593    |  
|Amortization of debt issuance                                                 |  |           |   |   |       |   |   |           |   |                                              |            |   |   | 696,298    |  
|Recognition of compensation expense                                           |  |           |   |   |       |   |   | 83,160     |   |                                              |            |   |   |           |  
|Recognition of warrants issued for services                                   |  |           |   |   |       |   |   | 9,000      |   |                                              |            |   |   |           |  
|Amortization of warrants issued for consulting fees                           |  |           |   |   |       |   |   |           |   |                                              |            |   |   | 19,139     |  
|Issuance of common stock pursuant to the exercise of stock options            |  | 1,200,000  |   |   | 1,200  |   |   | 862,800    |   |                                              |            |   |   |           |  
|Rescission of exercises of stock options                                      |  | (2,700,000 | ) |   | (2,700 | ) |   | (1,941,300 | ) |                                              |            |   |   |           |  
|Issuance of common stock private placement, net of finders fee of $9,600      |  | 182,137    |   |   | 182    |   |   | 116,218    |   |                                              |            |   |   |           |  
|Conversion of debt to equity                                                  |  | 3,571,429  |   |   | 3,571  |   |   | 2,415,214  |   |                                              |            |   |   |           |  
|Amortization of prepaid processing fees                                       |  |           |   |   |       |   |   |           |   |                                              |            |   |   | 78,125     |  
|Amortization of investor relations fee                                        |  |           |   |   |       |   |   | 182,127    |   |                                              |            |   |   | 913,527    |  
|Issuance of warrants for consulting fees                                      |  |           |   |   |       |   |   | 229,671    |   |                                              |            |   |   | (229,671   | )
|Issuance of common stock for purchase of equipment                            |  | 100,000    |   |   | 100    |   |   | 68,650     |   |                                              |            |   |   |           |  
|Net loss for the year                                                         |  |           |   |   |       |   |   |           |   |                                              | (2,467,781  | ) |   |           |  
|                                                                              |  |            |   |   |        |   |   |            |   |                                              |             |   |   |            |  
|Balance, December 31, 2000                                                    |  | 38,829,350 |   | $ | 38,829 |   | $ | 29,351,588 |   | $                                            | (26,481,645 | ) | $ | (327,720   | )
|                                                                              |  |            |   |   |        |   |   |            |   |                                              |             |   |   |            |  

The accompanying notes are an integral part of these statements.

33

---

THE RICEX COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31,

|                                             |                                                                          | 2000                                                              |                                    | 1999       |          
|-------------------------------------------- | ------------------------------------------------------------------------ | ----------------------------------------------------------------- | ---------------------------------- | ---------- | ---------
|Cash flow from operating activities:         |                                                                          |                                                                   |                                    |            |          
|                                             | Net loss                                                                 |                                                                   | $                                  | (2,467,781 | )        
|                                             | Adjustments to reconcile net loss to net cash from operating activities: |                                                                   |                                    |            |          
|                                             |                                                                          | Depreciation and amortization                                     |                                    |            | 701,472  
|                                             |                                                                          | Amortization of investor relation expense                         |                                    |            | 1,095,654
|                                             |                                                                          | Bad debt expense                                                  |                                    |            | 250,000  
|                                             |                                                                          | Shares, warrants and options issued for compensation and services |                                    |            | 166,160  
|                                             |                                                                          | Amortization of shares and warrants issued for services           |                                    |            | 97,259   
|                                             |                                                                          | Accretion of debt discount                                        |                                    |            |         
|                                             |                                                                          | Amortization of prepaid interest and debt issuance costs          |                                    |            | 1,019,892
|                                             | Net changes in operating assets and liabilities                          |                                                                   |                                    |            |          
|                                             |                                                                          | Trade accounts receivable                                         |                                    |            | (376,981 
|                                             |                                                                          | Inventories                                                       |                                    |            | (2,645   
|                                             |                                                                          | Deposits and other current assets                                 |                                    |            | (20,027  
|                                             |                                                                          | Accounts payable, accrued liabilities and deferred revenue        |                                    |            | 1,417,670
|                                             |                                                                          |                                                                   |                                    |            |          
|                                             |                                                                          |                                                                   | Net cash from operating activities |            |          
|                                             |                                                                          |                                                                   |                                    |            |          
|Cash flows from investing activities         |                                                                          |                                                                   |                                    |            |          
|                                             | Purchases of property and equipment, and other assets                    |                                                                   |                                    | (126,664   | )        
|                                             |                                                                          |                                                                   |                                    |            |          
|                                             |                                                                          |                                                                   | Net cash from investing activities |            |          
|                                             |                                                                          |                                                                   |                                    |            |          
|Cash flows from financing activities         |                                                                          |                                                                   |                                    |            |          
|                                             | Proceeds from issuance of common stock                                   |                                                                   |                                    | 114,900    |          
|                                             | Proceeds from issuance of long-term debt                                 |                                                                   |                                    |           |          
|                                             | Principal payments on long-term debt                                     |                                                                   |                                    |           |          
|                                             | Payment of long-term debt to shareholders                                |                                                                   |                                    | (1,850,000 | )        
|                                             | Payments association with conversion of long-term debt                   |                                                                   |                                    | (81,215    | )        
|                                             |                                                                          |                                                                   |                                    |            |          
|                                             |                                                                          |                                                                   | Net cash from financing activities |            |          
|                                             |                                                                          |                                                                   |                                    |            |          
|Net decrease in cash and cash equivalents    |                                                                          |                                                                   | (62,306                            | )          |          
|Cash and cash equivalents, beginning of year |                                                                          |                                                                   | 1,030,049                          |            |          
|                                             |                                                                          |                                                                   |                                    |            |          
|Cash and cash equivalents, end of year       |                                                                          | $                                                                 | 967,743                            |            | $        
|                                             |                                                                          |                                                                   |                                    |            |          

The
accompanying notes are an integral part of these statements.

34

---

THE RICEX COMPANY

NOTES TO CONSOLIDATED STATEMENTS

December 31, 2000 and 1999

NOTE A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 two rice mills in Northern California. The Company purchases raw rice bran from these two mills and mill employees, under Company supervision, operates the Company's
equipment to stabilize rice bran. The Company pays a processing fee to the mills for this service. Under an agreement with one of the mills, that mill may use the Company's equipment to stabilize rice
bran for its customers in exchange for the payment of a royalty fee to the Company. The Company intends to enter into additional relationships with rice processors as part of its overall business
strategy.

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

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

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

1.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.

2.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

35

---

based upon expected collectibility of all accounts receivable. Uncollected accounts have not been significant.

In
2000, two major customers each accounted for 50% and 17% of sales and 33% and 64% of accounts receivable, respectively. In 1999, one customer accounted for 55% of sales and 65% of
accounts receivable.

3.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.

4.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.

5.Property and equipment

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

The
estimated lives used in determining depreciation and amortization are:

Buildings

10 yearsEquipment

5-7 yearsLeasehold improvements

7 yearsFurniture and fixtures

5-7 years


6.Debt issuance costs

Costs
incurred in connection with debt financing agreement are deferred and amortized over the terms of the related obligations using a method, which approximates the interest method.

7.Revenue recognition

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

8.Research and development

Research
and development costs are expensed when incurred.

