<PAGE>
FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
------------------------------
June 30, 1999
Commission file number 0-24285
THE RICEX COMPANY
68-0412200
Incorporated in Delaware IRS Employer Identification No.
1241 Hawk's Flight Court, El Dorado Hills, CA 95762
Registrant's Telephone No. (916) 933-3000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Number of shares of common stock outstanding as of August 1, 1999:
24,267,487
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (Check One):
Yes No X
----- -----
<PAGE>
THE RICEX COMPANY
(formerly Food Extrusion, Inc.)
Form 10-QSB for the Quarter Ended June 30, 1999
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
----
a) Consolidated Balance Sheet at June 30, 1999 3
b) Consolidated Statements of Operations for the quarter
and six month periods ended June 30, 1998 and 1999 4
c) Consolidated Statements of Cash Flow for the
quarter and six month periods ended June 30, 1998
and 1999 5
d) Notes to financial statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 2. Changes in Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K. 13
a) Exhibit 27, Financial data schedule
b) Reports on Form 8-K
Signatures 14
2
<PAGE>
THE RICEX COMPANY
(formerly Food Extrusion, Inc.)
CONSOLIDATED BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
June 30,
1999
-----------
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 398,639
Trade accounts receivable 626,139
Inventories 472,301
Deposits and other current assets 69,616
-----------
Total current assets 1,566,695
Property and equipment, net 3,345,358
Note receivable 67,604
Deferred debt issuance costs 26,163
Patents and trademarks 68,565
-----------
$ 5,074,385
-----------
-----------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt $ 6,714,361
Accounts payable and accrued liabilities 1,337,256
-----------
Total current liabilities 8,051,616
Long-term debt, net of current portion 1,850,000
-----------
Total liabilities 9,901,616
-----------
Commitments and Contingencies
Shareholders' equity (deficit):
Preferred stock, par value $.001 per share, 10,000,000 shares
authorized, no shares issued and outstanding ---
Common stock, par value $.001 per share, 100,000,000 shares
authorized, 22,586,331 issued and outstanding 22,586
Additional paid-in capital 18,454,596
Accumulated deficit (21,774,576)
Equity issued as prepaid interest and debt issuance costs (1,529,837)
-----------
Total shareholders' equity (deficit) (4,827,231)
-----------
$ 5,074,385
-----------
-----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
3
<PAGE>
THE RICEX COMPANY
(formerly Food Extrusion, Inc.)
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Quarters ended Six months ended
------------------------------- -------------------------------
June 30, June 30, June 30, June 30,
1998 1999 1998 1999
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Sales $ 696,579 $1,030,867 $ 1,517,229 $ 1,804,508
Royalties 9,605 12,915 20,339 20,392
----------- ---------- ----------- -----------
706,184 1,043,782 1,537,568 1,824,900
Cost of sales 521,007 573,919 1,055,464 1,013,846
----------- ---------- ----------- -----------
185,177 469,863 482,104 811,054
Research and development expenses 331,703 193,478 638,280 349,060
Selling, general and administrative
expenses 584,527 328,794 1,040,438 635,734
Stock option and warrant compensation
to employees 430,011 --- 860,022 ---
Professional fees 128,350 107,280 195,096 187,927
----------- ---------- ----------- -----------
Loss from operations (1,289,416) (159,689) (2,251,734) (361,667)
Other income (expense):
Interest and other income 82,925 1,035 168,432 5,211
Interest expense (111,212) (325,648) (218,173) (650,603)
----------- ---------- ----------- -----------
Loss before provision for income taxes (1,317,703) (484,302) (2,301,475) (1,007,059)
Provision for income taxes (400) (800) (400) (800)
----------- ---------- ----------- -----------
Net loss $(1,318,103) $ (485,102) $(2,301,875) $(1,007,859)
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
Basic earnings per share:
Net loss per share $ (0.07) $ (0.02) $ (0.12) $ (0.05)
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
Weighted-average shares outstanding 18,525,500 22,098,785 18,525,422 22,063,391
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE>
THE RICEX COMPANY
(formerly Food Extrusion, Inc.)
