<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
September 30, 2000
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 September 30, 2000:
38,779,352
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (Check One):
Yes _____ No ___X___
1
<PAGE>
The RiceX Company
(formerly Food Extrusion, Inc.)
Form 10-QSB for the Quarter Ended September 30, 2000
Index
<TABLE>
<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements
a) Consolidated Balance Sheet at September 30, 2000 3
b) Consolidated Statements of Operations for the quarter
and nine month periods ended September 30, 2000 and 1999 4
c) Consolidated Statements of Cash Flows for the quarter and nine
month periods ended September 30, 2000 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 11
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K. 12
a) Exhibit 27, Financial data schedule
b) Reports on Form 8-K
Signatures 17
</TABLE>
2
<PAGE>
THE RICEX COMPANY
(formerly Food Extrusion, Inc.)
CONSOLIDATED BALANCE SHEET
September 30, 2000
(unaudited)
ASSETS
<TABLE>
CURRENT ASSETS:
<S> <C>
Cash and cash equivalents ..................................................... $ 1,171,957
Trade accounts receivable ..................................................... 714,865
Inventories ................................................................... 136,473
Deposits and other current assets ............................................. 34,975
------------
Total current assets .......................................................... 2,058,270
PROPERTY AND EQUIPMENT, net ........................................................ 2,627,353
OTHER ASSETS ....................................................................... 91,985
------------
$ 4,777,608
============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Note payable to shareholder ................................................... $ 1,850,000
Accounts payable and accrued liabilities ...................................... 476,287
------------
Total current liabilities ............................................... 2,326,287
------------
Total liabilities ....................................................... 2,326,287
------------
COMMITMENTS AND CONTINGENCIES ...................................................... --
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock, par value $.00l per share,
10,000,000 shares authorized,
no shares issued and outstanding ........................................... --
Common stock, par value $.001 per share,
100,000,000 shares authorized,
38,779,352 shares issued and outstanding ................................... 38,779
Additional paid-in capital .................................................... 27,904,956
Accumulated deficit ........................................................... (24,013,063)
Deferred expenses relating to equity issuance ................................. (1,479,351)
------------
Total shareholders' equity .............................................. 2,451,321
------------
$ 4,777,608
============
</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 Nine months ended
---------------------------- -----------------------------
Sept 30, Sept 30, Sept 30, Sept 30,
2000 1999 2000 1999
------------ ------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues
Sales ................................ $ 837,340 $ 682,133 $ 2,655,387 $ 2,486,642
Royalties ............................ 3,086 5,703 15,650 26,095
------------ ------------ ------------ ------------
840,426 687,836 2,671,037 2,512,737
Cost of sales ................................. 547,105 569,409 1,635,895 1,583,255
------------ ------------ ------------ ------------
293,321 118,427 1,035,142 929,482
Research and development expenses ............. 45,341 189,342 220,909 532,576
Selling, general and administrative expenses .. 365,521 383,634 921,225 1,026,691
Stock option and warrant compensation to
employees ..................................... 24,948 -- 74,844 --
Professional fees ............................. 41,726 75,376 616,534 262,607
------------ ------------ ------------ ------------
Loss from operations ................. (184,215) (529,925) (798,370) (892,392)
Other income (expense):
Interest and other income ............ 15,106 3,770 86,754 8,982
Interest and other expense ........... (254,971) (325,462) (766,935) (976,065)
------------ ------------ ------------ ------------
Loss before provision for income
taxes .............................. (424,080) (851,617) (1,478,551) (1,859,475)
Provision for income taxes .................... (800) (800) (800) (800)
------------ ------------ ------------ ------------
Net loss ............................. $ (424,880) $ (852,417) $ (1,479,351) $ (1,860,275)
============ ============ ============ ============
Basic and diluted earnings per share:
Net loss per share ................... $ (0.01) $ (0.03) $ (0.04) $ (0.08)
============ ============ ============ ============
Weighted average number of shares
outstanding ........................ 36,372,517 24,769,884 35,992,154 22,967,509
============ ============ ============ ============
</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 Nine Months Ended
---------------------------- ----------------------------
Sept 30, Sept 30, Sept 30, Sept 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flow from operating activities:
Net loss ...................................................... $ (424,880) $ (852,417) $(1,479,351) $(1,860,275)
Adjustments to reconcile net loss to net cash
from operating activities
Depreciation and amortization .......................... 175,368 176,002 511,101 528,007
Shares, warrants and options issued for
compensation and services .............................. 24,948 19,531 154,971 44,531
Amortization of investor relations fees ................ -- -- 281,527 --
Amortization of prepaid processing fees ................ 19,532 -- 58,594 --
Accretion of debt discounts ............................ -- 28,149 -- 84,447
Amortization of prepaid interest and debt issuance costs 254,974 80,899 764,919 242,695
Net changes in operating assets and liabilities
Trade accounts receivable .............................. 9,383 62,238 (200,166) (172,158)
Inventories ............................................ 53,339 94,322 173,716 (165,718)
Deposits and other current assets ...................... 72,259 33,223 (9,150) (6,995)
Deferred debt issuance costs ........................... -- 193,697 -- 581,091
Accounts payable and accrued liabilities ............... (22,343) (100,308) (63,174) (167,107)
----------- ----------- ----------- -----------
Net cash from operating activities ............................ 162,580 (264,664) 192,987 (891,482)
----------- ----------- ----------- -----------
Cash flows from investing activities
(Purchases) sales of property and equipment, net ....... (57,122) (696) (153,513) (5,177)
Collection on note receivable .......................... -- 38,100 -- 107,100
----------- ----------- ----------- -----------
Net cash from investing activities ............................ (57,122) 37,404 (153,513) 101,923
----------- ----------- ----------- -----------
Cash flows from financing activities
Proceeds from issuance of common stock ................. -- 531,607 126,000 931,607
Proceeds from issuance of long-term debt ............... -- -- -- 700,000
Proceeds, issuance of common stk, exercise of options .. -- -- (1,500) --
Issuance of common stock on equipment purchase ......... -- -- 68,750 --
Principal payments on long-term debt ................... -- (5,404) -- (1,302,769)
Expenses related to conversion of debt ................. (81,216) -- (81,216) --
Private Placement financing expenses ................... -- -- (9,600) --
----------- ----------- ----------- -----------
Net cash from financing activities ............................ (81,216) 526,203 102,434 328,838
----------- ----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents .......... 24,242 298,943 141,908 (460,721)
Cash and cash equivalents, beginning of period ................ 1,147,715 398,638 1,030,049 1,158,302
----------- ----------- ----------- -----------
Cash and cash equivalents, end of period ...................... $ 1,171,957 $ 697,581 $ 1,171,957 $ 697,581
=========== =========== =========== ===========
</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.