9.Stock options

The
Company accounts for employee stock options in accordance with APB 25, under which compensation expense is recognized in the financial statements when the exercise price of option
grants

36

---

are issued at less than fair market value on the grant date. Rescission of any exercise is considered a modification of the award and results in a new measurement date. The Company adopted the
disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation", which require the Company to disclose pro forma net income (loss) assuming compensation expense related to
options granted was determined using the fair value method. As required by SFAS 123, the Company has valued stock option and warrants granted to employees and made the required pro forma calculations
under the fair value method using the Black-Scholes option pricing model with the following weighted-average assumptions for 2000 and 1999: risk-free interest rate range of 5.13% to 5.21% in 2000 and
4.62% to 5.92% in 1999; expected option lives of one to five years; expected volatility of 102% to 106% in 2000 and 111% in 1999; and no expected dividend in either year.

10.Net loss per share

Basic
net loss per share is computed on the weighted average number of shares of common stock outstanding during each period. There were potentially dilutive instruments including
stock options,
warrants and convertible debt; however, they are anti-dilutive as the Company has reported a loss from operations for each of the two years in the period ended December 31, 2000.

11.Income taxes

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

12.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.

13.Reclassifications

Certain
reclassifications have been made to the 1999 financial information to conform to the 2000 presentation.

14.Recent Accounting Pronouncements

In
December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101). SAB 101, as amended,
summarizes certain aspects of the SEC's views in applying generally accepted accounting principles to revenue recognition in financial statements. At this time, management does not expect the adoption
of SAB 101 to have a material effect on the Company's operations or financial position. The Company adopted SAB 101 in the fourth quarter of 2000 with no material impact.

37

---

In September 1999, the FASB issued Emerging Issues Task Force Topic No. D-83, "Accounting for Payroll Taxes Associated with Stock Option Exercises" (EITF D-83). EITF D-83 requires
that payroll taxes paid on the difference between the exercise price and the fair value of acquired stock in association with an employee's exercise of stock options be recorded as operating expenses.
The Company was required to adopt EITF D-83 in the fourth quarter of 1999. There was no material effect on the Company's operations or financial position as a result of adoption.

NOTE BTHE COMPANY'S OPERATING PLAN

The Company incurred a net loss of $2,467,781 and generated cash of $1,880,672 from operations for the year ended December 31, 2000. The Company has developed
a specific operating plan to meet its ongoing liquidity needs for the year ending December 31, 2001.

During
2000, the Company renegotiated contracts with its suppliers resulting in increased gross margins. Additionally, in December 2000, a significant alliance was finalized and a
purchase order was received for $2,400,000 in sales with $1,200,000 paid in advance. This order began in January 2001. Significant non-cash expenses totaling approximately $2,000,000 were fully
recognized in 2000. During 2000, the Company satisfied its debt obligations by converting $2,500,000 of debt into equity and paying off a note in the amount of $1,850,000. Management believes that the
combination of these factors will make the Company self-sustaining.

Management
believes that this plan, which is currently being implemented, is sufficient to meet the Company's liquidity needs for the year ending December 31, 2001.

NOTE CPROPERTY AND EQUIPMENT

Property and equipment at December 31, consists of the following:

2000

1999Land and buildings

$
367,961

$
367,961Equipment


4,307,480


4,146,205Leasehold improvements


381,642


381,642Furniture and fixtures


225,417


225,417Construction in progress


10,717


5,293,217


5,121,225Less accumulated depreciation and amortization


(3,016,236
)

(2,314,763
)2,276,981


2,806,462Equipment not placed in service


201,900


201,900$
2,478,881

$
3,008,362


38

---

NOTE DACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities at December 31, consist of the following:

2000

1999Trade accounts payable

$
388,028

$
258,547Other accrued liabilities


229,096


281,713$
617,124

$
540,260


NOTE EDEBT OBLIGATIONS

Debt at December 31, consists of the following:

2000

1999Note payable to shareholder, stated interest rate of 18%, interest prepaid in common stock, due December 2000, collateralized by fixed assets, intellectual properties and inventories. The note was paid in full in December
2000.

$


$
1,850,000Current portion

$


$
1,850,000


NOTE FCONVERTIBLE NOTE

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

NOTE GCOMMITMENTS

The Company leases office, laboratory and warehouse space and vehicles under operating leases which expire in 2006 and 2002, respectively. Beginning in October
2001, the Company has the unilateral right to terminate the facilities' operating leases with six months written notice. Rent expense under operating leases was $48,188 and $128,570 for the years
ended December 31, 2000 and 1999, respectively.

39

---

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

Fiscal year ending each December2001

$
166,8742002


164,6922003


134,1482004


134,9862005


137,502Thereafter


103,126Total

$
841,328Amounts reimbursed from affiliate(included above)2001

$
62,7302002


63,1222003


64,2982004


65,5022005


65,900Thereafter


49,429Total

$
370,981


NOTE HSHAREHOLDERS' EQUITY

1.Common and preferred stock

In
1998, in conjunction with RiceX's re-incorporation in Delaware, the Company increased its authorized number of common shares from 50,000,000 shares to 100,000,000 shares and
authorized 10,000,000 shares of preferred stock which may be issued from time to time, in one or more series, and authorized its Board of Directors to establish the rights, preferences and privileges
of each such series, when issued. At December 31, 2000, an aggregate of 26,671,396 shares of the Company's common stock was reserved for future issuance upon the conversion of debt and the exercise of
stock options and warrants.

2.Stock issued for services

In
May 2000, the Company issued 100,000 shares of stock to acquire equipment from one of its suppliers. The equipment was recorded based on the fair value of stock on the date of
issuance. The value of the common stock was $68,750 and is capitalized as equipment for the year ended December 31, 2000.

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

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

40

---

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

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

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

In
April 1999, the Company issued warrants to purchase 250,000 shares of common stock in conjunction with a bridge loan. The fair market value of these warrants, determined in
accordance with SFAS No. 123 using the Black-Scholes option pricing model, are $58,500 which has been recorded as interest expense for the year ended December 31, 1999.

In
May 1999, the Company issued 25,000 shares of stock to a consultant for services rendered. The value of the common stock was $25,000 and is included in professional fees for the
year ended December 31, 1999.

In
July 1999, the Company issued 250,000 shares of common stock to a vendor in lieu of cash to guarantee direct supplies for three years, "prepaid processing fee." The value of the
common stock was $234,000 and is recorded as a contra account to shareholders' equity and is being amortized to cost of goods sold over the three year period. During 2000 and 1999, the Company
amortized $78,125 and $39,062, respectively.

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

3.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

41

---

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.

In
December 1999, the Company converted a $5,000,000 note into 7,167,479 shares of common stock and the remaining balance of $54,441 was paid in cash.

4.Deferred expenses related to equity issuance

In
December 1998, the Company issued 940,679 shares of common stock as prepaid interest and warrants to purchase 3,734,540 shares of common stock in connection with a loan agreement.
The Company recorded $647,186 of prepaid interest reflecting the fair market value of the shares on December 31, 1998 and $1,392,597 of debt issuance costs, reflecting the fair value of the warrants
on December 31, 1998. The Company valued the warrants in accordance with SFAS No. 123 using the Black-Scholes option pricing model. During 2000 and 1999, the Company amortized $323,593 and $696,299 of
prepaid interest and debt issuance costs during each year, respectively.

5.Business combination

In
July 1999, the Company issued an additional 1,581,156 shares of common stock to the Seller to finalize the Put Option relating to an asset purchase agreement to acquire a
manufacturing facility located in Montana. The number of additional shares issued was calculated based on the average price per share of the Company's common stock for the 30 days preceding July 1,
1999.

