As filed with the Securities and Exchange Commission on November 18, 2005
Registration No. 333-__________
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form SB-2

REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933

NUTRACEA
(Name of Small Business Issuer in Its Charter)

California
 
2040
 
87-0673375
(State or Other Jurisdiction of Incorporation or Organization)
 
(Primary Standard Industrial Classification Code Number)
 
(I.R.S. Employer Identification No.)
 
1261 Hawk’s Flight Court, El Dorado Hills, CA 95762
(916) 933-7000
(Address and Telephone Number of Principal Executive Offices)

1261 Hawk’s Flight Court, El Dorado Hills, CA 95762
(Address of Principal Place of Business or Intended Principal Place of Business)

Bradley D. Edson
1261 Hawk’s Flight Court, El Dorado Hills, CA 95762
(916) 933-7000
(Name, Address and Telephone Number of Agent For Service)

Copy to:

Christopher V. Chediak, Esq.
Weintraub Genshlea Chediak Law Corporation
400 Capitol Mall, 11 th Floor, Sacramento, CA 95814
(916) 558-6000


Approximate Date of Commencement of Proposed Sale to the Public: as soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. x

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o ____________________

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o ____________________

 
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o ____________________

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. o

CALCULATION OF REGISTRATION FEE

Title of Each Class of
Securities to be Registered
Amount to be
Registered
Proposed Maximum Offering Price Per Share (1)
Proposed Maximum
Aggregate Offering Price (1)
Amount of
Registration Fee
Common Stock
29,486,680
$0.845
$24,916,245
$2,932.63

 
(1)
The proposed maximum offering price per share is estimated solely for purpose of calculating the registration fee in accordance with Rule 457(c) on the basis of the average of the high and low sales price as reported by the Over-the-Counter Bulletin Board on November 15, 2005.

If, as a result of stock splits, stock dividends or similar transactions, or by reason of changes in the conversion price of the preferred stock, the number of securities purported to be registered on this registration statement increases, the provisions of Rule 416 under the Securities Act of 1933 shall apply, and this registration statement shall be deemed to cover any such additional shares of common stock.

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
 

The information in this prospectus is not complete and may be changed. The Selling Security Holders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell securities, and we are not soliciting an offer to buy these securities, in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED NOVEMBER 18, 2005.

PROSPECTUS

NutraCea

29,486,680 Shares of Common Stock



This prospectus relates to the disposition of up to 29,486,680 shares of NutraCea common stock or interests therein by the shareholders named in this prospectus under the heading "Selling Shareholders". We will not receive any of the proceeds from the disposition of the shares covered hereby or interests therein, although we will receive the proceeds from the cash exercise of warrants to acquire certain of these shares.

Our common stock is quoted on the Over-the-Counter (“OTC”) bulletin board under the symbol “NTRZ”. On November 15, 2005, the last sale price of our common stock on the Over-the-Counter Bulletin Board was $0.85 per share.

Our principal executive offices are located at 1261 Hawk’s Flight Court, El Dorado Hills, CA 95762, and our telephone number is (916) 558-6000.
 

INVESTING IN THE COMMON STOCK OFFERED HEREIN INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE SHARES ONLY IF YOU CAN AFFORD A COMPLETE LOSS OF YOUR INVESTMENT. YOU SHOULD CONSIDER CAREFULLY THE “RISK FACTORS” CONTAINED IN THIS PROSPECTUS BEGINNING ON PAGE 4.
 

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE .

The date of this prospectus is ______________, 2005.
 