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, 1999, which were included in the Company's Form 10-KSB. These
unaudited financial statements for the nine months ended September 30, 2000 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, 2000 are not necessarily indicative of the results expected
for the full year.
2. PROPERTY AND EQUIPMENT
At September 30, 2000, property and equipment consists of the following:
<TABLE>
<S> <C>
Land and buildings $ 367,961
Equipment 4,291,301
Leasehold improvements 381,642
Furniture and fixtures 225,416
-----------------
5,266,320
Less accumulated depreciation and amortization (2,840,867)
-----------------
2,425,453
Equipment not placed in service 201,900
-----------------
$ 2,627,353
=================
</TABLE>
6
<PAGE>
3. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
At September 30, 2000, accounts payable and accrued liabilities consist of the
following:
<TABLE>
<S> <C>
Trade accounts payable $ 182,107
Other accrued liabilities 294,180
----------------
$ 476,287
================
</TABLE>
4. DEBT
At September 30, 2000, debt consists of the following:
<TABLE>
<S> <C>
Note payable to shareholder, stated interest rate of 18%,
Interest prepaid in common stock, due December 2000 $ 1,850,000
===============
</TABLE>
5. SHAREHOLDERS' EQUITY (DEFICIT)
SHARES ISSUED FOR SERVICES
During April 2000, the Company issued 14,134 shares of common stock to an agent
for introducing investors to the Company. The value of the common stock was
approximately $10,601 and is recorded in shareholders' equity. The shares were
issued without registration under the Securities Act in reliance on the
exemption from registration provided by Section 4(2) of the Securities Act.
During June 2000, the Company issued 32,000 shares of common stock for services.
The value of the common stock was $24,000 and is recorded in shareholders'
equity and research and development expense. 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 PRODUCTION EQUIPMENT
In May 2000, the Company issued 100,000 shares of common stock to acquire
equipment from one of its suppliers. The value of the common stock was $68,750
and is recorded in shareholders equity and fixed assets. 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
During the first nine months of 2000, the Company issued and sold 168,000 shares
of its common stock to private placement investors for $114,400, net of
financing fees which was $9,600. Also in connection with the transaction, the
investors received warrants to purchase up to 168,000 shares of the Company's
common stock. The warrants are exercisable at $1.00 per share during the first
year from the date of issuance, $1.25 per share during the second year from the
date of issuance and at an exercise price of $1.50 per share during the third
year from the date of issuance. The warrants expire three years from 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 RETURNED TO THE COMPANY PURSUANT TO RESCISSION
During June 2000, the Company and three executive officers rescinded the
exercise of 2,700,000 stock options priced at $.72 per share and promissory
notes in the total amount of $1,944,000 given as payment for the exercise price.
On account of the rescission, the executive officers returned to the Company the
shares of common stock purchased pursuant to the exercise of the options. The
rescission of the exercise of the options restores the Company and the executive
officers to the positions they occupied prior to the exercise. The 2,700,000
stock options may be exercised in the future at the $.72 per share exercise
price until expired.
7
<PAGE>
SHARES ISSUED IN CONVERSION OF NOTE
In the third quarter 2000, the Company finalized an agreement with a venture
capital firm to convert a $2,500,000 note to equity. On September 29, 2000,
the Company converted the note for 3,571,429 shares of common stock and
warrants to purchase 3,571,429 shares of common stock at $.70 per share. The
market price on the date of grant was $.55 per share. These warrants are
immediately exercisable and have a term of five years. In connection with
this conversion, the Company also granted additional warrants to purchase up
to 4,464,285 shares of common stock at $.70 per share. These additional
warrants are exercisable at any time during the five year period commencing
from the date of grant. The warrant shares are restricted from sale and, or
transfer until such time when the Company's revenues at various stages reach
an annualized equivalent of $12,000,000 and $25,000,000. This agreement also
has a provision whereby the venture capital firm could invest an additional
$2,500,000 of equity financing by December 22, 2000. The shares issued were
without registration under the Securities Act in reliance on the exemption
from registration provided by Section 4(2) of the Securities Act.