6.Private placement

During
2000 and 1999, the Company issued 182,137 and 2,242,152 shares of common stock and warrants to purchase shares of common stock in conjunction with a $6 million dollar private
placement for $116,400 and $1,455,082, respectively. 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, 2000, all warrants issued in conjunction with this private placement were outstanding.

7.Warrants and non-qualified stock options

At
December 31, 2000, the warrants and non-qualified stock options outstanding were as follows:

Shares issuable under warrants
and non-qualified options

Number of
Shares

Exercise Price
Per Share

Exercise
PeriodBalance, January 1, 1999

8,322,540

$
0.69-$4.00

2-10 yearsIssued during the year

3,380,111

$
0.75-$1.50

1-5 yearsCanceled during the year

(1,180,000
)
$
1.66-$1.81

1-10 yearsBalance, December 31, 1999

10,522,651

$
0.69-$4.00

1-5 yearsIssued during the year

14,206,718

$
0.70-$0.79

3-5 yearsCanceled during the year

(2,980,000
)
$
0.69-$4.00

2-10 yearsBalance, December 31, 2000

21,749,369

$
0.70-$2.00

1-5 years


42

---

The
balance outstanding at December 31, 2000 includes 7,714,287 of incentive warrants that can be exercised when certain sales targets are achieved.

8.Employee stock options

The
Company has 5,000,000 shares of common stock reserved for grant to its officers, director and key employees under its stock option plan. At December 31, 2000, options to purchase
4,922,000 shares of common stock had been granted under the Plan and 78,000 shares were available for future grants. Stock option information is as follows:

Number of
Shares

Weighted-
Average
Exercise
PriceShares under option at January 1, 1999

140,000

$
1.81Granted

2,829,000


.72Exercised

(1,500,000
)

.72Shares under option at December 31, 1999

1,469,000


.82Granted

2,082,000


.79Exercised

(1,200,000
)

.72Rescinded exercised

2,700,000


.72Canceled

(129,000
)

.70Shares under option at December 31, 2000

4,922,000

$
.78Options exercisable at December 31, 2000

3,894,000

$
.78


Compensation
expense, equal to the excess of the fair market value on the date of grant and the exercise price, is recorded over the vesting period of each option. Compensation
expense related to employee stock options was $83,160 and $103,950 for the years ended December 31, 2000 and 1999, respectively.

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

43

---

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

2000

1999Net loss, as reported

$
(2,467,781
)
$
(3,246,346
)Net loss, pro-forma

$
(2,896,843
)
$
(4,504,756
)Basic net loss per shareas reported

$
(.07
)
$
(0.13
)Basic net loss per sharepro-forma

$
(.08
)
$
(0.18
)Weighted average fair value of options granted to employees during the year

$
.46

$
0.48


NOTE IEMPLOYEE BENEFIT PLAN

Effective January 1, 2000, the 401(k) plan of The RiceX Company's subsidiary, Food Extrusion Montana, changed names from theFood
Extrusion, Montana 401(k) Profit Sharing Plan and TrusttoThe RiceX Company 401(k) Plan & Trust. This name change also included
all RiceX employees. To participate in the plan, an employee must have completed one year of service and attained the age of 21. Additionally, the Company may, at its discretion, make additional
employer contributions. In order to be eligible to receive an allocation of the discretionary contributions, the employee must work 1000 hours in and be employed on the last day of the plan year.
Employees are immediately vested in company contributions. The Company contributes 3% of each employee's salary annually to the plan regardless of employee participation. Plan contributions amounted
to $28,000 and $7,000 in 2000 and 1999, respectively.

NOTE JRELATED PARTIES

During 2000, the Company finalized and entered into a joint venture agreement with NutraStar, Incorporated (NutraStar) for developing and marketing the
nutraceuticals and value-added functional food markets for human nutrition. NutraStar was then granted an exclusive license to sell RiceX products in the nutraceutical market. The license covers the
United States on an exclusive basis and worldwide on a non-exclusive basis. The exclusive license can be expanded on a country-by-country basis. As part of this transaction, Patricia McPeak resigned
as President of the Company and became an officer and shareholder of NutraStar. Mrs. McPeak retained her seat on the Company's Board of Directors. She is the spouse of Daniel McPeak, Sr., Chairman of
the Board and Chief Executive Officer of the Company. In exchange for the exclusive license in the nutraceutical market, the Company will receive license fees and it became a ten-percent shareholder
in NutraStar.

The
Company recognized sales to NutraStar of $622,000 and recorded cash receipts from NutraStar of $502,000 during 2000. Additionally, at December 31, 2000, the Company has an
outstanding receivable from NutraStar of $330,000 net of allowance for doubtful accounts of $250,000. The Company also has
a deposit of $100,000 included in deferred revenue from NutraStar. NutraStar is also subleasing a portion of the Company's office space.

In
September 2000, the Company finalized an agreement with a venture capital firm to convert a $2,500,000 note to equity (see Note H3). In connection with this transaction, the
Company issued common stock and warrants to two principle parties, one of which was GBV Intermark Fund, LLC . The manager of this fund has been appointed to the Company's Board of Directors since

44

---

October 2000. Also in connection with this transaction, the venture capital firm will provide a strategic management team that will be responsible for developing and implementing a strategic
business plan during the three year period following the effective date of the agreement.

NOTE KINCOME TAXES

The provision for income taxes which is included in other expenses on the statement of operations consists of $1,600 for the years ended December 31, 2000 and
1999 which represents the state minimum tax.

At
December 31, 2000 and 1999, deferred tax assets (liabilities) are comprised of the following:

2000

1999Net operating loss carryforward

$
5,115,000

$
4,575,000Options and warrants


340,000


51,000Accrued reserves


36,000


39,000Research costs


747,000


901,000Accumulated depreciation


(129,000
)

(97,000
)Other


14,000


16,0006,123,000


5,485,000Less valuation allowance


(6,123,000
)

(5,485,000
)$


$



Deferred
taxes arise from temporary differences in the recognition of certain expenses for tax and financial statement purposes. At December 31, 2000, 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, 2000, net operating loss carryforwards were approximately
$12,200,000 for federal tax purposes that expire at various dates from 2009 through 2020 and $10,500,000 for state tax purposes that expire in 2003 through 2010.

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

NOTE LFAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of the Company's financial instruments approximated carrying value at December 31, 2000 and 1999. 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. The carrying amount of debt approximates fair value as the majority of
the debt was recently borrowed at rates, or imputed at rates, currently available to the Company for similar debt.

45

---

NOTE MSUPPLEMENTAL CASH FLOW INFORMATION AND NONCASH FINANCING ACTIVITIES

Year Ended December 31,2000

1999Supplemental cash flow information:Cash paid for income taxes

$
1,600

$
1,600Cash paid for interest expense

$
3,200

$
3,600Non cash investing and financing activities:Issuance (rescission) of common stock for note receivable

$
(1,941,300
)
$
1,078,500Conversion of debt into equity

$
2,418,785

$
4,945,561Amortization/issuance of common stock for prepaid interest on debt financing

$
323,593

$
323,593Amortization/issuance of warrants for debt issuance costs

$
696,299

$
696,299Issuance of common stock and warrants for services

$
494,898

$
1,593,247Issuance of warrants in conjunction with bridge loan

$


$
58,500Issuance of stock options to employees

$
83,160

$
103,950Issuance of stock to acquire equipment

$
68,650

$



46

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

On August 17, 1999, the Company dismissed PricewaterhouseCoopers LLP ("PwC") as its independent accountants. The decision to dismiss PwC was approved by the
Company's Board of Directors. PwC's reports on the Company's financial statements for each of the past two years did not contain an adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope, or accounting principle except the reports for each of the past two years expressed substantial doubt about the Company's ability to continue as a going
concern.

