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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
September 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
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Number of shares of common stock outstanding as of November 1, 1999:
25,360,338
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (Check One):
Yes No X
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THE RICEX COMPANY
(formerly Food Extrusion, Inc.)
Form 10-QSB for the Quarter Ended September 30, 1999
INDEX
PART I. FINANCIAL INFORMATION
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PAGE
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ITEM 1. FINANCIAL STATEMENTS
a) Consolidated Balance Sheet at September 30, 1999 3
b) Consolidated Statements of Operations for the
quarter and nine month periods ended
September 30, 1998 and 1999 4
c) Consolidated Statements of Cash Flow for the
quarter and nine month periods ended
September 30, 1998 and 1999 5
d) Notes to financial statements 6
Item 2. Management's Discussion and Analysis or Plan
of Operation 8
PART II. OTHER INFORMATION
Item 2. Changes in Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibit 27, Financial data schedule
b) Reports on Form 8-K 13
Signatures 14
</TABLE>
2
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THE RICEX COMPANY
(formally Food Extrusion, Inc.)
CONSOLIDATED BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
September 30,
1999
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<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 697,581
Trade accounts receivable 563,901
Inventories 377,979
Deposits and other current assets 36,392
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Total current assets 1,675,853
Property and equipment, net 3,170,052
Not receivable 29,504
Deferred debt issuance costs 6,541
Patents and trademarks 68,565
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$4,950,515
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LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt $6,737,106
Accounts payable and accrued liabilities 1,236,947
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Total current liabilities 7,974,053
Long-term debt, net of current portion 1,850,000
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Total liabilities 9,824,053
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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, 25,288,338 issued and outstanding 25,288
Additional paid-in capital 17,728,166
Accumulated deficit (20,766,717)
Equity issued as prepaid interest and debt issuance costs (1,860,275)
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Total shareholders'equity (deficit) (4,873,538)
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$4,950,515
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</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
3
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THE RICEX COMPANY
(formerly Food Extrusion, Inc.)
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Quarters ended Nine months ended
--------------------------------- ---------------------------------
September 30, September 30, September 30, September 30,
1998 1999 1998 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Sales $ 685,577 $ 682,134 $ 2,202,806 $ 2,486,642
Royalties 9,390 5,703 29,729 26,095
------------ ------------ ------------ ------------
694,967 687,837 2,232,535 2,512,737
Cost of sales 499,362 569,409 1,554,826 1,583,255
------------ ------------ ------------ ------------
195,605 118,428 677,709 929,482
Research and development expenses 202,854 183,516 768,288 532,576
Selling, general and administrative
expenses 668,685 389,757 1,781,150 1,025,491
Stock option and warrant compensation
to employees 275,591 - 829,233 -
Shareholder loan costs and
related rescission (318,931) - (171,733) -
Professional fees 229,595 74,680 424,691 262,607
------------ ------------ ------------ ------------
Loss from operations (862,188) (529,525) (2,953,919) (891,192)
Other income (expense):
Interest and other income 1,753 3,771 10,183 8,982
Interest expense (112,591) (326,262) (330,764) (976,865)
------------ ------------ ------------ ------------
Loss before provision for income taxes (973,026) (852,016) (3,274,500) (1,859,075)
Provision for income taxes (200) (400) (600) (1,200)
------------ ------------ ------------ ------------
Net loss $ (973,226) $ (852,416) $ (3,275,100) $ (1,860,275)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Basic earnings per share:
Net loss per share $ (0.05) $ (0.03) $ (0.16) $ (0.08)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted-average shares outstanding 20,494,236 24,769,884 20,515,079 22,967,509
------------ ------------ ------------ ------------
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</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
4
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THE RICEX COMPANY
(formerly Food Extrusion, Inc.)