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
The following is a discussion of the consolidated financial condition of The
RiceX Company and the results of operations for the quarters ended September 30,
2000 and 1999.
When used in this report, the words "believe," "expect," "anticipate" and
similar expressions, together with other discussion of future trends or results,
are intended to identify forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Such statements are subject to certain risks and uncertainties, including
those discussed below that could cause actual results to differ materially from
those projected. These forward-looking statements speak only as of the date
hereof. All of these forward-looking statements are based on estimates and
assumptions made by management of the Company which, although believed to be
reasonable, are inherently uncertain and difficult to predict; therefore, undue
reliance should not be placed upon such statements. The following important
factors, among others, could cause the Company's results of operations to be
adversely affected in future periods: (i) increased competitive pressures from
existing competitors and new entrants; (ii) increases in interest rates or the
Company's cost of borrowing or a default under any material debt agreements;
(iii) deterioration in general or regional economic conditions; (iv) adverse
state or federal legislation or regulation that increases the costs of
compliance, or adverse findings by a regulator with respect to existing
operations; (v) loss of customers or sales weakness; (vi) inability to achieve
future sales levels or other operating results; (vii) the unavailability of
funds for capital expenditures; and (viii) operational inefficiencies in
distribution or other Company systems. Many of such factors are beyond the
control of the Company. There can be no assurance that the Company will not
incur new or additional unforeseen costs in connection with the ongoing conduct
of its business. Accordingly, any forward-looking statements included herein do
not purport to be predictions of future events or circumstances and may not be
realized. In addition, assumptions relating to budgeting, marketing,
advertising, litigation and other management decisions are subjective in many
respects and thus susceptible to interpretations and periodic revisions based on
actual experience and business developments, the impact of which may cause the
Company to alter its marketing, capital expenditure or other budgets, which may
in turn affect the Company's financial positions and results of operations.
QUARTERS ENDED SEPTEMBER 30, 2000 AND 1999
Consolidated revenues in the quarter ended September 30, 2000 of $840,000
increased $153,000, or 22%, from the same period last year. The sales
increase is primarily attributed to increases in three product categories,
Stabilized Rice Bran ("SRB") regular, solubles, and fiber. SRB regular sales
showed an increase in revenue of $41,000 to $504,000, solubles increased
$74,000 to $153,000, fiber increased $49,000 to $152,000, while SRB fine
decreased in revenue $9,000 to $29,000. Royalty revenue decreased $3,000 to
$3,000 in quarter ended September 30, 2000 compared with $6,000 for quarter
ended September 30, 1999.
8
<PAGE>
Gross margins for quarter ended September 30, 2000 were $293,000, or 35%,
compared to $118,000, or 17%, during the same period last year. The improvement
in margins experienced during Quarter 3, 2000 is the primary effects of the
supply cost reductions from recently negotiated contracts and other production
efficiencies. Gross margins on the Company's various products vary widely and
can be 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.
Research and development ("R&D") expenses reflected a decrease for quarter ended
September 30, 2000 compared to the same period last year. R&D expenditures
decreased $144,000, or 76%, from $189,000 for quarter ended September 30, 1999
to $45,000 for the current quarter. The reduction of R&D expenses is mostly due
to the termination and subsequent transfer of technical employees and associated
expenses to a nutraceutical company that was granted an exclusive license to
sell RiceX products.
Selling, General, and Administration ("S, G&A") expenses were $366,000 for
quarter ended September 30, 2000, compared to $384,000 for quarter ended
September 30, 1999, a decrease of $18,000, or 5%. The reduction of S, G&A
expenses in quarter ended September 30, 2000 continues the downward trend of
better managing expenses compared to last year.
Stock option compensation expense of $25,000 during quarter ended September 30,
2000 is a non-cash charge relating to the issuance of favorably priced stock
options to employees and directors to attract and retain key personnel 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.
Professional fees decreased to $42,000 for quarter ended September 30, 2000
compared to $75,000 for the third quarter last year. The decrease of 45% is due
primarily to reductions in legal, accounting, investor relations and other
related expenses.
Interest expense for quarter ended September 30, 2000 was $255,000 compared to
$325,000 for the same period last year. In both quarters ended September 30,
2000 and 1999, these charges primarily represent the amortization of certain
debt issuance costs and accrued interest. The $70,000 decrease for quarter ended
September 30, 2000 compared to quarter ended September 30, 1999 is associated
with the reduction of amortized and accrued interest costs on debt that was paid
off in November 1999.
For quarter ended September 30, 2000, the Company's net loss was $425,000, or
$.01 per share, compared to a net loss of $852,000 or $.03 per share, a
substantial improvement of $427,000 over the same period last year. Improvements
for the quarter are due to increased product sales, reduced costs of production,
decreased S, G&A expenses, increased interest income, and decreased interest
expenses, all resulting from the Company's efforts to improve sales and better
manage expenses to improve margins. The Company anticipates these trends will
continue.