On
September 17, 1999, Grant Thornton LLP ("Grant Thornton") was engaged by the Company as its principal accountant to audit the Company's financial statements. The Company did not
consult Grant Thornton regarding the application of accounting principles to a specific contemplated transaction, or the type of audit opinion that might be rendered on the Company's financial
statements, or on any matter that was the subject of a disagreement with PwC, the Company's former accountants, who were dismissed on August 17, 1999.

Effective
January 1, 2000, Grant Thornton sold its Stockton and Sacramento, California offices to Moss Adams, LLP, an accounting and consulting firm ("Moss Adams"). Since the
individuals performing services for the Company at Grant Thornton are now in the employ of Moss Adams, effective January 1, 2000, the Company dismissed Grant Thornton as its independent accountants
and engaged the services of Moss Adams to act as the Company's principal accountants to audit the Company's financial statements. The decision to dismiss Grant Thornton and retain the services of Moss
Adams was approved by the Company's Board of Directors. Grant Thornton had not completed the audit of the Company's December 31, 1999 financial statements and therefore had not issued a report on the
Company's financial statements.

During
the Company's two most recent fiscal years and through January 1, 2000, there have been no disagreements with Grant Thornton or PwC, the Company's previous accountants, on any
matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the satisfaction of Grant Thornton or PwC, would have caused
them to make reference thereto in their report on the financial statements for such years. In addition, the Company did not consult Moss Adams regarding the application of accounting principles to a
specific contemplated transaction, or the type of audit opinion that might be rendered on the Company's financial statements, or on any matter that was the subject of a disagreement with the Company's
former accountants.

47

---

PART III

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

Name

Age

PositionDaniel L. McPeak, Sr.

66

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

60

Class III DirectorKirit S. Kamdar (1)

59

Class I DirectorSteven W. Saunders (2)

45

Class I DirectorJoseph R. Bellantoni (3)

39

Class II DirectorMilton A. Koffman (3)

77

Class II DirectorKenneth L. Miller (2)

56

Class II DirectorTodd C. Crow

52

Vice President Finance & Chief Financial OfficerIke E. Lynch

56

Vice President of OperationsDaniel L. McPeak, Jr.

41

Vice President and General Manager


---

DIRECTORS AND EXECUTIVE OFFICERS

DANIEL L. MCPEAK. Mr. McPeak co-founded the Company in February 1989 and has served as Chairman of the Board of the Company since its formation. In November
1998, Mr. McPeak was re-appointed Chief Executive Officer ("CEO") of the Company. Mr. McPeak previously served as CEO of the Company from May 1989 to April 1997. Mr. McPeak is the spouse of Ms. McPeak
and the father of Daniel L. McPeak, Jr. Mr. McPeak will serve as a Class III Director until the election of Directors in 2001.

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

KIRIT
S. KAMDAR. Mr. Kamdar has served as a Class I Director of the Company since August 1998 and will serve until the next election of Directors in 2002. From January 1990 to
September 1992, Mr. Kamdar also served as Director of the Company, and from January 1990 to April 1994 as the

48

---

Company's Executive Vice President. Since July 1974, Mr. Kamdar has been Chairman of the Board and Chief Executive Officer of Kamflex Corporation, a manufacturing corporation.

STEVEN
W. SAUNDERS. Mr. Saunders has served as a Class I Director of the Company since August 1998 and will serve until the next election of Directors in 2002. Mr. Saunders has been
President of Saunders Construction, Inc., a commercial construction firm since February 7, 1991 and President of Warwick Corporation, a business-consulting firm.

JOSEPH
R. BELLANTONI. Mr. Bellantoni served as a Class II Director of the Company from May 1999 to December 31, 2000. Mr. Bellantoni tendered his resignation to be effective upon the
Company's payment of the $1,850,000 promissory note to FoodCeuticals, LLC. On December 31, 2000 the Company retired the FoodCeuticals note and Mr. Bellantoni resigned as a Director of the Company.
From April 1995 to the present, Mr. Bellantoni has served as a Director of Dominion Resources, Inc., a real estate and resort development company. From April 1995 to December 1998 he served as
Treasurer of Dominion and from January 1999 to the present has served as its Treasurer and President. From February 1989 to January 1993 Mr. Bellantoni served as a manager of Great American
Recreation, Inc., an operator of ski resorts. From January 1993 to June 1994, he served as the Vice President of Administration of Great American, from June 1994 to October 1996 he served as its Chief
Financial Officer and from October 1995 to the present, Mr. Bellantoni has served as a Director. From November 1994 to the present, Mr. Bellantoni has served as the Chief Financial Officer of Great
Gorge Golf Reserve, an owner, operator and developer of golf courses.

MILTON
A. KOFFMAN. Mr. Koffman served as a Class II Director of the Company from October 1999 to December 31, 2000. Mr. Koffman tendered his resignation to be effective upon the
Company's payment of the $1,850,000 promissory note to FoodCeuticals, LLC. On December 31, 2000 the Company retired the FoodCeuticals note and Mr. Koffman resigned as a Director of the Company. Mr.
Koffman has been Chairman of the Board of New Value Inc. since 1990. Previously, from 1970 to 1990, he served as Executive Vice President of Great American Industries, a manufacturer of rubber
products. Prior to this, he served as Vice President of Public Loan Company, Inc., a small loan business company from 1963 to present. Mr. Koffman was also Managing Partner for a group of Real Estate
Partnerships. Mr. Koffman has served as Vice Chairman of IEC, a manufacturer of electronic parts from 1985 to 1991. In addition, he was Chairman of Jayark Corporation from 1972 to 1992. Mr. Koffman
has been on the Board of Director's for Sattlers Department Store, Walter Reade Theatres, Scoreboard, Inc. and Chenango Industries.

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

TODD
C. CROW. Mr. Crow joined the Company in May 1996 and has been the Company's Vice President of Finance and Chief Financial Officer since November 1998 and its Secretary since
January 1999. From September 1997 to November 1998, Mr. Crow was the Company's Controller. From May 1996 to September 1997 he was the Company's Chief Financial Officer. Mr. Crow also served as a
Director of the Company from June 1996 to January 1997. From 1989 until joining The RiceX

49

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Company, Mr. Crow held senior financial positions with the Morning Star Group, an agri-business holding company, and Harter, Inc., a food-processing manufacturer.

IKE
E. LYNCH. Mr. Lynch has served as Vice President of Operations of the Company since July 1997 and as President and Chief Operations Officer of FoodEx MT since January 1997.
Previously Mr. Lynch was President and Chief Executive Officer of Centennial Foods, Inc., since its founding in 1989 until its acquisition by the Company in January 1997.

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

BOARD OF DIRECTORS

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

BOARD COMMITTEES

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

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

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

SECTION 16(a) COMPLIANCE

Based upon a review of the Company's records, the Company is aware that the following officers or directors of the Company failed to timely file one or more
reports disclosing beneficial ownership of securities of the Company as required under Section 16(a) of the Securities Exchange Act of 1934, as amended, during the fiscal year ended December 31, 2000:
Daniel McPeak, Sr. failed to file Form 4 reporting the issuance of options to him to acquire 2,000,000 shares of common stock pursuant to the Company's 1997 Employee Stock Option Plan.