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Quarters ended Nine months ended
--------------------------------- ---------------------------------
September 30, September 30, September 30, September 30,
1998 1999 1998 1999
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<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (973,226) $ (852,416) $(3,275,100) $(1,860,275)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 178,663 176,002 536,096 528,007
Shares, warrants and options issued
for compensation and services 276,411 - 830,053 25,000
Accretion of debt discounts 59,092 28,149 177,274 84,447
Amortization of shares issued
in lieu of production service fees - 19,531 - 19,531
Net change in operating assets
and liabilities:
Trade accounts receivable (28,247) 62,238 213,790 (172,158)
Inventories (169,563) 94,322 (253,389) (165,718)
Deposits and other current assets 86,064 33,223 (57,620) (6,995)
Deferred debt issuance costs 29,890 193,697 85,614 581,091
Amortization of prepaid interest on
debt financing - 80,899 - 242,695
Accounts payable and accrued liabilities
liabilities (260,548) (100,309) 246,867 (167,107)
------------ ------------ ------------ ------------
Net cash used in operating activities (801,464) (264,665) (1,496,415) (891,483)
Cash flows from investing activities:
Purchases of property and equipment, net 44,677 (696) (8,751) (5,177)
Collections on notes receivable 27,300 38,100 82,003 107,100
------------ ------------ ------------ ------------
Net cash used for investing activities 71,977 37,404 73,252 101,923
Cash flows from financing activities:
Proceeds from issuance of long-term debt - - - 700,000
Proceeds from issuance of common stock 1,555,000 531,608 1,555,000 931,608
Principal payments on long-term debt (5,025) (5,404) (30,576) (1,302,769)
Payments of long-term debt to shareholders - - (30,052) -
------------ ------------ ------------ ------------
Net cash (used in) provided by
financing activities 1,549,975 526,204 1,494,372 328,839
Net increase (decrease) in cash and
cash equivalents 820,488 298,943 71,209 (460,721)
Cash and cash equivalents, beginning of period 113,848 398,638 863,127 1,158,302
------------ ------------ ------------ ------------
Cash and cash equivalents, end of period $ 934,336 $ 697,581 $ 934,336 $ 697,581
------------ ------------ ------------ ------------
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</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
5
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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.
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 nine months ended September 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 nine months
ended September 30, 1999 are not necessarily indicative of the results expected
for the full year.
2. PROPERTY AND EQUIPMENT
At September 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 226,113
---------------
5,106,899
Less accumulated depreciation and amortization (2,138,747)
---------------
2,968,152
Equipment not placed in service 201,900
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$ 3,170,052
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</TABLE>
6
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3. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
At September 30, 1999, accounts payable and accrued liabilities consist of the
following:
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<S> <C>
Trade accounts payable $ 601,444
Accrued interest 309,250
Other accrued liabilities 326,253
---------------
$ 1,236,947
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---------------
</TABLE>
4. LONG-TERM DEBT
At September 30, 1999, long-term debt consists of the following:
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Notes payable to related parties:
Dominion 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 $ 1,731,230
Note payable to shareholder, stated interest rate of 18%,
interest prepaid in common stock, due December 2000 1,850,000
Notes payable - other:
Monsanto note payable secured by six rice extruders,
non-interest bearing, due November 1999 5,000,000
Other notes payable 5,876
---------------
8,587,106
Less current portion (6,737,106)
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$ 1,850,000
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</TABLE>
In October 1999, Monsanto and the Company reached an agreement in principle to
convert the $5,000,000 note into shares of the Company's common stock. The
details of the conversion have not yet been finalized.
The Company is taking steps to address the approximate $2,100,000 Dominion debt
(principle and accrued interest) that matures in November 1999. The Company is
currently negotiating with third parties on new financing for additional capital
to repay the Dominion liabilities.
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 nine months ended September 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 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. The value of the
common stock was $234,000 and is recorded as a contra account to 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 1999, the Company issued 67,714 shares of common stock to an agent
for introducing investors to the Company. The value of the common stock was
approximately $51,000 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.
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SHARES ISSUED IN PRIVATE PLACEMENT
Through October 1999, the Company had issued and sold 1,408,471 shares of its
common stock to private placement investors for $1,056,350. Also in connection
with the transaction, the investors received warrants to purchase up to
1,408,471 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.
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 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.
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 OR PLAN OF OPERATION
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
8
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"forward-looking statements" including, without limitation, statements as to the
Company's liquidity and availability of capital resources.
QUARTER ENDED SEPTEMBER 30, 1999 AND 1998
Consolidated revenues for the quarter ended September 30, 1999 were $688,000, a
$7,000, or 1% decrease from the prior year when revenues totaled $695,000.
Stabilized rice bran product sales increased over $69,000 from the quarter ended
September 30, 1998 while revenues declined in organic infant cereal processing
sales at the Company's FoodEx MT facility. Infant cereal sales were about
$72,000 for the quarter ended September 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 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 September 30, 1999 increased
by 11% on sales volume increases of 7% compared to the same period last year.
The average price per pound of product sold increased 6% for quarter ended
September 30, 1999 over the same period last year.