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Consolidated revenues through September 30, 2000 of $2,671,000 increased
$158,000, or 6%, from the same period last year. The sales increase is
attributed to a year to date increase in three product categories, SRB regular,
solubles, and fiber. For nine months ended September 30, 2000, SRB regular sales
showed an increase in revenue of $127,000 to $1,790,000, solubles increased
$12,000 to $522,000, fiber increased $41,000 to $263,000, while SRB fine
decreased $17,000 to $81,000 versus the same period in 1999.
Gross margins through September 30, 2000 were $1,035,000, or 39%, of $2,671,000
compared to $929,000 or 37% of $2,513,000 during the same period last year. The
increase in both margin dollars and percentage was the result of increased sales
for the year and the effect of new favorably negotiated supplier contracts
compared to the same period last year. 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.
R&D expenses reflect substantial decreases for period ended September 30, 2000
compared to the same period last year. R&D expenditures decreased $312,000, or
56%, from $533,000 for the period ended September 30, 1999 to $221,000 for the
period ended September 30, 2000. The reduction of R&D expenses is mostly due to
the termination and subsequent
9
<PAGE>
transfer of technical employees and associated expenses to a nutraceutical
company that was granted an exclusive license to sell RiceX products.
S, G&A expenses were $921,000 for the period ended September 30, 2000,
compared to $1,027,000 for the period ended September 30, 1999, a decrease
and improvement of $106,000, or 10%. With this reduction of S, G&A expenses,
the Company continues the downward trend of reducing total S, G&A expenses
compared to last year.
Stock option compensation expense of $75,000 during period ended September 30,
2000 is a non-cash charge relating to the issuance of favorably priced stock
options to employees and directors to attract and retain key personnel 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.
Professional fees increased $354,000, or 135%, to $617,000 for the period ended
September 30, 2000 from $263,000 for the prior year's period. The increase is
due primarily to the retention and subsequent release of an investor relations
company, and expenditures for legal and accounting fees in connection with
equity financing.
Interest expense for the period ended September 30, 2000 was $767,000 compared
to $976,000 for the same period last year. In both periods ended September 30,
2000 and 1999, these charges primarily represent the amortization of certain
debt issuance costs and accrued interest. The $209,000 decrease for the period
ended September 30, 2000 compared to the period ended September 30, 1999 is
associated with the reduction of amortized and accrued interest costs on debt
that was paid off in November 1999.
For the nine months ended September 30, 2000, the Company's net loss was
$1,479,000 or $.04 per share, compared to a net loss of $1,860,000 or $.08 per
share, an improvement of $381,000 over the same period last year. Overall
improvements are due to increased product sales, reduced costs of production,
decreased S, G&A expenses, increased interest income, and decreased interest
expenses, all resulting from the Company's efforts to improve sales and better
manage expenses to improve margins. The Company anticipates these trends will
continue.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 2000 the cash balance and cash flow
improved over the same time period last year. The cash balance at September 30,
2000 increased $474,000 to $1,172,000 from $698,000 at September 30, 1999. Cash
flows from operating activities improved more than a million dollars at
$1,084,000 for period ended September 30, 2000 compared to the same period in
1999.
During the nine months ended September 30, 2000 the Company showed an $858,000
improvement in cash generated from operations and financing activities compared
with the same time period last year. The cash flows from these activities
generated more than $295,000 at September 30, 2000 compared with a deficit of
$562,000 for nine months ended September 30, 1999. Cash flows from operating
activities were $193,000 and negative $891,000 for nine months ended September
30, 2000 and 1999 respectively. Cash flows from financing activities were
$102,000 and $330,000 at nine months ended September 30, 2000 and 1999
respectively.
In the third quarter 2000, the Company finalized an agreement with a venture
capital firm to convert a $2,500,000 note to equity. On September 29, 2000,
the Company converted the note for 3,571,429 shares of common stock and
warrants to purchase 3,571,429 shares of common stock at $.70 per share. The
market price on the date of grant was $.55 per share. These warrants are
immediately exercisable and have a term of five years. In connection with
this conversion, the Company also granted additional warrants to purchase up
to 4,464,285 shares of common stock at $.70 per share. These additional
warrants are exercisable at any time during the five year period commencing
from the date of grant. The warrant shares are restricted from sale and, or
transfer until such time when the Company's revenues at various stages reach
an annualized equivalent of $12,000,000 and $25,000,000. This agreement also
has a provision whereby the venture capital firm could invest an additional
$2,500,000 of equity financing by December 22, 2000.
During the first quarter of 2000, the Company entered into an agreement with
a company, NutraStar Incorporated ("NutraStar"), for the granting of an
exclusive license to sell RiceX products in the nutraceutical market. As part
of this transaction, Patricia McPeak resigned as President of the Company and
became an officer and shareholder of NutraStar. In exchange for the exclusive
license in the nutraceutical market, the Company will receive license fees
and it became a ten-percent shareholder in NutraStar. Also, in
10
<PAGE>
connection with this transaction, the Company's technical employees agreed to
terminate their employment agreements with the Company and enter into employment
agreements with the new company. The Company issued the former employees
warrants to purchase 153,000 shares of common stock at $.79 per share in
exchange for canceling their employee options and waiving any claims under their
employment agreements.