50

---



Item 10. EXECUTIVE COMPENSATION

The following table sets forth the total compensation for the Chief Executive Officer and each of the Company's current executive officers and two former
officers whose total salary and bonuses for fiscal 1999 and 2000 exceeded $100,000 or would have exceeded $100,000 on an annualized basis (collectively, the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

|                                                                                 |  |                |  |     |                         |      |    | Long Term
Compensation |            
|-------------------------------------------------------------------------------- |  | -------------- |  | --- | ----------------------- | ---- | -- | ---------------------- | -----------
|
|
|Daniel L. McPeak, Sr. (1)
Chairman of the Board,
Chief Executive Officer         |  | 2000
1999
1998 |  | $$$ | 233,077
149,126
148,861 |      | $  | 
16,251
             | (2)(5)(2)  
|Patricia McPeak
President (Resigned March 2000)                                  |  | 2000
1999
1998 |  | $$$ | 53,500
129,339
129,342  | (12) | $  | 

18,282             | (2)(2)(6)  
|Ike E. Lynch
VP Operations and
Chief Operating Officer of
Food Extrusion Montana |  | 2000
1999
1998 |  | $$$ | 131,538
124,592
137,500 |      | $  | 

25,200             | (2)(2)(8)  
|Todd C. Crow (3)
Chief Financial Officer                                         |  | 2000
1999
1998 |  | $$$ | 131,538
98,884
79,638   |      |    | 

                  | (2)(2)(2)  
|Daniel L. McPeak, Jr. (4)
Executive VP,
General Manager                          |  | 2000
1999
1998 |  | $$$ | 131,538
98,940
71,892   |      | $$ | 
9,900
7,200          | (2)(11)(11)
|Allen J. Simon (Terminated) (1)                                                  |  | 2000
1999
1998 |  | $$  | 
20,833
221,534        | (10) | $  | 38,471                 | (7)        

---

51

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OPTION ACTIVITY IN 2000 TO EXECUTIVES

The following table sets forth for each of the Named Executive Officers certain information concerning stock options activity granted during 2000.

|Name                  |  | Number of
Securities
Underlying
Options/SARs
Granted (#) |     | Percent of Total
Options/SARs
Granted to
Employees in
Fiscal Year |   | Exercise
Price
($/Sh) |      | Market
Price
($/Sh) |   | Expiration
Date
|--------------------- |  | -------------------------------------------------------- | --- | ----------------------------------------------------------------- | - | --------------------- | ---- | ------------------- | - | ---------------
|Daniel McPeak, Sr.    |  | 2,000,000                                                | (1) | 41.8                                                              | % | $                     | 0.79 |                     | $ | 0.72           
|Ike E. Lynch          |  | 900,000                                                  | (2) | 18.8                                                              | % | $                     | 0.72 |                     | $ | 0.50           
|Daniel L. McPeak, Jr. |  | 900,000                                                  | (2) | 18.8                                                              | % | $                     | 0.72 |                     | $ | 0.50           
|Todd C. Crow          |  | 900,000                                                  | (2) | 18.8                                                              | % | $                     | 0.72 |                     | $ | 0.50           

---

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, 2000 for the Named Executive
Officers. Values for "in-the-money" options represent the position spread between the exercise price of existing options and the market value for the Company's common stock on December 31, 2000.

|                      |  | Shares
Acquired on
Exercised (#) |  |  |     | Number of
Unexercised Options |  | Value of Unexercised
In-the-Money Options
|--------------------- |  | -------------------------------- |  |  | --- | ----------------------------- |  | -----------------------------------------
|
|
|Ike E. Lynch          |  | 400,000                          |  |  | (1) | 1,040,000                     |  |                                         
|Daniel L. McPeak, Jr. |  | 400,000                          |  |  | (1) | 960,000                       |  |                                         
|Todd C. Crow          |  | 400,000                          |  |  | (1) | 1,010,000                     |  |                                         

---

52

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DIRECTOR COMPENSATION

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

EMPLOYMENT AGREEMENTS

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

LYNCH
EMPLOYMENT AGREEMENT.  In May 1999, the Company entered into an Employment Agreement with Mr. Ike E. Lynch (the "Lynch Employment Agreement"), pursuant to which
Mr. Lynch agreed to serve as Vice President of Operations for the Company and Chief Operating Officer for the Company's subsidiary, Food Extrusion Montana. The Lynch Employment Agreement provides that
Mr. Lynch will receive an annual base salary of $125,000, which was increased to $135,000 on May 1, 2000, and will be reviewed annually. The Lynch Employment Agreement

53

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

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

MCPEAK,
JR. EMPLOYMENT AGREEMENT.  In May 1999, the Company entered into an Employment Agreement with Daniel L. McPeak, Jr. (the "McPeak, Jr. Employment Agreement"),
pursuant to which Mr. McPeak agreed to serve as Executive Vice President and General Manager for the Company. The McPeak, Jr. Employment Agreement provides that Mr. McPeak will receive an annual base
salary of $125,000 which was increased to $135,000 on May 1, 2000, and will be reviewed annually. The McPeak, Jr. Employment Agreement terminates on May 1, 2004, unless his employment is terminated
earlier. Thereafter, the term will be automatically extended for an additional five-year term unless either party delivers notice of election not to extend the employment at least 90 days prior to the
expiration of the initial term. Mr. McPeak's employment may be terminated prior to the expiration of the agreement under the following circumstances: (i) the mutual written agreement of the Company
and Mr. McPeak; (ii) Mr. McPeak's disability, which shall, for the purposes of the McPeak, Jr. Employment Agreement, mean Mr. McPeak's inability due to physical or mental impairment, to perform Mr.
McPeak's duties and obligations under the McPeak Jr. Employment Agreement, despite reasonable accommodation by the Company, for a period exceeding three months; (iii) Mr. McPeak's

54

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death; (iv) notice of termination by the Company for cause (as defined in the McPeak, Jr. Employment Agreement); or (v) written notice of termination by the Company without cause upon fourteen (14)
days notice, subject to the compensation for early termination. If Mr. McPeak is terminated without cause, the Company shall pay to Mr. McPeak as liquidated damages and in lieu of any and all other
claims which Mr. McPeak may have against the Company the amount equal to Mr. McPeak's monthly base salary multiplied by the number of months remaining in the term of this Agreement, or a payment
amount equal to two years of Mr. McPeak's base salary, whichever is greater.

1997 STOCK OPTION PLAN

The Board of Directors adopted the 1997 Stock Option Plan (the "1997 Plan") in November 1997 and the shareholders approved the 1997 Plan in May 1998. A total
of 5,000,000 shares have been authorized for issuance under the 1997 Plan, of which 78,000 shares are available for future grant as of December 31, 2000. The 1997 Plan provides for the grant of
"incentive stock options" as defined in Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"), to employees of the Company. The 1997 Plan also provides for the grant of options
that are not intended to qualify as incentive stock options under Section 422A of the Code to employees, non-employee directors and consultants of the Company. The exercise price of any incentive
stock option granted under the 1997 Plan may not be less than 100% of the fair market value of the Company's common stock on the date
of grant and of any nonqualified stock option 85% of fair market value and 110% of fair market value in the case of a participant owning stock possessing more than 10% of the voting rights of the
Company's outstanding capital stock. Shares subject to an option granted under the 1997 Plan may be purchased for cash, in exchange for shares of common stock owned by the optionee, or other
consideration as set forth in the 1997 Plan. The Board of Directors administers the 1997 Plan. Under the 1997 Plan, options vest not less than 20% per year and have ten year terms (except with respect
to 10% stockholders which have five-year terms). If the Company sells substantially all of its assets, is a party to a merger or consolidation in which it is not the surviving corporation (a "Change
of Control"), then the Company has the right to accelerate unvested options and shall give the option holder written notice of the exercisability and specify a time period in which the option may be
exercised. All options shall terminate in their entirety to the extent not exercised on or prior to the date specified in the written notice unless the agreement governing the Change of Control shall
provide otherwise.

Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information as of March 2, 2001 (the "Reference Date") with respect to the beneficial ownership of common stock of the
Company, by each person known by the Company to own beneficially more than five percent of the Company's common stock, by each executive officer and director, and by all officers and directors as a
group. Unless otherwise indicated, all persons have sole voting and investment powers over such shares, subject to community property

55

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laws. As of the Reference Date, there were 38,829,350 shares of Common Stock outstanding and unexercised warrants and options representing 26,671,369 shares.

|Name (1)                                                                           |  | Amount & Nature
of Beneficial Owner (2) |     | Percent
of Class |  
|---------------------------------------------------------------------------------- |  | --------------------------------------- | --- | ---------------- | -
|Monsanto
800 N. Lindbergh, St. Louis, MO 63167                                     |  | 7,167,479                               |     | 10.94            | %
|Intermark Partners Strategic Management, LLC
484 East Carmel Dr., Carmel, IN 46032 |  | 5,850,000                               | (3) | 8.93             | %
|GBV Intermark Fund, LLC
2998 Douglas Blvd., Roseville, CA 95661                    |  | 5,803,574                               | (4) | 8.86             | %
|Gilbert L. McCord, Sr.
7029 E. Hill Road, Grand Blac, MI 48439                     |  | 5,803,571                               | (5) | 8.86             | %
|Daniel L. McPeak, Sr., Chairman of the Board
and Patricia McPeak, Director         |  | 5,574,095                               | (6) | 8.51             | %
|Kirit Kamdar, Director                                                             |  | 1,801,250                               | (7) |                  |  
|Steven W. Saunders, Director                                                       |  | 857,300                                 | (7) |                  |  
|Kenneth L. Miller, Director                                                        |  | 150,000                                 |     |                  |  
|Todd C. Crow, Chief Financial Officer                                              |  | 1,010,000                               | (7) |                  |  
|Ike E. Lynch, V.P. Operations                                                      |  | 1,340,255                               | (7) |                  |  
|Daniel L. McPeak, Jr., V.P. General Manager                                        |  | 966,500                                 | (7) |                  |  
|All directors and executive officers, as a group (8 persons)                       |  | 11,699,400                              |     | 17.86            | %

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56

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Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Ms. Patricia McPeak has been a Director of the Company since its formation in 1989. From February 1989 to March 2000, Ms. McPeak served as President of the
Company. During 2000, the Company finalized and entered into a joint venture agreement with NutraStar, Incorporated ("NutraStar") for developing and marketing the nutraceuticals and value-added
functional foods markets for human nutrition. NutraStar was granted an exclusive license to sell RiceX products in the nutraceutical market. The license covers the United States on an exclusive basis
and worldwide on a non-exclusive basis. The exclusive license can be expanded on a country-by-country basis. As part of this transaction, Patricia McPeak resigned as President of the Company and
became an officer and shareholder of NutraStar. Ms. McPeak retained her seat on the Company's Board of Directors. She is the spouse of Daniel L. McPeak, Sr., who is Chairman of the Board and Chief
Executive Officer of the Company. In exchange for the exclusive license in the nutraceutical market, the Company will receive license fees and it became a ten-percent shareholder in NutraStar. During
2000, the Company recognized sales to NutraStar of $622,000 and recorded cash receipts from NutraStar of $502,000. By year-end 2000 NutraStar had not finalized its pending funding, consequently the
Company established a reserve against a receivable from NutraStar. At December 31, 2000, the Company has a receivable from NutraStar for approximately $330,000 net of allowance for doubtful
accounts of $250,000. The Company has received payments from NutraStar totaling $286,000 after December 31, 2000 further reducing this receivable. The Company also has a deposit of $100,000
included in deferred revenue at December 31, 2000 from NutraStar. See Part II, Item 7, "Financial Statements" for further discussions of NutraStar.

Mr.
Kirit Kamdar has been a Director of the Company since August 5, 1998 and was a Director of the Company from January 1990 to September 1992. From January 1990 to April 1994, Mr.
Kamdar served as the Company's Executive Vice President. Mr. Kamdar currently owns 1,801,250 shares of the Company's common stock or 2.75% Since July 1974, Mr. Kamdar has been Chairman of the Board
and Chief Executive Officer of Kamflex Corporation, ("Kamflex"), a manufacturer of extrusion and conveyor equipment. The Company did not purchase any equipment from Kamflex in 1999 and 2000.

Mr.
Kenneth Miller has been a director of the Company since October 2000 and currently is Manager of GBV Intermark Fund LLC. In September 2000, the Company finalized an
agreement with a venture capital firm to convert a $2,500,000 note to equity. On September 29, 2000, the Company converted the note for 3,571,429 shares of common stock and warrants to purchase
3,571,429 shares of common stock at $.70 per share. The market price on the date of grant was $.55 per share. These warrants are immediately exercisable and have a term of five years. In connection
with this conversion, the Company also granted additional warrants to purchase up to 4,464,285 shares of common stock at $.70 per share. These additional warrants are exercisable at any time during
the five-year period commencing from the date of grant. The warrant shares are restricted from sale and, or transfer until such time when the Company's revenues at various stages reach an annualized
equivalent of $12,000,000 and $25,000,000. In connection with this transaction, the Company issued common stock and warrants to two (2) principle parties, one (1) of which was GBV Intermark Fund, LLC.

57

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Mr. Daniel McPeak, Sr. has served as Chairman of the Board of the Company since its formation in 1989. In April 2000, the Company issued Mr. McPeak a non-statutory stock option
agreement to purchase 2,000,000 shares of common stock at an exercise price of $.79 per share. One half of the options, 1,000,000 shares were fully vested upon date of grant. On April 1, 2001, the
remaining 1,000,000 option shares will be fully vested with an exercise price of $.79 per share. Expiration date of the option agreement is April 1, 2010. These stock options were issued in accordance
with the Company's Employee Stock Option program that was ratified by the Board of Directors in 1997.

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

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

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

In
December 1999, Monsanto Corporation ("Monsanto") agreed to convert its note from the Company with an outstanding principal balance of $5,000,000 into 7,167,479 shares of common
stock and $54,441 cash. In February 1997, a 1996 loan agreement ("Loan Agreement") with Monsanto pursuant to which it had advanced $5,000,000 to the Company, to be converted to common stock was
renegotiated. The renegotiated loan, due in November 1999, was non-interest bearing and convertible into shares of the Company's common stock at the lower of $5.00 per share, or the price per share
the Company received in a sale of its common stock in a financing of at least $1,000,000 occurring closest and prior to a notice of intent to convert. The Company recorded a charge against operations
of $1,325,000 in 1997 for the beneficial conversion feature as a result of the fair market value of the stock being greater than the conversion rate on the scheduled dates the Company received the
proceeds pursuant to the Loan Agreement. As a result of this charge, the effective interest rate of the loan is greater than the interest rate currently available to the Company for similar debt;
therefore no imputed interest has been calculated on this loan.

