<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
March 31, 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 May 1, 1999:
22,027,997
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 March 31, 1999
Index
<TABLE>
<S> <C>
Part I. Financial Information
Item 1. Financial Statements Page
----
a) Consolidated Balance Sheet at March 31, 1999 3
b) Consolidated Statements of Operations for the quarters ended
March 31, 1998 and 1999 4
c) Consolidated Statements of Cash Flow for the quarters ended
March 31, 1998 and 1999 5
d) Notes to financial statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibit 27, Financial data schedule
b) Reports on Form 8-K
Signatures
</TABLE>
2
<PAGE>
THE RICEX COMPANY
(formerly Food Extrusion, Inc.)
CONSOLIDATED BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
ASSETS
March 31,
1999
----------------
<S> <C>
Current assets:
Cash and cash equivalents $ 321,183
Trade accounts receivable 472,759
Inventories 298,606
Deposits and other current assets 29,306
----------------
Total current assets 1,121,854
Property and equipment, net 3,517,145
Note receivable 105,704
Other assets 114,350
----------------
$ 4,859,053
----------------
----------------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt $ 6,940,340
Accounts payable and accrued liabilities 1,090,817
----------------
Total current liabilities 8,031,157
Long-term debt, net of current portion 1,850,000
----------------
Total liabilities 9,881,157
----------------
----------------
Commitments and Contingencies
Shareholders' equity (deficit):
Preferred stock, par value $.001 per share, 10,000 shares
authorized, no shares issued and outstanding ---
Common stock, par value $.001 per share, 100,000,000 shares
authorized, 22,027,997 shares issued and outstanding 22,028
Additional paid-in capital 18,030,155
Accumulated deficit (21,289,477)
Equity issued as prepaid interest and debt issuance costs (1,784,810)
----------------
Total shareholders' deficit (5,022,104)
----------------
$ 4,859,053
----------------
----------------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
3
<PAGE>
THE RICEX COMPANY
(formerly Food Extrusion, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Quarters ended
-------------------------------
March 31, March 31,
1998 1999
------------- -------------
<S> <C> <C>
Revenue:
Sales $ 820,650 $ 773,641
Royalties 10,734 7,476
------------- -------------
831,384 781,117
Cost of sales 534,457 439,927
------------- -------------
296,927 341,190
Research and development expenses 306,577 155,582
Selling, general and administrative expenses 455,911 306,940
Stock option and warrant compensation to employees 430,011 ---
Professional fees 66,746 80,647
------------- -------------
Loss from operations (962,318) (201,979)
Other income (expense):
Interest and other income 85,507 4,176
Interest and other expense (106,961) (324,955)
------------- -------------
Loss before provision for income taxes (983,772) (522,757)
Provision for income taxes --- ---
------------- -------------
Net loss $ (983,772) $ (522,757)
------------- -------------
------------- -------------
Basic earnings per share:
Net loss per share $ (.05) $ (.02)
Weighted average number of shares outstanding 18,525,345 22,027,997
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
4
<PAGE>
THE RICEX COMPANY
(formerly Food Extrusion, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Quarters ended
----------------------------------
March 31, March 31,
1998 1999
--------------- ---------------
<S> <C> <C>
Cash flow from operating activities:
Net loss $ (983,772) $ (522,757)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 178,716 175,737
Shares, warrants and options issued for compensation
and services 277,230 ---
Accretion of debt discount 59,091 28,149
Net changes in operating assets and liabilities:
Trade accounts receivable 157,202 (81,016)
Inventories (13,300) (86,345)
Deposits and other current assets (27,682) 92
Deferred debt issuance costs 25,835 193,697
Amortization of prepaid interest on debt financing --- 80,898
Accounts payable and accrued liabilities 60,716 (313,237)
--------------- ---------------
Net cash used in operating activities (265,964) (524,782)
--------------- ---------------
Cash flow from investing activities:
Sales (purchases) of property and equipment, net (44,787) ---
Collection on note receivable 19,500 30,900
--------------- ---------------
Net cash provided by (used for) investing activities (25,287) 30,900
--------------- ---------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt --- 700,000
Proceeds on notes to shareholder --- 249,975
Principal payments on long-term debt (19,597) (1,293,212)
Payment of long-term debt to shareholders (29,000) ---
--------------- ---------------
Net cash provided by financing activities (48,597) (343,237)
--------------- ---------------
Net increase (decrease) in cash and cash equivalents (339,848) (837,119)
Cash and cash equivalents, beginning of period 863,127 1,158,302
--------------- ---------------
Cash and cash equivalents, end of period $ 523,279 $ 321,183
--------------- ---------------
--------------- ---------------
</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 three months ended March 31, 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 three months ended March 31, 1999 are not necessarily
indicative of the results expected for the full year.