In November 2000, the Company received a $2,500,000 order from NutraStar for
RiceX products. The order was received from NutraStar under the terms of the
above-mentioned agreement. The order requires the Company to manufacture
specified quantities of product during the next six months and obligates
NutraStar to purchase the products on a take-or-pay basis.
The Company is taking steps to address the $1,850,000 debt that matures in
December 2000. The Company expects to use cash generated from operations or
other funding sources to retire this debt obligation. There can be no assurance
that such arrangements will be successful.
For 2000, the Company expects to incur additional costs for research,
professional, and legal fees for patent and trademark applications. The Company
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. 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. Any additional equity financing may involve substantial dilution to
the Company's shareholders.
PART II. OTHER INFORMATION
Item 2. CHANGES IN SECURITIES
During the first nine months of 2000, the Company issued and sold 168,000 shares
of its common stock to private placement investors for $114,400, net of
financing fees, that was $9,600. Also in connection with the transaction, the
investors received warrants to purchase up to 168,000 shares of the Company's
common stock. The warrants are exercisable at $1.00 per share during the first
year from the date of issuance, $1.25 per share during the second year from the
date of issuance and at an exercise price of $1.50 per share during the third
year from the date of issuance. The warrants expire three years from 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.
During April 2000, the Company issued 14,134 shares of common stock to an agent
for introducing investors to the Company. The value of the common stock was
approximately $10,601 and is recorded in shareholders' equity. The shares were
issued without registration under the Securities Act in reliance on the
exemption from registration provided by Section 4(2) of the Securities Act.
In May 2000, the Company issued 100,000 shares of common stock to acquire
equipment from one of its suppliers. The value of the common stock was $68,750
and is recorded in shareholders equity. The shares were issued without
registration under the Securities Act in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act.
During June 2000, the Company issued 32,000 shares of common stock for services.
The value of the common stock was $24,000 and is recorded in shareholders'
equity. The shares were issued without registration under the Securities Act in
reliance on the exemption from registration provided by Section 4(2) of the
Securities Act.
During June 2000, the Company and three executive officers rescinded the
exercise of 2,700,000 stock options priced at $.72 per share and promissory
notes in the total amount of $1,944,000 given as payment for the exercise price.
On account of the rescission, the executive officers returned to the Company the
shares of common stock purchased pursuant to the exercise of the options. The
rescission of the exercise of the options restores the Company and the executive
officers to the positions they occupied prior to the exercise. The 2,700,000
stock options may be exercised in the future at the $.72 per share exercise
price until expired.
In the second quarter of 2000, the Company's Board of Directors ratified the
issuance of stock options to employees during 1999, provided the options were
priced at no less than $.69 per share. During 1999, the Company had issued to
employees non-statutory stock options to purchase Company common stock at $.55
per share subject to Board approval. Since the Board of Directors neither
approved nor ratified the issuance of these options, the options have been
cancelled. The underlying option shares have been issued at $.79 per share as
approved by the Board of Directors.
11
<PAGE>
In the third quarter 2000, the Company finalized an agreement with a venture
capital firm to convert a $2,500,000 note to equity. On September 29, 2000,
the Company converted the note for 3,571,429 shares of common stock and
warrants to purchase 3,571,429 shares of common stock at $.70 per share. The
market price on the date of grant was $.55 per share. These warrants are
immediately exercisable and have a term of five years. In connection with
this conversion, the Company also granted additional warrants to purchase up
to 4,464,285 shares of common stock at $.70 per share. These additional
warrants are exercisable at any time during the five year period commencing
from the date of grant. The warrant shares are restricted from sale and, or
transfer until such time when the Company's revenues at various stages reach
an annualized equivalent of $12,000,000 and $25,000,000. This agreement also
has a provision whereby the venture capital firm could invest an additional
$2,500,000 of equity financing by December 22, 2000. The shares issued were
without registration under the Securities Act in reliance on the exemption
from registration provided by Section 4(2) of the Securities Act.
The principal parties of the above described agreement have consented with a
member and business partner of the venture capital firm to develop and implement
a long term strategic business plan to take the Company forward. In connection
with this service, the Company issued warrants to purchase 2,600,000 shares of
common stock at $.70 per share. The Company has valued these warrants using the
Black-Scholes Option Pricing Model for a total of $353,000 and recorded as a
contra equity account. The warrants relating to developing the strategic plan
will be amortized into expense beginning October 1, 2000. These warrants are
immediately exercisable and have a term of five years. The Company also agreed
to grant additional warrants to purchase up to 3,250,000 shares of common stock
at $.70 per share. These additional warrants will be exercisable at any time
during the five year period commencing from the date of grant. The warrant
shares are restricted from sale and, or transfer until such time when the
Company's revenues at various stages reach an annualized equivalent of
$12,000,000 and $25,000,000.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders of the Company was held on June 30, 2000. At
the time of the meeting, proxies representing 27,798,078 votes were cast
approving the election of Joseph R. Bellantoni and Milton A. Koffman as
Directors of the Company.
The directors whose terms of office as directors continued after the meeting are
Daniel L. McPeak, Patricia McPeak, Kirit S. Kamdar and Steven W. Saunders.