TABLE OF CONTENTS
 

 
Page
About This Prospectus  
2 
Special Note Regarding Forward-Looking Statements 
2 
Prospectus Summary 
3 
Risk Factors 
4 
Use of Proceeds 
11 
Price Range of Common Stock 
11 
Dividend Policy 
12 
Unaudited Pro Forma Condensed Consolidated Financial Statements 
13 
Management’s Discussion and Analysis of Operations 
21 
Business of NutraCea 
30 
Business of RiceX 
39 
Management 
48 
Transactions with Management and Certain Business Relationships 
55 
Security Ownership of Certain Beneficial Owners and Management 
56 
Description of Securities 
59 
Selling Security Holders 
61 
Plan of Distribution 
62 
Legal Matters
64 
Experts
64 
Where You Can Find More Information 
64 
Index to Financial Statements 
65 
 

ABOUT THIS PROSPECTUS

We have not authorized anyone to provide information different from that contained in this prospectus. This prospectus is not an offer to sell nor is it seeking an offer to buy these securities in any jurisdiction where such offer or sale is not permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the common stock. In this prospectus, references to “NutraCea”, the “Company”, “we”, “us” and “our” refer to NutraCea, a California corporation.  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements in this prospectus and in any prospectus supplement we may file constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements relate to future events concerning our business and to our future revenues, operating results, and financial condition. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “forecast,” “predict,” “propose,” “potential,” or “continue” or the negative of those terms or other comparable terminology.
 
Any forward looking statements contained in this prospectus or any prospectus supplement are only estimates or predictions of future events based on information currently available to our management and management’s current beliefs about the potential outcome of future events. Whether these future events will occur as management anticipates, whether we will achieve our business objectives, and whether our revenues, operating results, or financial condition will improve in future periods are subject to numerous risks. The section of this prospectus captioned “Risk Factors,” beginning on page 4, provides a summary of the various risks that could cause our actual results or future financial condition to differ materially from forward-looking statements made in this prospectus. The factors discussed in this section are not intended to represent a complete list of all the factors that could adversely affect our business, revenues, operating results, or financial condition. Other factors that we have not considered may also have an adverse effect on our business, revenues, operating results, or financial condition, and the factors we have identified could affect us to a greater extent than we currently anticipate. Before making any investment in our securities, we encourage you to carefully read the information contained under the caption “Risk Factors,” as well the other information contained in this prospectus and any prospectus supplement we may file.
 
 

“TheraFoods,” “NutraCea,” “NutraBeauticals,” “RiSolubles,” “RiceMucil,” “RiceMucille,” “StaBran,” “SolubleSolutions,” “ZymeBoost,” “NutraHGH,” “Equineceuticals,” “FiberSolutions,” “NutraBreathe,” “LiverBoost,” “RiceLean,” “VetCeuticals,” “PetCeuticals,” Caduceus logo, “HiFiSolubles,” “Therafeed,” “Via-Bran,” “Proventics,” “SuperSolubles,” “Nourishing The Body to Health,” “Proceuticals,” "Cea100," "DiaBoost" and “NutraBalance” are registered trademarks of NutraCea.

RiceX® and RiceX Solubles® are registered trade names of The RiceX Company, NutraCea’s wholly owned subsidiary. Mirachol®, Max "E"® and Max "E" Glo® are registered trademarks of The RiceX Company.

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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the information contained elsewhere in this prospectus. You should read the entire prospectus, including “Risk Factors” and the financial statements before making an investment decision.
       
Issuer:
 
NutraCea
1261 Hawk’s Flight Court
El Dorado Hills, California 95762
(916) 933-7000
 
       
Description of Business:
 
We are a developer, formulator and distributor of nutraceutical, health, cosmetic and nutrition products using stabilized rice brand and specially formulated rice bran oil. We have also developed dietary products that provide the benefits of stabilized rice bran and rice bran oil as a nutritional supplement for humans and animals. Consumer products are marketed under the TheraFoods® name. Medical supplements are marketed under the NutraCea® name. Products for veterinary and animal use are marketed under the NutraGlo® name. Cosmetics are marketed under the NutraBeautical® name. A description of our business begins on page 30 of this prospectus.
 
On October 4, 2005, we acquired The RiceX Company. The RiceX Company manufactures and distributes nutritionally dense foods and food ingredients made from stabilized rice bran for supply to the global food manufacturing and equine feed industries. A description of the business of The RiceX Company begins on page 4 of this prospectus.
 
       
The Offering:
 
This offering relates to the resale of shares of our common stock that are outstanding and shares of our common stock that may be acquired from time to time upon conversion of our outstanding Series B preferred stock and upon exercise of outstanding options and warrants. The selling shareholders and the number of shares that may be sold by each are set forth on page 61 of this prospectus.
 