2. PROPERTY AND EQUIPMENT
At March 31, 1999, property and equipment consists of the following:
<TABLE>
<S> <C>
Land and buildings $ 367,961
Equipment 4,126,702
Leasehold improvements 381,642
Furniture and fixtures 225,417
-------------
5,101,722
Less accumulated depreciation and amortization (1,786,477)
-------------
3,315,245
Equipment not placed in service 201,900
-------------
$ 3,517,145
-------------
-------------
</TABLE>
6
<PAGE>
3. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
At March 31, 1999, accounts payable and accrued liabilities consist of the
following:
<TABLE>
<S> <C>
Trade accounts payable $ 331,751
Accrued interest 264,899
Other accrued liabilities 494,167
-------------
$ 1,090,817
-------------
-------------
</TABLE>
4. LONG-TERM DEBT
At March 31, 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 $ 1,674,932
Note payable to shareholder, stated interest rate of 18%,
Interest prepaid in common stock, due December 2000 1,850,000
Note payable to shareholder, without collateral, non-interest
bearing, due June 1999 249,975
Notes payable - other:
Note payable secured by six rice extruders, non-interest
bearing, due November 1999 5,000,000
Other notes payable 15,433
-------------
8,790,340
Less current portion (6,940,340)
-------------
$ 1,850,000
-------------
-------------
</TABLE>
5. 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
The following discussion of the Company's financial condition and results of
operations includes certain forward-looking statements. When used in this
report, the words "expects," "intends," "believes," "plans" and "anticipates"
and other terms are intended to identify forward-looking statements that
relate to the Company's future performance. Such statements involve risks and
uncertainties and the Company's actual results may differ materially from the
results described here. Factors that might cause such a difference include,
but are not limited to, those discussed in the "Factors Affecting Operating
Results" section of the Company's Form 10-KSB.
QUARTER ENDED MARCH 31, 1999 AND 1998
Revenue for the quarter ended March 31, 1999 was $781,000, a $50,000, or 6%,
decline from the prior year when revenue totaled $831,000. Although
stabilized rice bran product sales increased over $6,000 from last year, the
decrease in revenues is attributable to a drop in organic infant cereal
processing sales at the Company's FoodEx Montana facility. Infant cereal
sales were about $53,000 for quarter ended March 31,
7
<PAGE>
1998, compared to no sales for the quarter ended March 31, 1999. In late
1998, the Company completed its processing contract for infant cereal and
anticipates no future sales of this product. Management is currently seeking
contracts to replace the infant cereal production. Eliminating the effect of
cereal sales, the Company's sales volume of stabilized rice bran products
increased by 14% while the average price per pound of product declined 13%
because of product sales mix.
The gross margin was $341,000 or 44% for the quarter ended March 31, 1999
compared to $297,000 or 36% 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 improve as sales volumes increase.
Both research and development ("R&D") expenses and selling, general and
administrative ("S, G & A") expenses reflect substantial decreases for
quarter ended March 31, 1999 compared to the same period last year. R&D
expenditures decreased from $307,000 for the quarter ended March 31, 1998 to
$156,000 for the current quarter. 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.