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Quarters ended Six months ended
--------------------------------------------------------------------
June 30, June 30, June 30, June 30,
1998 1999 1998 1999
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,318,102) $(485,102) $(2,301,874) $(1,007,859)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 152,883 176,268 357,433 352,005
Shares, warrants and options issued
for compensation and services 276,410 25,000 553,642 25,000
Accretion of debt discounts 59,091 28,149 118,182 56,298
Net change in operating assets
and liabilities:
Trade accounts receivable 84,835 (153,380) 242,037 (234,396)
Inventories (70,526) (173,695) (83,826) (260,040)
Deposits and other current assets (116,002) (40,310) (143,684) (40,218)
Deferred debt issuance costs 55,724 193,697 55,724 387,394
Amortization of prepaid interest on
debt financing --- 80,898 --- 161,796
Accounts payable and accrued
liabilities 446,698 246,439 507,415 (66,798)
----------- --------- ----------- -----------
Net cash used in operating activities (428,989) (102,036) (694,951) (626,818)
Cash flows from investing activities:
Purchases of property and equipment, net (8,640) (4,481) (53,428) (4,481)
Collection on note receivable 35,203 38,100 54,703 69,000
----------- --------- ----------- -----------
Net cash used in investing activities 26,563 33,619 1,275 64,519
Cash flows from financing activities:
Proceeds from issuance of long-term debt --- --- --- 700,000
Proceeds from issuance of common stock --- 400,000 --- 400,000
Proceeds on notes to shareholder --- (249,975) --- ---
Principal payments on long-term debt (5,953) (4,153) (25,551) (1,297,365)
Payments of long-term debt to shareholders (1,052) --- (30,052) 0
----------- --------- ----------- -----------
Net cash (used in) provided by
financing activities (7,005) 145,872 (55,603) (197,365)
Net increase (decrease) in cash and
cash equivalents (409,431) 77,455 (749,279) (759,664)
Cash and cash equivalents, beginning of period 523,279 321,183 863,127 1,158,302
----------- --------- ----------- -----------
Cash and cash equivalents, end of period $ 113,848 $ 398,638 $ 113,848 $ 398,638
----------- --------- ----------- -----------
----------- --------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
THE RICEX COMPANY
(formerly Food Extrusion, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
The RiceX Company ("RiceX"), formerly Food Extrusion, Inc., was incorporated
in California in 1989 and in 1998 was reincorporated in Delaware and changed
its name to The RiceX Company. RiceX has a wholly owned subsidiary, Food
Extrusion Montana, Inc. ("FoodEx Montana"). The consolidated financial
statements include the accounts of RiceX and FoodEx Montana (collectively
"the Company"), after the elimination of all inter-company balances and
transactions.
The Company is an agribusiness food technology company, which has developed a
proprietary process to stabilize rice bran. RiceX is headquartered in El
Dorado Hills, California and has stabilization equipment located at two rice
mills in Northern California. The Company purchases raw rice bran from these
two mills. Mill employees, under Company supervision, operate 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 and fiber complex form of
the Company's rice bran products are produced at the Montana facility.
There have been no changes in the Company's significant accounting policies
as set forth in the Company's audited financial statements for the year ended
December 31, 1998, which were included in the Company's Form 10-KSB. These
unaudited financial statements for the six months ended June 30, 1999 have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. The results of
operations for the six months ended June 30, 1999 are not necessarily
indicative of the results expected for the full year.