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

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PART IV

Item 13. EXHIBITS AND REPORTS ON FORM 8-K



|Exhibit No. |  | Description of Exhibit                                                                                                                                                            
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1         |  | Certificate of Incorporation of the Company. (1)                                                                                                                                  
|2.2         |  | Form of Incorporation of the Company. (1)                                                                                                                                         
|3.1         |  | Certificate of Incorporation of the Company. (1)                                                                                                                                  
|3.2         |  | Form of Corporate By-laws (2)                                                                                                                                                     
|4.1         |  | Option Agreement between the Company and David B. Lockton dated August 1, 1996. (1)                                                                                               
|4.2         |  | Security Agreement between Food Extrusion, Inc. and Monsanto Company dated November 1, 1996. (1)                                                                                  
|4.3         |  | Promissory Note of the Company in favor of Monsanto Company in the amount of $5,000,000 dated November 1, 1996. (1)                                                               
|4.4         |  | Registration Rights Agreement by and among the Company and Monsanto Company dated February 5, 1997. (1)                                                                           
|4.5         |  | Form of Registration Rights Agreement between the Company and certain officers and directors. (1)                                                                                 
|4.6         |  | Form of Warrant Agreement between the Company and certain investors dated February 9, 1996. (1)                                                                                   
|4.7         |  | Letter Agreement between the Company and certain investors dated January 15, 1999. (5)                                                                                            
|4.8         |  | Shareholders Agreement between CF Corporation (formerly Centennial Foods, Inc.) and the Company dated March 19, 1997. (1)                                                         
|4.9         |  | Amendment No. 1 to the Shareholders Agreement between CF Corporation and the Company dated January 15, 1999. (5)                                                                  
|4.10        |  | Registration Rights Agreement between the Company and CF Corporation dated January 22, 1999. (5)                                                                                  
|4.11        |  | Form of Directors Stock Option Agreement. (1)(3)                                                                                                                                  
|4.12        |  | Form of Non-statutory Stock Option Agreement not issued under the 1997 Stock Option Plan, governing options granted to employees by the Company. (1)(3)                           
|4.13        |  | Note Agreement between Monsanto Company and the Company dated October 31, 1996. (1)                                                                                               
|4.14        |  | Addendum No. 1 to Note Agreement dated October 31, 1996 between Monsanto Company and the Company dated February 6, 1997. (1)                                                      
|4.15        |  | Creditor Agreement between Centennial Foods, Inc., the Company and Ike Lynch dated October 14, 1996. (1)                                                                          
|4.16        |  | Creditor Agreement between Centennial Foods, Inc., the Company and Montana Department of Environmental Quality dated October 18, 1996. (1)                                        
|4.17        |  | Assignment of Commercial Security Agreement and Business Loan and Credit Agreement dated March 4, 1996 between Seattle-First National Bank and Company 19 General Partnership. (1)
|4.18        |  | Assignment of Subordination Agreements and Negotiable Collateral between Seattle-First National Bank and Company 19 General Partnership dated March 4, 1996. (1)                  

59

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|4.19 |  | Creditor Agreement between Centennial Foods, Inc. and Company 19 General partnership dated October 14, 1996. (1)                                                                                                                                                                                                                        
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.20 |  | Form of Subordination Agreement between certain creditors of Centennial Foods, Inc. in favor of Seafirst. (1)                                                                                                                                                                                                                           
|4.21 |  | Creditor's Agreement between Centennial Foods and Montana Department of Commerce dated October 11, 1996. (1)                                                                                                                                                                                                                            
|4.22 |  | Form of Creditor's Agreement between Centennial Foods, Inc. and certain convertible note holders. (1)                                                                                                                                                                                                                                   
|4.23 |  | Amended and Restated Loan Agreement between the Company and FoodCeuticals dated as of December 31, 1998. (5)                                                                                                                                                                                                                            
|4.24 |  | Promissory Note in the amount of $1,850,000 payable to FoodCeuticals dated December 31, 1998. (5)                                                                                                                                                                                                                                       
|4.25 |  | Registration Rights Agreement between the Company and FoodCeuticals dated December 31, 1998. (5)                                                                                                                                                                                                                                        
|4.26 |  | Warrant Agreement number 98-1 between the Company and FoodCeuticals dated December 31, 1998. (5)                                                                                                                                                                                                                                        
|4.27 |  | Warrant Agreement number 99-1 between the Company and FoodCeuticals dated January 15, 1999. (5)                                                                                                                                                                                                                                         
|4.28 |  | Security Agreement between the Company and FoodCeuticals dated December 31, 1998. (5)                                                                                                                                                                                                                                                   
|4.29 |  | Form of Warrant Agreement between the Company and certain former officers of the Company dated as of December 1998. (5)                                                                                                                                                                                                                 
|4.30 |  | Subscription Agreement between the Company and Heldomo, A.G. dated September 10, 1998. (5)                                                                                                                                                                                                                                              
|4.31 |  | Warrant Agreement between the Company and Heldomo, A.G. dated September 10, 1998. (5)                                                                                                                                                                                                                                                   
|4.32 |  | Stockholder Agreement by and among Patricia McPeak, The RiceX Company, Inc., Joseph Pagano, Eugene Mulvihill, and BioCeutics, Inc. dated November 1, 1999. (6)                                                                                                                                                                          
|4.33 |  | Warrant Agreement between the Company and Dorchester Group dated April 26, 1999. (6)                                                                                                                                                                                                                                                    
|4.34 |  | Form of non-statutory Stock Option Agreement issued under the 1997 Stock Option Plan between the Company and employees dated  October 1, 1999. (3)(6)                                                                                                                                                                                   
|4.35 |  | Warrant Agreement between the Company and JDK & Associates dated November 1, 1999. (6)                                                                                                                                                                                                                                                  
|4.36 |  | Addendum No. 2 to the October 31, 1996 Monsanto Security Agreement dated November 30, 1999. (6)                                                                                                                                                                                                                                         
|4.37 |  | Form of non-statutory Stock Option Agreement issued under the 1997 Stock Option Plan between the Company and Vice President, Operations, Ike Lynch dated November 1, 1999. Identical Agreements with Vice President and
General Manager, Daniel McPeak, Jr. and Vice President of Finance, Chief Financial Officer, Todd C. Crow. (3)(6)
|4.38 |  | Form of Subscription Agreement to the Private Placement Offering 1999. (6)                                                                                                                                                                                                                                                              
|4.39 |  | Form of Warrant Agreement to the Private Placement Offering 1999. (6)                                                                                                                                                                                                                                                                   
|4.40 |  | Memorandum of Understanding dated June 29, 2000 between the Company and Intermark Partners, LLC to convert to equity the note for $2,500,000. (8)                                                                                                                                                                                       