The gross margin was $118,000, or 17% for the quarter ended September 30, 1999
compared to $196,000 or 28% for the same period a year ago. The decrease was
primarily a result of an inventory valuation adjustment and the sale of dated
product below cost. Gross margins for the quarter ended September 30, 1999,
prior to these adjustments, were 33% comparable to 1998 results. 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 39% for the quarter ended September
30, 1999 compared to the same period last year. Overall, these categories
decreased $410,000 from $1,058,000 for the quarter ended September 30, 1998 to
$648,000 for the quarter ended September 30, 1999.
Research and Development ("R&D") expenditures decreased 10% from $203,000 for
the quarter ended September 30, 1998 to $184,000 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 $390,000 for the
quarter ended September 30, 1999 and $669,000 for the quarter ended September
30, 1998, a decrease of $280,000 or 42%. 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 $155,000 for the quarter ended September 30, 1999
from $230,000 for the quarter ended September 30, 1998, or a 67% reduction. This
reduction reflects the higher legal, accounting and printing expenses that were
associated with various SEC filings, annual shareholders reports and proxy
statement charges that were incurred during the quarter ended September 30,
1999.
Stock option compensation expense for quarter ended September 30, 1999 was zero
compared to $276,000 for quarter ended September 30, 1998. This 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 expense in the
quarter ended September 30, 1998 of $276,000 relate mostly to the stock option
compensation expenses
9
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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.
Shareholder loan costs and related rescission relates to the rescission in
September 1998 of a $4,000,000 note receivable from an executive officer and the
associated purchase of 2,000,000 shares of the Company's common stock. The
executive officer had acquired the shares through the exercise of a stock
option, which was reinstated in connection with the rescission of the note
receivable. The note receivable had been outstanding since May 1997 and bore
interest at 8% per year. The Company had agreed to reimburse the executive
officer for the interest on the note plus the income tax effect of the interest.
The interest income and the associated accruals for the reimbursements were
reversed in connection with the rescission in the quarter ended September 30,
1998 for a net credit to income of $318,931.
Interest expense for the quarter ended September 30, 1999 was $326,000 compared
to $113,000 for the same period last year. In both quarters ended September 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 September 30, 1999 over the quarter ended September 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 September 30, 1999 totaled
$852,000, or $.03 per share, compared to $973,000 or $.05 per share a year ago.
This decline in loss was primarily due to increased sales and improved gross
margins coupled with the reduced fixed overhead costs and reduced stock option
compensation charges.
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Consolidated revenues for the nine months ended September 30, 1999 totaled
$2,513,000, a $280,000, or 13%, increase over last year's nine months revenues
of $2,233,000. Stabilized rice bran product revenues increased $461,000, or 23%
and volume sales increased 1,244,000 pounds, or 18% compared to the nine months
ended September 30,1998. The average price per pound of product sold increased
5% for the nine months ended September 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 nine months ended September 30, 1999 declined $177,000. Infant cereal sales
totaled $177,000 through September 30, 1998 compared with no sales this year.
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 $929,000, or 37% for the nine months
ended September 30, 1999 compared to $678,000, or 30%, for the period ended
September 30, 1998. 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, in 1999 than in 1998,
and raw product costs were lower through the nine months ended September 30,
1999 than for the same time period last year. 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 50% for the nine months ended
September 30, 1999 compared to the same period last year. Overall, these
categories decreased $1,811,000 from $3,632,000 for the quarter ended
September 30, 1998 to $1,811,000 for the nine months ended September 30, 1999.
R&D expenditures were $533,000 and $768,000 in the nine months ended September
30, 1999 and 1998 respectively. These expenses decreased $235,000, or 31%,
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.
10
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S, G & A expenses were $1,025,000 and $1,781,000 for the nine months ended
September 30, 1999 and 1998 respectively. These expenses decreased $756,000 or
42% over last year. Compensation, employee benefits, travel, advertising, office
supplies and telephone expenses all were 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 anticipates this reduced S, G & A
spending trend to continue through 1999.
The Company's professional expenses for the nine months ended September 30, 1999
were $263,000 as compared with $425,000 for the same time in 1998. This 38%
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 nine months of 1998.
Stock option compensation expense for nine months ended September 30, 1999 was
zero compared to $829,000 for nine months ended September 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 for the nine months ended September 30, 1998 of
$829,000 relate mostly to the stock option compensation expenses associated with
option grants to four executive officers that terminated employment with the
Company in December 1998, at which time these options were cancelled.