2. PROPERTY AND EQUIPMENT
At June 30, 1999, property and equipment consists of the following:
<TABLE>
<S> <C>
Land and buildings $ 367,961
Equipment 4,131,183
Leasehold improvements 381,642
Furniture and fixtures 225,417
-------------
5,106,203
Less accumulated depreciation and amortization (1,962,745)
-------------
3,143,458
Equipment not placed in service 201,900
-------------
$ 3,345,358
-------------
-------------
</TABLE>
6
<PAGE>
3. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
At June 30, 1999, accounts payable and accrued liabilities consist of the
following:
<TABLE>
<S> <C>
Trade accounts payable $ 536,682
Accrued interest 286,955
Other accrued liabilities 513,619
-------------
$ 1,337,256
-------------
-------------
</TABLE>
4. LONG-TERM DEBT
At June 30, 1999, long-term debt consists of the following:
<TABLE>
<S> <C>
Notes payable to related parties:
Note payable to shareholder, face amount of $1,750,000, secured
by equipment, stated interest rate of 5%, imputed
interest rate of 13%, due November 1999 $ 1,703,081
Note payable to shareholder, stated interest rate of 18%,
interest prepaid in common stock, due December 2000 1,850,000
Notes payable - other:
Note payable secured by six rice extruders, non-interest
bearing, due November 1999 5,000,000
Other notes payable 11,280
-------------
8,564,361
Less current portion (6,714,361)
=============
$ 1,850,000
=============
</TABLE>
5. SHAREHOLDERS' EQUITY (DEFICIT)
SHARES ISSUED FOR SERVICES
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 six months ended June 30, 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.
SHARES ISSUED IN PRIVATE PLACEMENT
In June 1999, the Company issued and sold 533,334 shares of its common stock
to private placement investors for $400,000. Also in connection with the
transaction, the investors received warrants to purchase up to 266,668 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 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 July 1999, the Company issued and sold 100,001 shares of its common stock
to private placement investors for $75,000. Also in connection with the
transaction, the investors received warrants to purchase up to 50,001 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 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.
7
<PAGE>
SHARES ISSUED FOR FOODEX MONTANA ASSETS
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 was retired in
January 1999. The seller had an 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 holders of the 310,000
shares to sell the shares back to the Company on July 1, 1999 based on a
$5.00 value and receive common stock with a 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.
6. NET LOSS PER SHARE
Basic net loss per share is computed by dividing net loss by the weighted
average number of common shares outstanding during all periods presented.
Options and warrants are excluded from the basic net loss per share
calculation because they are currently anti-dilutive.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
From time to time the Company may publish forward-looking statements about
anticipated results. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements. In order to comply
with the terms of the safe harbor, the Company notes that such
forward-looking statements are based upon internal estimates which are
subject to change because they reflect preliminary information and management
assumptions, and that a variety of factors could cause the Company's actual
results and experience to differ materially from the anticipated results or
other expectations expressed in the Company's forward-looking statements. The
factors which could cause actual results or outcomes to differ from such
expectation include the extent of the Company's success in (i) changing
market conditions (ii) unforeseen costs and expenses (iii) ability to attract
new customers and retain existing customers (iv) gain or losses from sales
along with the uncertainties and other factors, including unusually adverse
weather conditions, described from time to time in the Company's SEC filings
and reports. This report includes "forward-looking statements" including,
without limitation, statements as to the Company's liquidity and availability
of capital resources.
QUARTER ENDED JUNE 30, 1999 AND 1998
Consolidated revenues for the quarter ended June 30, 1999 were $1,044,000, a
$338,000, or 48% increase from the prior year when revenues totaled $706,000.
Stabilized rice bran product sales increased over $386,000 from the quarter
ended June 30, 1998 while revenues declined in organic infant cereal
processing sales at the Company's FoodEx MT facility. Infant cereal sales
were about $52,000 for the quarter ended June 30, 1998, compared to no sales
for the same quarter in 1999. In late 1998, the Company completed its
processing contract for infant cereal and anticipates no future sales of this
product. Management is
8
<PAGE>
currently seeking contracts to replace the infant cereal production.
Eliminating the effect of cereal sales, the Company's revenues from
stabilized rice bran products for the quarter ended June 30, 1999 increased
by 60% on sales volume increases of 30% compared to the same period last
year. The average price per pound of product sold increased 24% for quarter
ended June 30, 1999 over the same period last year.
The gross margin was $470,000 or 45% for the quarter ended June 30, 1999
compared to $185,000 or 26% for the same period a year ago. Gross margins on
the Company's various products vary widely and the gross margins are impacted
from period to period by sales mix and utilization of production capacity.
The Company expects that gross margins will continue to improve as sales
volumes increase.
The Company's overall fixed overhead expenses and stock option compensation
charges reflect a substantial reduction of 57% for the quarter ended June 30,
1999 compared to the same period last year. Overall, these categories
decreased $846,000 from $1,475,000 for the quarter ended June 30, 1998 to
$629,000 for the quarter ended June 30, 1999.
