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CORRESP
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cmw1018.htm
RESPONSE LETTER

[THE RICEX COMPANY
LETTERHEAD]

VIA EDGAR –
CORRESPONDENCE FILING

Securities and Exchange
Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549-0405
Attn: John A.
Weitzel

Re:
The
RiceX Company — Form 8-K filed on October 5, 2004
SEC File No. 0-24285

Dear Mr. Weitzel:

        We
are in receipt of your letter dated October 21, 2004 requesting that we provide the
Securities and Exchange Commission (the “Commission”) with certain additional
information regarding the matters discussed in the Form 8-K filed with the Commission by
The RiceX Company (the “Company”) on October 5, 2004. This letter sets forth the
information requested in that letter. For your convenience, the paragraphs included in
this letter are numbered to correspond with the issues raised in your letter.

        1.    Period
to which the disagreement related.

        The
disagreement related to a matter arising during review of our financials for the fourth
quarter of fiscal year 2003.

        2.    The
nature of the disagreement, including the Company’s position and the
          former accountant’s position at the time of the disagreement.

        The
disagreement related to the timing of revenue recognition with respect to revenue received
by the Company pursuant to a memorandum of understanding and purchase order (together, the
“MOU”) between the Company and Project Concern International, a California
corporation (the “Customer”). Pursuant to the MOU, the Customer agreed to
purchase a specified amount of products from the Company. The parties intended that the
transaction be structured as a “bill and hold” arrangement, whereby the Customer
would pay the entire purchase price up front, and the products would be held by the
Company in a public warehouse for a short period of time until the Customer was ready to
accept shipment of the products. Accordingly, payment of the total purchase price under
the MOU in the amount of $538,670 was made by the Customer to the Company in the fourth
quarter of fiscal year 2003, and the products were shipped by the Company from Montana to
a public warehouse in northern California in 2003 as directed by the Customer. The Company
paid the costs of renting the warehouse space, and the Customer agreed to, and did,
reimburse the Company for such costs.

        The
Company initially believed it appropriate to record the revenue received from the Customer
in the fourth quarter of 2003 (the period in which the MOU was executed, the revenue was
received and the products were shipped from Montana to the public warehouse in northern
California). However, a provision in the MOU provided that risk of loss with respect to
the products was to remain with the Company until the delivery of the products in good
condition to the Customer’s warehouse in Guatemala. The Company’s former
accountant, Moss Adams LLP (“Moss Adams”), felt that because the Company
retained the risk of loss with respect to the products, the revenue received from the
Customer should not be recorded by the Company until such time as the products were
actually delivered in good condition to the Customer’s Guatemala warehouse.

        3.    The
amounts involved in the matter.

        The
total amount of revenue at issue in this matter was $538,670.

        4.    Resolution
of the disagreement.

        After
learning of Moss Adams’ position on the matter, the Company agreed to not record any
revenue received from the Customer until such time as the products had been received in
good condition at the Customer’s warehouse in Guatemala. Partial shipments of the
products were received by the Customer in January 2004 and June 2004, and the last partial
shipment of products is expected to be received by the Customer later in November 2004.
Accordingly, the Company recognized revenue of $238,900 on January 14, 2004 and $238,900
on June 17, 2004, and will recognize an additional $60,870 in revenue upon receipt by the
Customer of the last shipment of products.

        5.    How
and by whom any amounts were determined.

        The
aggregate amount of revenue at issue of $538,670 was determined pursuant to the MOU
between the Company and the Customer. The specific amounts of revenue recognized (and to
be recognized) upon each partial shipment of the products was (and will be) determined by
the Company by allocating a portion of the aggregate purchase price to each such shipment,
based upon the proportion that the amount of products contained in each such shipment
bears to the total amount of products to be delivered under the MOU.

        6.    Whether
or not the Company restated (or intends to restate) any prior period           for any
adjustment.

        The
Company decided to recognize all revenue received under the MOU in the manner recommended
by Moss Adams, prior to the public release of any financial statements or information
reflecting any such revenue. As all revenue recognized to date under the MOU has been
recorded in the manner consistent with Moss Adam’s recommendations, the Company did
not, and does not intend to, restate any prior period for adjustment.

2

        There
were no letters or other written communications between the Company and Moss Adams
regarding the disagreement, other than a brief discussion of the disagreement appearing in
Moss Adams’ report to the Company’s Audit Committee for fiscal year 2003. A copy
of the relevant page from that report is included herewith.

        Please
contact directly the attorney for the Company, Deepak Nanda, Esq., at (310) 975-7912 with
any questions or comments regarding this matter. Mr. Nanda’s facsimile number is
(310) 557-8475.

        Thank
you for your consideration.

     THE RICEX COMPANY

     By:  /s/ Todd C. Crow

             Todd C. Crow

             Chief Financial Officer

3

[MOSS ADAMS LLP
LETTERHEAD]

Audit Committee of
the
   Board of Directors
March 26, 2004
Page 3

In addition, the attached schedule
summarizes uncorrected misstatements of the financial statements. Management has
determined that their effects are immaterial, both individually and in the aggregate, to
the financial statements taken as a whole.

Disagreements with
Management

For purposes of this letter,
professional standards define a disagreement with management as a matter, whether or not
resolved to our satisfaction, concerning a financial accounting, reporting, or auditing
matter that could be significant to the financial statements or the auditor’s report.
We did have one such disagreement during the course of the 2003 audit concerning revenue
recognition.

During our testing of the timing of
revenue recognition, we noted revenue of $538,670 was recognized by the Company in
December 2003. We reviewed the purchase order and Memorandum of Understanding (MOU)
between the Company (Supplier) and the customer. The MOU indicates that all risk of loss
with respect to the product shall remain with the Supplier until delivery of the product
to the customer’s warehouse in Guatemala. The order is to be shipped in two phases.
The first shipment arrived in Guatemala on January 5, 2004. The second shipment is in a
warehouse in Northern California awaiting shipment at the customer’s request.

Based on the results of our audit
procedures, we concluded that the management had improperly recorded this revenue in
December 2003. Management believed they had properly accounted for this sale and disagreed
with our proposed accounting treatment. Ultimately, management decided to record the
revenue in 2004.

Consultations with Other
Independent Accountants

In some cases, management may decide
to consult with other accountants about auditing and accounting matters, similar to
obtaining a “second opinion” on certain situations. If a consultation involves
application of an accounting principle to the Company’s financial statements or a
determination of the type of auditor’s opinion that may be expressed on those
statements, our professional standards require the consulting accountant to check with us
to determine that the consultant has all he relevant facts. To our knowledge, there were
no such consultations with other accounts.

Auditor’s Judgment
About the Quality of the Company’s Accounting Principles

We are to discuss with the Audit
Committee our judgment about he quality of the Company’s accounting principles as
applied in its financial reporting. Accounting principles include, in part, the
consistency of the Company’s accounting policies and their application, the clarity
and completeness of the financial statements, and whether decisions made by management
have a