Shareholder loan costs and related rescission relates to the rescission in
September 1998 of a $4,000,000 note receivable from an executive officer and the
associated purchase of 2,000,000 shares of the Company's common stock. The
executive officer had acquired the shares through the exercise of a stock
option, which was reinstated in connection with the rescission of the note
receivable. The note receivable had been outstanding since May 1997 and bore
interest at 8% per year. The Company had agreed to reimburse the executive
officer for the interest on the note plus the income tax effect of the interest.
The interest income and the associated accruals for the reimbursements were
reversed in connection with the rescission in the quarter ended September 30,
1998 for a net credit to income of $318,931.
Interest expense for the nine months ended September 30, 1999 was $977,000
compared with $331,000 for the nine months ended September 30, 1998. Nine months
interest charges primarily represents accretion on debt, amortization of certain
debt issuance costs and accrued interest. The $646,000 increase for the nine
months ended September 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 nine months ended September 30, 1999 totaled
$1,860,000, or $.08 per share, compared to $3,275,000 or $.16 per share a year
ago. 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
The cash balances at September 30, 1999 decreased $461,000 to $698,000 from
$1,158,000 at December 31, 1998. Overall, the Company has yet to generate
cumulative positive cash flows primarily due to debt and other obligation
payments. However, the cash flows from operations continue to improve on a
comparative basis to the same periods last year. For the quarter ended September
30, 1999, the Company's cash flow from operations improved $537,000 over quarter
ended September 30, 1998. Net cash used in operations for the nine months ended
September 30, 1999 totaled $891,000, an improvement of $605,000 over the same
time period last year.
As of September 30,1999, the Company has been substantially dependent on private
placements of its equity securities and debt financing to fund its cash
requirements. During the nine months ended
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September 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.
Through October 1999, the Company had issued and sold 1,408,471 shares of its
common stock to private placement investors for $1,056,350. Also in connection
with these transactions, the investors received warrants to purchase up to
1,408,471 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 overhead 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.
In October 1999, Monsanto and the Company reached an agreement in principle to
convert the $5,000,000 note into shares of the Company's common stock. The
details of the conversion have not yet been finalized.
The Company is taking steps to address the approximate $2,100,000 Dominion debt
(principle and accrued interest) that matures in November 1999. The Company is
currently negotiating with third parties on new financing for additional capital
to repay the Dominion liabilities. There can be no assurance that such
arrangements will be successful.
For 1999, the Company expects to incur additional costs for research and
development 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 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 nine months ended September 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.
12
<PAGE>
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. The value of the
common stock was $234,000 and is recorded as a contra account to 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 1999, the Company issued 67,714 shares of common stock to an agent
for introducing investors to the Company. The value of the common stock was
approximately $51,000 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 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.
Through October 1999, the Company had issued and sold 1,408,471 shares of its
common stock to private placement investors for $1,056,350. Also in connection
with the transaction, the investors received warrants to purchase up to
1,408,471 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.
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 terms of office as directors continued after the meeting are
Joseph R. Bellantoni, Daniel L. McPeak and Patricia McPeak.
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>
<CAPTION>
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
As reported on August 26, 1999, Change in Registrant's Certifying
Accountant, the Company dismissing its independent accountants.
13
<PAGE>
As reported on September 22, 1999, Change in Registrant's Certifying
Accountant, the Company engaging new independent accountants.
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: November 15, 1999 By: /s/ Daniel L. McPeak
--------------------
Daniel L. McPeak
Chairman of the Board and
Chief Executive Officer
Date: November 15, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 697,581
<SECURITIES> 0
<RECEIVABLES> 593,405
<ALLOWANCES> 20,000
<INVENTORY> 377,979
<CURRENT-ASSETS> 1,675,853
<PP&E> 5,106,899
<DEPRECIATION> 2,138,747
<TOTAL-ASSETS> 4,950,515
<CURRENT-LIABILITIES> 7,974,053
<BONDS> 0
0
0
<COMMON> 25,288
<OTHER-SE> 4,898,826
<TOTAL-LIABILITY-AND-EQUITY> 4,950,515
<SALES> 2,486,642
<TOTAL-REVENUES> 2,512,737
<CGS> 1,583,255
<TOTAL-COSTS> 3,403,929
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 20,000
<INTEREST-EXPENSE> 976,865
<INCOME-PRETAX> (1,859,075)
<INCOME-TAX> 1,200
<INCOME-CONTINUING> (1,860,275)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,860,275)
<EPS-BASIC> (.081)
<EPS-DILUTED> 0
</TABLE>