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
NAME FOR AGAINST WITHHELD ABSTENTIONS NON-VOTES
----------------------- --------- --------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Joseph R. Bellantoni 27,798,078 - 82,980 - -
Milton A. Koffman 27,798,078 - 82,980 - -
</TABLE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
(a) EXHIBIT NO DESCRIPTION OF EXHIBIT
---------------------------------
<S> <C>
2.1 Certificate of Incorporation of the Company.(1)
2.2 Form of Bylaws of the Company.(2)
3.1 Certificate of Incorporation of the Company.(1)
3.2 Form of Incorporation of the Company.(1)
4.1 Option Agreement between the Company and David B. Lockton dated August 1, 1996.(1)
4.2 Restricted Stock Purchase Agreement between the Company and Allen J. Simon dated April 18, 1997 and amended on May 29,
1997.(1)(3)
4.3 Amendment No. 1 to Restricted Stock Purchase Agreement between the Company and Allen J. Simon dated May 29, 1997.(1)(3)
12
<PAGE>
4.4 Security Agreement between Allen J. Simon and the Company dated May 29, 1997.(1)(3)
4.5 Promissory Note Secured by Pledge of Stock for Allen J. Simon in favor of the Company in the amount of $1,333,333.34 dated
May 29, 1997.(1)(3)
4.6 Security Agreement between Allen J. Simon and the Company dated May 29, 1997.(1)(3)
4.7 Promissory Note Secured by Pledge of Stock for Allen J. Simon in favor of the Company in the amount of $1,333,333.33 dated
May 29, 1997.(1)(3)
4.8 Security Agreement between Allen J. Simon and the Company dated May 29, 1997.(1)(3)
4.9 Promissory Note Secured by Pledge of Stock for Allen J. Simon in favor of the Company in the amount of $1,333,333.33 dated
May 29, 1997.(1)(3)
4.10 Form of Rescission of Loan Agreement between the Company and Allen J. Simon dated August 27, 1998.(2)(3)
4.11 Security Agreement between Food Extrusion, Inc. and Monsanto Company dated November 1, 1996.(1)
4.12 Promissory Note of the Company in favor of Monsanto Company in the amount of $5,000,000 dated November 1, 1996.(1)
4.13 Subscription Agreement between the Company and the Dorchester Group dated January 1, 1996.(1)
4.14 Stock Option Agreement between the Company and Allen J. Simon dated April 18, 1997.(1)(3)
4.15 Amendment No. 1 to Stock Option Agreement by and among the Company and Allen J. Simon dated May 29, 1997.(1)(3)
4.16 Registration Rights Agreement by and between the Company and Allen J. Simon dated April 18, 1997.(1)(3)
4.17 Registration Rights Agreement by and among the Company and Monsanto Company dated February 5, 1997.(1)
4.18 Form of Registration Rights Agreement between the Company and certain officers and directors.(1)
4.19 Form of Warrant Agreement between the Company and certain investors dated February 9, 1996.(1)
4.20 Letter Agreement between the Company and certain investors dated January 15, 1999.(5)
4.21 Stock Purchase Agreement between the Company and Marilyn Roosevelt dated July 16, 1997.(1)
4.22 Shareholders Agreement between CF Corporation (formerly Centennial Foods, Inc.) and the Company dated March 19, 1997.(1)
4.23 Amendment No. 1 to the Shareholders Agreement between CF Corporation and the Company dated January 15, 1999.(5)
4.24 Registration Rights Agreement between the Company and CF Corporation dated January 22, 1999.(5)
4.25 1997 Stock Option Plan with (i) Form of Incentive Stock Option Agreement and (ii) Form of Nonstatutory Stock Option
Agreement.(1)(3)
4.26 Form of Directors Stock Option Agreement.(1)(3)
4.27 Directors Stock Option Agreement between the Company and Allen J. Simon dated July 9, 1997.(1)(3)
4.28 Form of Nonstatutory Stock Option Agreement not issued under the 1997 Stock Option Plan, governing options granted to
employees by the Company.(1)(3)
4.29 Note Agreement between Monsanto Company and the Company dated October 31, 1996.(1)
4.30 Addendum No. 1 to Note Agreement dated October 31, 1996 between Monsanto Company and the Company dated February 6, 1997.(1)
4.31 Creditor Agreement between Centennial Foods, Inc., the Company and Ike Lynch dated October 4, 1996.(1)
4.32 Creditor Agreement between Centennial Foods, Inc., the Company and Montana Department of Environmental Quality dated
October 18, 1996.(1)
4.33 Assignment of Commercial Security Agreement and Business Loan and Credit Agreement dated March 4, 1996 between
Seattle-First National Bank and Company 19 General Partnership.(1)
4.34 Assignment of Subordination Agreements and Negotiable Collateral between Seattle-First National Bank and Company 19 General
Partnership dated March 4, 1996.(1)
4.35 Creditor Agreement between Centennial Foods, Inc. and Company 19 General partnership dated October 14, 1996.(1)
4.36 Form of Subordination Agreement between certain creditors of Centennial Foods, Inc. in favor of Seafirst.(1)
4.37 Creditor's Agreement between Centennial Foods and Montana Department of Commerce dated October 11, 1996.(1)
4.38 Form of Creditor's Agreement between Centennial Foods, Inc. and certain convertible note holders.(1)