Research and Development ("R&D") expenditures decreased 42% from $332,000 for
the quarter ended June 30, 1998 to $193,000 for the same quarter in 1999. The
decrease relates primarily to 1998 new product development costs,
particularly rice bran oil and Max `E', a variation on stabilized rice bran,
and the expenses associated with an executive officer that terminated
employment with the Company in December 1998.
Selling, general and administrative ("S, G & A") expenses were $329,000 for
the quarter ended June 30, 1999 and $585,000 for the quarter ended June 30,
1998, a decrease of $256,000 or 44%. Significant reductions in salaries,
employee benefits, travel and relocation expenses occurred mostly in
connection with the Company's cost reduction programs and the executive
officers that terminated employment with the Company in December 1998. The
Company anticipates this reduced S, G & A spending trend to continue through
1999.
Professional fees declined to $107,000 for the quarter ended June 30, 1999
from $128,000 for the quarter ended June 30, 1998, or 16% reduction. This
reduction resulted in view of the fact that the Company incurred higher
legal, accounting and printing expenses that were associated with various SEC
filings, annual shareholders reports and proxy statement charges that were
not incurred during the quarter ended June 30, 1998.
Stock option compensation expense is a non-cash charge relating to the
one-time issuance in 1997 of favorably priced stock options to employees and
directors to attract these executives to the Company. The charge represents
the difference between the exercise price and the trading value on the date
of the grant. The difference is recognized over the vesting period of each
grant, which generally ranges from two to three years, except for the
directors' grants, which vested immediately. The charges in 1998 of $430,000
relate mostly to the stock option compensation expenses associated with
option grants to the four executive officers that terminated employment with
the Company in December 1998, at which time these options were cancelled.
Interest expense for the quarter ended June 30, 1999 was $326,000 compared to
$111,000 for the same period last year. In both quarters ended June 30, 1999
and 1998, these charges primarily represents the amortization of certain debt
issuance costs and accrued interest. The $214,000 increase for the quarter
ended June 30, 1999 over last years quarter ended June 30, 1998 is generally
associated with amortized costs on the debt that was acquired in December
1998.
The Company's net loss for the quarter ended June 30, 1999 totaled $485,000,
or $.02 per share, compared to $1,318,000 or $.07 per share a year ago. As
discussed above, this decline in loss was primarily due to increased sales
and improved gross margins coupled with the reduced fixed overhead costs and
stock option compensation charges.
9
<PAGE>
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Consolidated revenues for the six months ended June 30, 1999 totaled
$1,825,000, a $287,000, or 19% increase over last year's six months revenues
of $1,538,000. Stabilized rice bran product revenues increased $392,000, or
28% and volume sales increased 1,093,000 pounds, or 24% compared to the six
months ended June 30, 1998. The average price per pound of product sold
increased 4% for the six months ended June 30, 1999 over the same period last
year. The average price per pound will fluctuate from period to period
because of product sales mix.
Organic infant cereal processing sales at the Company's FoodEx MT facility
for the six months ended June 30, 1999 declined $105,000. Infant cereal sales
totaled $105,000 through June 30, 1998 compared with no sales this year. As
described earlier, the Company completed its processing contract for infant
cereal in late 1998 and anticipates no future sales of this product.
Management is currently seeking contracts to replace the infant cereal
production. FoodEx MT continues to produce the Company's soluble and fiber
products from stabilized rice bran.
The gross margin on sale of products was $811,000, or 44% for the six months
ended June 30, 1999 compared to $482,000, or 31% for the year earlier period.
Gross margins on the Company's various products vary widely and the gross
margins are impacted from period to period by sales mix, utilization of
production capacity and raw product costs. There were more sales of solubles,
the product with the highest gross margin, this year than last year and raw
product costs were lower through the six months ended June 30, 1999 than last
year for the same time period. The Company expects that gross margins will
improve as sales grow.
The Company's overall fixed overhead expenses and stock option compensation
charges reflect a substantial reduction of 57% for the six months ended June
30, 1999 compared to the same period last year. Overall, these categories
decreased $1,560,000 from $2,733,000 for the quarter ended June 30, 1998 to
$1,173,000 for the six months ended June 30, 1999.