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|4.41  |  | Warrant agreement between the Company and GBV Intermark Fund, LLC dated September 29, 2000. (9)                                                                            
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.42  |  | Warrant agreement between the Company and Gilbert L. McCord, Sr. dated September 29, 2000. (9)                                                                             
|4.43  |  | Definitive agreement between the Company and Intermark Partners, LLC dated September 29, 2000. (9)                                                                         
|4.44  |  | Form of Warrant Agreement between the Company and certain former employees dated as of March 31, 2000.                                                                     
|4.45  |  | Non-statutory Stock Option Agreement issued under the 1997 Stock Option Plan between the Company and Daniel L. McPeak, Sr. dated October 27, 2000. (3)                     
|4.46  |  | Warrant agreement between the Company and Intermark Partners Strategic Management, LLC representing the Class I Warrant dated October 2, 2000.                             
|4.47  |  | Warrant agreement between the Company and Intermark Partners Strategic Management, LLC representing the Class II Warrant dated October 2, 2000.                            
|4.48  |  | Warrant agreement between the Company and Intermark Partners Strategic Management, LLC representing the Class III Warrant dated October 2, 2000.                           
|10.1  |  | Employment Agreement between the Company and Cherukuri Venkata Reddy Sastry dated April 14, 1996. (1)(3)                                                                   
|10.2  |  | Employment Agreement between the Company and Rukmini Cheruvanky dated April 14, 1996. (1)(3)                                                                               
|10.3  |  | Employment Agreement between the Company and Daniel McPeak dated April 1, 1997. (1)(3)                                                                                     
|10.4  |  | Employment Agreement between the Company and Patricia Mayhew dated April 1, 1997. (1)(3)                                                                                   
|10.5  |  | Employment Agreement between the Food Extrusion Montana, Inc. and Ike E. Lynch dated March 19, 1997. (1)(3)                                                                
|10.6  |  | Form of Indemnification Agreement by and among the Company and certain officers and directors. (1)(3)                                                                      
|10.7  |  | Agreement between the Company and Wolcott Farms, Inc. dated March 1, 1997. (1)*                                                                                            
|10.8  |  | Stabilized Rice Bran Processing, Sales and Marketing Agreement between Farmer's Rice and the Company dated June 28, 1994. (1)*                                             
|10.9  |  | Amendment dated April 16, 1996 to Stabilized Rice Bran Processing, Sales and Marketing Agreement between Farmers' Rice Cooperative and the Company dated June 28, 1994. (1)
|10.10 |  | Stabilized Rice Bran Processing, Sales and Marketing Agreement between California Pacific Rice Milling, Ltd. and the Company dated August 1995. (1)*                       
|10.11 |  | Agreement between the Company and Dry Creek Trading, Inc. dated February 1, 1997. (1)                                                                                      
|10.12 |  | Letter Agreement between DuCoa, L.P. and the Company dated February 25, 1998. (1)*                                                                                         
|10.13 |  | Letter of Intent between Monsanto Company and Company dated March 16, 1998. (1)*                                                                                           
|10.14 |  | First Amendment to Letter Agreement between Monsanto Company and Company dated July 27, 1998. (2)                                                                          
|10.15 |  | Security Agreement between CF Corporation, Food Extrusion Montana, Inc. and the Company dated March 19, 1997. (1)                                                          

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|10.16 |  | Promissory Note in favor of Dominion Resources, Inc. in the amount of $1,750,000 dated July 30, 1996. (1)                                                           
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.17 |  | Commercial Lease and Deposit Receipt between Roebbelen Land Company and the Company dated December 23, 1991. (1)                                                    
|10.18 |  | First Amendment of Lease between Roebbelen Land Company and the Company dated January 19, 1994. (1)                                                                 
|10.19 |  | Second Amendment of Lease between Roebbelen Land Company and the Company dated July 11, 1996. (1)                                                                   
|10.20 |  | Third Amendment of Lease Agreement between Roebbelen Land Company and the Company dated February 1, 1998. (1)                                                       
|10.21 |  | Lease Agreement between Roebbelen Land Company and the Company dated July 11, 1996. (1)                                                                             
|10.22 |  | First Amendment of Lease between Roebbelen Land Company and the Company dated September 1996. (1)                                                                   
|10.23 |  | Second Amendment of Lease Agreement between Roebbelen Land company and the Company dated February 1, 1998. (1)                                                      
|10.26 |  | Asset Purchase Agreement between Centennial Foods, Inc., Food Extrusion Montana, Inc. and the Company dated January 2, 1997. (1)                                    
|10.27 |  | BioCeutics License Agreement dated November 1, 1999. (3)                                                                                                            
|10.28 |  | Executive Employment Agreement for Daniel L. McPeak Jr. Executives Todd C. Crow and Ike Lynch have similar employment agreements. (3)                               
|10.29 |  | Intermark Partners, LLC Addendum to Letter of Intent to Invest, Agreement in Principal dated November 16, 1999. (6)                                                 
|10.30 |  | Intermark Partners, LLC Supplemental Agreement dated March 10, 2000. (7)                                                                                            
|10.31 |  | Consulting Agreement between The RiceX Company, Inc. and JDK & Associates, Inc. dated October 20, 1999. (3)(8)                                                      
|10.32 |  | Termination of Consulting Agreement between The RiceX Company, Inc. and JDK & Associates, Inc. dated February 2000. (3)(7)                                          
|10.33 |  | Stabilized Rice Bran Processing, Sales, and Marketing Agreement between Farmers' Rice Cooperative and the Company dated May 1,  1999. * (3)(6)                      
|10.34 |  | Stabilized Rice Bran Processing, Sales, and Marketing Agreement between California Pacific Rice Milling, Inc. and the Company effectively dated January 1, 2000. (7)
|10.35 |  | Licensing Agreement between NutraStar, Inc. and the Company. (7)                                                                                                    
|10.36 |  | Sublease Agreement between the Company and NutraStar, Inc. effective November 1, 1999. (8)                                                                          
|10.37 |  | Settlement and General Release among three executive officers and The RiceX Company effective June 30, 2000. (8)                                                    
|10.38 |  | Employment Agreement between Daniel L. McPeak, Sr. and the Company dated April 1, 2000. (3)                                                                         
|16.1  |  | Letter from PricewaterhouseCoopers, LLP (formerly Coopers & Lybrand LLP) dated July 28, 1998. (2)                                                                   

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|16.2 |  | On August 17, 1999, The RiceX Company dismissed PricewaterhouseCoopers; LLP (formerly Coopers and Lybrand, LLP) dated July 28, 1998. (4)                                                                                                                                                                                                                                                                                                                                                                                                                             
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|16.3 |  | On September 17, 1999, Grant Thornton, LLP was engaged by the Company as its principal accountant to audit the Company's financial statements. (4)                                                                                                                                                                                                                                                                                                                                                                                                                   
|16.4 |  | Effective January 1, 2000, Grant Thornton, LLP, the independent accountants for The RiceX Company, sold its Stockton and Sacramento, California offices to Moss Adams, LLP, an accounting and consulting firm. Since the
individuals performing services for the Company at Grant Thornton are now in the employ of Moss Adams, effective January 01, 2000, the Company dismissed Grant Thornton as its independent accountants and engaged the services of Moss Adams to act as
the Company's principal accountants to audit the Company's financial statements. (4)
|21   |  | List of Subsidiaries (6)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

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As
reported on August 26, 1999, Change in Registrant's Certifying Accountant, the Company dismissing its independent accountants.

As
reported on September 22, 1999, Change in Registrant's Certifying Accountant, the Company engaging new independent accountants.

As
reported on January 7, 2000, Change in Registrant's Certifying Accountant, the Company Dismissing and engaging new independent accountants. See Part II. Item
8."Changes in and Disagreements with Accountants on Accounting and Financial Disclosure."

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SIGNATURES

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

|                     |  | THE RICEX COMPANY
|-------------------- |  | -----------------
|Date: April 17, 2001 |  | By:              
|Date: April 17, 2001 |  | By:              

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

|Date: April 17, 2001 |  | By: |  | /s/PATRICIA MCPEAKPatricia McPeak Director      
|-------------------- |  | --- |  | ------------------------------------------------
|Date: April 17, 2001 |  | By: |  | /s/KIRIT S. KAMDARKirit S. Kamdar Director      
|Date: April 17, 2001 |  | By: |  | /s/STEVEN W. SAUNDERSSteven W. Saunders Director
|Date: April 17, 2001 |  | By: |  | /s/KENNETH L. MILLERKenneth L. Miller Director  

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