S, G & A expenses were $307,000 for the quarter ended March 31, 1999 and
$456,000 for quarter ended March 31, 1998, a decrease of $149,000 or 33%.
Significant reductions in salaries, employee benefits, travel and relocation
expenses occurred in the first quarter of 1999 mostly in connection with 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, however there can be no assurance that such reduction
will continue.
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
relates 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.
Professional fees increased to $81,000 for the quarter ended March 31, 1999
from $67,000 for the prior year's quarter. The increase of $14,000 or 21%,
include expenditures incurred for legal and accounting fees in connection
with a debt financing, amending portions of FoodEx Montana's asset purchase
agreement and preparation of Form 10-KSB.
Interest expense for quarter ended March 31, 1999 was $325,000 compared to
$107,000 for the same period last year. In both quarters ended March 31, 1999
and 1998, these charges primarily represents the amortization of certain debt
issuance costs and accrued interest. The $218,000 increase for quarter ended
March 31, 1999 over last years quarter ended March 31, 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 March 31, 1999 totaled $523,000,
or $.02 per share, compared to $984,000, or $.05 per share a year ago. As
discussed above, this decline in loss was primarily due to the decline in
fixed overhead costs and the stock option compensation charges associated
with the executive officers that terminated employment with the Company in
December 1998.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, the Company has been substantially dependent on private
placements of its equity securities and debt financing to fund its cash
requirements due to the preliminary nature of its operations, substantial
ongoing investment in research and development efforts, and building an
infrastructure sooner than the Company had realized its expected growth
potential.
8
<PAGE>
The Company relied heavily on proceeds from the sale of common stock and from
the issuance of long-term debt to fund its activities in 1998. In March 1999,
the Company borrowed $250,000 from a shareholder. This loan is without
collateral, non-interest bearing and due June 1999. The funds are intended as
a short-term bridge loan for working capital needs while the Company seeks
additional equity financing. Cash balances at March 31, 1999 decreased by
$202,000 to $321,000 from $523,000 at March 31, 1998.
During the quarter ended March 31, 1999, the Company used significant
portions of its cash reserves to retire the FoodEx Montana debt of $1,289,000
and pay deferred compensation and severance payments totaling $321,000 to
four executives that terminated employment with the Company in December 1998.
The cash requirement for the remainder of 1999 is projected to be
significantly reduced by the termination of these four executives in December
1998, as well as the efforts of management to reduce projected fixed
overheads more than 50%, 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
arrangement will be successful, or at all.
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.
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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27, Financial Data Schedule
(b) Reports on Form 8-K
None
9
<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: May 17, 1999 By: /s/ Daniel L. McPeak
---------------------------
Daniel L. McPeak
Chairman of the Board and
Chief Executive Officer
Date: May 17, 1999 By: /s/ Todd C. Crow
---------------------------
Todd C. Crow
Vice President, Finance and
Principal Financial Officer
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 321,183
<SECURITIES> 0
<RECEIVABLES> 578,463
<ALLOWANCES> 20,000
<INVENTORY> 298,606
<CURRENT-ASSETS> 1,121,854
<PP&E> 5,303,622
<DEPRECIATION> 1,786,477
<TOTAL-ASSETS> 4,859,053
<CURRENT-LIABILITIES> 8,031,157
<BONDS> 0
0
0
<COMMON> 22,028
<OTHER-SE> 18,030,155
<TOTAL-LIABILITY-AND-EQUITY> 4,859,053
<SALES> 773,641
<TOTAL-REVENUES> 781,117
<CGS> 439,927
<TOTAL-COSTS> 983,096
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 20,000
<INTEREST-EXPENSE> 324,955
<INCOME-PRETAX> (522,757)
<INCOME-TAX> 0
<INCOME-CONTINUING> (522,757)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (522,757)
<EPS-PRIMARY> (.024)
<EPS-DILUTED> 0
</TABLE>