4.39 Amended and Restated Loan Agreement between the Company and FoodCeuticals dated as of December 31, 1998.(5)
4.40 Promissory Note in the amount of $1,850,000 payable to FoodCeuticals dated December 31, 1998.(5)
4.41 Registration Rights Agreement between the Company and FoodCeuticals dated December 31, 1998.(5)
4.42 Warrant Agreement number 98-1 between the Company and FoodCeuticals dated December 31, 1998.(5)
4.43 Warrant Agreement number 99-1 between the Company and FoodCeuticals dated January 15, 1999.(5)
13
<PAGE>
4.44 Security Agreement between the Company and FoodCeuticals dated December 31, 1998.(5)
4.45 Form of Warrant Agreement between the Company and certain former officers of the Company dated as of December 1998.(5)
4.46 Subscription Agreement between the Company and Heldomo, A.G. dated September 10, 1998.(5)
4.47 Warrant Agreement between the Company and Heldomo, A.G. dated September 10, 1998.(5)
4.48 Stockholder Agreement by and among The RiceX Company, Inc. and BioCeutics, Inc. dated November 1, 1999 (6)
4.49 Warrant Agreement between the Company and Dorchester Group dated April 26, 1999.(6)
4.50 Form of Nonstatutory Stock Option Agreement between the Company and employee dated October 1, 1999.(3)(6)
4.51 Warrant Agreement between the Company and JDK & Associates dated November 1, 1999.(6)
4.52 Addendum No. 2 to the October 31, 1996 Monsanto Security Agreement dated November 30, 1999.(6)
4.53 Form of Nonstatutory Stock Option Agreement between the Company and Vice President, Operations, Ike Lynch dated November 1,
1999.(3)(6)
4.54 Form of Subscription Agreement to the Private Placement Offering 1999.(6)
4.55 Form of Warrant Agreement to the Private Placement Offering 1999.(6)
4.56 Memorandum of Understanding dated June 29, 2000 between the Company and Intermark Partners, LLC to convert to equity the
note for $2,500,000.(8)
4.57 Warrant Agreement between the Company and GBV Intermark Fund, LLC dated September 29, 2000.
4.58 Warrant Agreement between the Company and Gilbert L. McCord, Sr. dated September 29, 2000.
4.59 Definitive Agreement between the Company and Intermark Partners, LLC dated September 29, 2000.
4.60 Form of Warrant Agreement between the Company and certain former employees of the Company dated March 31, 2000.
10.1 Employment Agreement between Allen J. Simon and the Company dated April 18, 1997.(1)(3)
10.2 Amendment to Employment Agreement between Allen J. Simon and the Company dated May 29, 1997.(1)(3)
10.3 Employment Agreement between the Company and Karen D. Berriman dated September 15, 1997.(1)(3)
10.4 Employment Agreement between the Company and Gary A. Miller dated October 6, 1997.(1)(3)
10.5 Employment Agreement between the Company and Cherukuri Venkata Reddy Sastry dated April 14, 1996.(1)(3)
10.6 Employment Agreement between the Company and Rukmini Cheruvanky dated April 14, 1996.(1)(3)
10.7 Employment Agreement between the Company and Dennis Riddle dated September 19, 1997.(1)(3)
10.8 Employment Agreement between the Company and Daniel McPeak dated April 1, 1997.(1)(3)
10.9 Employment Agreement between the Company and Patricia Mayhew dated April 1, 1997.(1)(3)
10.10 Employment Agreement between the Food Extrusion Montana, Inc. and Ike E. Lynch dated March 19, 1997.(1)(3)
10.11 Consulting Agreement between the Company and Robert H. Hesse dated September 30, 1997.(1)(3)
10.12 Form of Indemnification Agreement by and among the Company and certain officers and directors.(1)(3)
10.13 Agreement between the Company and Wolcott Farms, Inc. dated March 1, 1997.(1)
10.14 Stabilized Rice Bran Processing, Sales and Marketing Agreement between Farmers' Rice Cooperative and the Company dated June
28, 1994.(1)
10.15 Amendment dated April 16, 1996 to Stabilized Rice Bran Processing, Sales and Marketing Agreement between Farmers' Rice
Cooperative and the Company dated June 28, 1994.(1)
10.16 Stabilized Rice Bran Processing, Sales and Marketing Agreement between California Pacific Rice Milling, Ltd. and the
Company dated August 1995.(1)
10.17 Agreement between the Company and Dry Creek Trading, Inc. dated February 1, 1997.(1)
10.18 International Distribution Agreement between the Company and SunJoy Cereal-Tech Development Ltd. dated June 16, 1997.(1)
10.19 Agreement between the Company and SunJoy Enterprises Corporation dated June 16, 1997.(1)
10.20 Non-binding Letter of Intent between Nutrilite Division of Amway Corporation and the Company dated April 8, 1998.(1)
10.21 Letter Agreement between DuCoa, L.P. and the Company dated February 25, 1998.(1)
10.22 Letter of Intent between Monsanto Company and Company dated March 16, 1998.(1)
10.23 First Amendment to Letter Agreement between Monsanto Company and Company dated July 27, 1998.(2)
10.24 Security Agreement between CF Corporation, Food Extrusion Montana, Inc. and the Company dated March 19, 1997.(1)
10.25 Joint Development Agreement between Kellogg Company and the Company dated May 15, 1998.(1)