R&D expenditures were $349,000 and $638,000 in the six months ended June 30,
1999 and 1998 respectively. These expenses decreased $289,000, or 45%
primarily relating to 1998 new product development costs, particularly rice
bran oil and expenses associated with an executive officer that terminated
employment with the Company in December 1998. The Company expects its R&D
expenditures to be slightly higher than experienced so far this year because
of the Monsanto and RiceX joint stabilization and oil refining demonstration
project that is currently ongoing in India.
S, G & A expenses were $636,000 and $1,040,000 for the six months ended June
30, 1999 and 1998 respectively. These expenses decreased $404,000 or 39% over
last year. Compensation, employee benefits, travel, advertising, office
supplies and telephone expenses all down primarily due to the Company's cost
reduction programs and the executive officers that terminated employment with
the Company in December 1998.
The Company's professional expenses for the six months ended June 30, 1999
were $188,000 as compared with $195,000 for the same time in 1998. This
modest reduction resulted in view of the fact that the Company incurred
higher legal, accounting and printing expenses that were associated with
various SEC filings, annual shareholders reports and proxy statement charges
that were not incurred during the first of 1998.
Stock option compensation expense is a non-cash charge relating to the
one-time issuance in 1997 of favorably priced stock options to employees and
directors to attract these executives to the Company. The charge represents
the difference between the exercise price and the trading value on the date
of the grant. The difference is recognized over the vesting period of each
grant, which generally ranges from two to three years, except for the
directors' grants, which vested immediately. The charges for the six months
ended June 30, 1998 of $860,000 relate mostly to the stock option
compensation expenses associated with option grants to the four executive
officers that terminated employment with the Company in December 1998, at
which time these options were cancelled.
10
<PAGE>
Interest expense for the six months ended June 30, 1999 was $651,000 compared
with $218,000 for the six months ended June 30, 1998. Six months interest
charges primarily represents accretion on debt, amortization of certain debt
issuance costs and accrued interest. The $433,000 increase for the six months
ended June 30, 1999 over the same period last year is generally associated
with amortized costs on the debt that was acquired in December 1998.
The Company's net loss for the six months ended June 30, 1999 totaled
$1,008,000, or $.05 per share, compared to $2,302,000 or $.12 per share a
year ago. As discussed above, this decline in loss was primarily due to
increased sales and improved gross margins coupled with the reduced fixed
overhead costs and stock option compensation charges.
LIQUIDITY AND CAPITAL RESOURCES
For the quarter ended June 30, 1999, the Company's cash flow from operations
improved $327,000 over the same time period last year. As of June 30, 1999, the
Company has yet to generate positive cash flow from its operations due to the
preliminary nature of such operations, substantial ongoing investment in
research and development efforts, and an infrastructure that was built sooner
than the Company realized its expected growth potential. Consequently, the
Company has been substantially dependent on private placements of its equity
securities and debt financing to fund its cash requirements. Net cash used in
operations for the six months ended June 30, 1999 totaled $627,000. The cash
balances at June 30, 1999 decreased $760,000 to $399,000 from $1,158,000
at December 31, 1998. During the six months ended June 30, 1999 the Company
used significant portions of its cash reserves to retire both current and
long-term debt.
In January 1999, The Company retired the assumed liabilities of FoodEx
Montana totaling $1,289,000, paid deferred compensation and severance
payments of $321,000 to four executives that terminated employment with the
Company in December 1998 and other account payables. In March 1999, the
Company borrowed $250,000 from a shareholder. This short-term bridge loan was
without collateral and non-interest bearing. In June 1999, the Company
retired this loan with proceeds from the sales of common stock.
In June and July 1999, the Company issued and sold 633,335 shares of its
common stock to private placement investors for $475,000. Also in connection
with these transactions, the investors received warrants to purchase up to
316,669 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 cash requirement for the remainder of 1999 is expected to be
significantly reduced by the efforts of management to decrease projected
fixed overheads and budgeted 1999 sales revenues improving over last year's
performance. However, there can be no assurance that such reduction or such
increase in revenue will occur or remain in effect.