10.26 Promissory Note in favor of Dominion Resources, Inc. in the amount of $1,750,000 dated July 30, 1996.(1)
10.27 Commercial Lease and Deposit Receipt between Roebbelen Land Company and the Company dated December 23, 1991.(1)
14
<PAGE>
10.28 First Amendment of Lease between Roebbelen Land Company and the Company dated January 19, 1994.(1)
10.29 Second Amendment of Lease between Roebbelen Land Company and the Company dated July 11, 1996.(1)
10.30 Third Amendment of Lease Agreement between Roebbelen Land Company and the Company dated February 1, 1998.(1)
10.31 Lease Agreement between Roebbelen Land Company and the Company dated July 11, 1996.(1)
10.32 First Amendment of Lease between Roebbelen Land Company and the Company dated September 1996.(1)
10.33 Second Amendment of Lease Agreement between Roebbelen Land Company and the Company dated February 1, 1998.(1)
10.34 Rental Agreement, Month to Month, between James W. Cameron, Jr. and the Company dated December 22, 1997.(1)
10.35 Plan and Agreement of Reorganization between Core Iris, Inc. and the Company dated December 5, 1996.(1)
10.36 Asset Purchase Agreement between Centennial Foods, Inc., Food Extrusion Montana, Inc. and the Company dated January 2,
1997.(1)
10.37 Form of Severance Agreement and Mutual Release of Claims dated as of December 1998 between the Company and certain former
officers of the Company.(5)
10.38 BioCeutics License Agreement dated November 1, 1999.(3)(6)
10.39 Form Employment Agreement between the Company and Daniel L. McPeak Jr. date May 1, 1999.(3)(6)
10.40 Intermark Partners, LLC Addendum to Letter of Intent to Invest, Agreement in Principal dated November 16, 1999.(6)
10.41 Intermark Partners, LLC Supplemental Agreement dated March 10, 2000.(6)
10.42 Consulting Agreement between The RiceX Company, Inc. and JDK & Associates, Inc. dated October 20, 1999.(3)(6)
10.43 Termination of Consulting Agreement between The RiceX Company, Inc. and JDK & Associates, Inc. dated February 17, 2000.(6)
10.44 Stabilized Rice Bran Processing, Sales, and Marketing Agreement between Farmers' Rice Cooperative and the Company dated May
1, 1999.(6)
10.45 Stabilized Rice Bran Processing, Sales, and Marketing Agreement between California Pacific Rice Milling, Inc. and the
Company effectively dated January 1, 2000.(7)
10.46 Licensing Agreement between NutraStar, Inc. and the Company.(7)
10.47 Sublease Agreement between the Company and NutraStar, Inc. effective November 1, 1999.(8)
10.48 Settlement and General Release among three executive officers and The RiceX(TM) Company effective June 30, 2000.(8)
10.49 Employment agreement between Daniel L. McPeak, Sr. and the Company dated April 1, 2000.(3)
16.1 Letter from PricewaterhouseCoopers, LLP (formerly Coopers & Lybrand LLP) dated July 28, 1998.(2)
16.2 PricewaterhouseCoopers, LLP (formerly Coopers and Lybrand, LLP) letter to SEC dated July 28, 1998.(4)
16.3 Grant Thornton, LLP letter to SEC dated January 1, 2000.(4)
27 Financial Data Schedule
</TABLE>
--------------------------------------
(1) Previously filed as an exhibit to the Company's Registration Statement
No.000-24285 filed with the Commission on May 18, 1998 and incorporated
herein by reference.
(2) Previously filed as an exhibit to the Company's Amendment No. 2 to the
Registration Statement No. 000-4285 filed with the Commission on August
26, 1998 and incorporated herein by reference.
(3) Represents a management contract or compensatory plan or arrangement.
(4) Previously filed as item (4) on Form 8-K dated August 26, 1999,
September 22, 1999, or January 7, 2000 and incorporated herein by
reference.
(5) Previously filed as an exhibit to the Company's Form 10-KSB filed with
the Commission on April 15, 1999 and incorporated herein by reference.
(6) Previously filed as an exhibit to the Company's Form 10-KSB filed with
the Commission on March 30, 2000 and incorporated herein by reference.
(7) Previously filed as an exhibit to the Company's Form 10-QSB filed with
the Commission on May 12, 2000 and incorporated herein by reference.
15
<PAGE>
(8) Previously filed as an exhibit to the Company's Form 10-QSB filed with
the Commission on August 18, 2000 and incorporated herein by reference.
(b) REPORTS ON FORM 8-K
As reported on August 26, 1999, Change in Registrant's Certifying
Accountant, the Company dismissing its independent accountants.
As reported on September 22, 1999, Change in Registrant's Certifying
Accountant, the Company engaging new independent accountants.
As reported on January 7, 2000, Change in Registrant's Certifying
Accountant, the Company Dismissing and engaging new independent
accountants.
16
<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: November 14, 2000 By: /s/ Daniel L. McPeak
----------------------------------
Daniel L. McPeak
Chairman of the Board and
Chief Executive Officer
Date: November 14, 2000 By: /s/ Todd C. Crow
---------------------------------
Todd C. Crow
Vice President of Finance and
Chief Financial Officer
17