The Company is taking additional steps to address the approximate $7,000,000
debt that matures in November 1999. The Company will need new debt financing
or additional capital to repay the Monsanto and Dominion liabilities or the
ability to restructure the notes to extend payment terms consistent with the
Company's anticipated ability to repay the Lenders from the cash generated
from operations in the future. There can be no assurance that such
arrangements will be successful.
For 1999, the Company expects to incur additional costs for research and
development, including clinical studies, and professional and legal fees for
patent and trademark applications. It also expects to expand its sales and
marketing efforts. These efforts could significantly increase demand for the
Company's products beyond the Company's current production capacity. While
the Company believes it can increase its production capacity to meet sales
demand, significant additional capital could be required to meet such
expansion requirements.
11
<PAGE>
The Company is taking steps to raise equity capital. However, there can be no
assurance that any new capital would be available to the Company or that
adequate funds for the Company's operations, whether from the Company's
revenues, financial markets, collaborative or other arrangements with
corporate partners or from other sources, will be available when needed or on
terms satisfactory to the Company.
The failure of the Company to obtain adequate additional financing may
require the Company to delay, curtail or scale back some or all of its
research and development programs, sales and marketing efforts, manufacturing
operations, clinical studies and regulatory activities and, potentially, to
cease its operations. Any additional equity financing may involve substantial
dilution to the Company's shareholders.
PART II. OTHER INFORMATION
Item 2. CHANGES IN SECURITIES
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 six months ended June 30, 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 June 1999, the Company issued and sold 533,334 shares of its common stock
to private placement investors for $400,000. Also in connection with the
transaction, the investors received warrants to purchase up to 266,668 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 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 July 1999, the Company issued and sold 100,001 shares of its common stock
to private placement investors for $75,000. Also in connection with the
transaction, the investors received warrants to purchase up to 50,001 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 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 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 FoodEx
Montana Asset Purchase Agreement (see footnote number 5 of the interim
Financial Statements included in this report). 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.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual Meeting of Stockholders of the Company was held on July 1, 1999.
At the time of the meeting, proxies representing 16,521,416 votes were cast
approving the election of Kirit S. Kamdar and Steven W. Saunders as directors
of the Company.
The directors, whose term of office as a director continued after the
meeting, are Joseph R. Bellantoni, Daniel L. McPeak and Patricia McPeak.
12
<PAGE>
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:
<TABLE>
VOTES Broker
For Against Withheld Abstentions Non-Votes
--- ------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Kirit S. Kamdar 16,521,416 22,712 2,000 --- ---
Steven W. Saunders 16,521,416 22,712 2,000 --- ---
</TABLE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27, Financial Data Schedule
(b) Reports on Forms 8-K
None
13
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this to be signed on its behalf by the undersigned, thereto duly
authorized.
THE RICEX COMPANY
Date: August 16, 1999 By: /s/ Daniel L. McPeak
--------------------
Daniel L. McPeak
Chairman of the Board and
Chief Executive Officer
Date: August 16, 1999 By: /s/ Todd C. Crow
----------------
Todd C. Crow
Vice President, Finance and
Principal Financial Officer
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 398,639
<SECURITIES> 0
<RECEIVABLES> 693,743
<ALLOWANCES> 20,000
<INVENTORY> 472,301
<CURRENT-ASSETS> 1,566,695
<PP&E> 5,106,203
<DEPRECIATION> 1,962,745
<TOTAL-ASSETS> 5,074,385
<CURRENT-LIABILITIES> 8,051,616
<BONDS> 0
0
0
<COMMON> 22,586
<OTHER-SE> 4,849,817
<TOTAL-LIABILITY-AND-EQUITY> 5,074,385
<SALES> 1,804,508
<TOTAL-REVENUES> 1,824,900
<CGS> 1,013,846
<TOTAL-COSTS> 2,186,567
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 20,000
<INTEREST-EXPENSE> 650,603
<INCOME-PRETAX> (1,007,059)
<INCOME-TAX> 800
<INCOME-CONTINUING> (1,007,859)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,007,859)
<EPS-BASIC> (.046)
<EPS-DILUTED> 0
</TABLE>