       
Shares:
 
29,486,680 shares of our common stock. A description of our common stock is set forth on page 59 of this prospectus.
 
       
Manner of Sale:
 
The shares of our common stock may be sold from time to time by the selling shareholders in open market or negotiated transactions at prices determined from time to time by the selling shareholders. A description of the manner in which sales may be made is set forth in this prospectus beginning on page 62 of this prospectus.
 
       
Use of Proceeds:
 
We will not receive any of the proceeds from the sale of our common stock by the selling shareholders.
 
       
Risk Factors:
 
The securities offered hereby involve a high degree of risk and will result in immediate and substantial dilution. A discussion of additional risk factors relating to our stock, our business and this offering begins on page 4 of this prospectus.
 
       
 
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RISK FACTORS

Please carefully consider the specific factors set forth below as well as the other information contained in this prospectus before purchasing shares of our common stock. This prospectus contains forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from the results discussed in the forward-looking statements.

Risks Related to Our Business

We have a limited operating history and have not generated a profit since we began operations.

We began operations in February 2000 and have incurred losses in each reporting period since commencing operations. Our prospects for financial success are difficult to forecast because we have a relatively limited operating history. Our prospects for financial success must be considered in light of the risks, expenses and difficulties frequently encountered by companies in new, unproven and rapidly evolving markets. Our business could be subject to any or all of the problems, expenses, delays and risks inherent in the establishment of a new business enterprise, including limited capital resources, possible delays in product development, possible cost overruns due to price and cost increases in raw product and manufacturing processes, uncertain market acceptance, and inability to respond effectively to competitive developments and attract, retain and motivate qualified employees. Therefore, there can be no assurance that our business or products will be successful, that we will be able to achieve or maintain profitable operations, or that we will not encounter unforeseen difficulties that may deplete its capital resources more rapidly than anticipated.  

We may need to obtain additional funds to finance long-term product research and development as well as fund current operations.     

We have not generated a positive cash flow from operations in any period since commencing operations. While we believe that we have adequate cash reserves and working capital to fund current operations, our ability to meet long term business objectives and debt obligations is dependent upon our ability to raise additional financing through public or private equity financings, establish increasing cash flow from operations, enter into collaborative or other arrangements with corporate sources, or secure other sources of financing to fund long-term operations. There is no assurance that external funds will be available on terms acceptable to us in sufficient amount to finance operations until we do reach positive cash flow or that we will reach positive cash flow. In addition, any issuance of securities to obtain such funds would dilute percentage ownership of our shareholders. Such dilution could also have an adverse impact on our earnings per share and reduce the price of our common stock.

We may not realize the anticipated benefits from the RiceX transaction because of integration difficulties and other challenges.     

If we fail to meet the challenges involved in successfully integrating the operations of NutraCea and RiceX or to realize any of the anticipated benefits or synergies of the RiceX transaction could seriously harm our results. Realizing the benefits of the RiceX transaction will depend in part on our ability to overcome significant challenges, such as timely, efficient and successful execution of post-merger strategies, including:
 
 
·
combining the operations of two companies;
 
 
·
retaining and assimilating the key personnel of each company;
 
 
·
integrating the technology and products of the two companies;

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·
retaining existing customers and strategic partners of both companies and attracting new customers and strategic partners; and
 
 
·
successfully exploiting potential synergies of the two companies.
 
The risks related to the execution of these post-merger strategies include:
 
 
·
potential disruption of our ongoing business and distraction of our management resulting from the efforts to combine and integrate NutraCea's and RiceX's operations;
 
 
·
difficulties associated with successfully coordinating our management;
 
 
·
difficulties inherent in creating successful strategies for coordinating sales and marketing plans for the products and services of the two companies;
 
 
·
the risk that synergies anticipated for our products will not be achieved or may not be realized within the timeframe currently anticipated;
 
 
·
the possibility that efforts to achieve operating expense reductions may be unsuccessful or give rise to unexpected liabilities;
 
 
·
the potential need to demonstrate to customers that the merger will not result in adverse changes in customer service standards or business;
 
 
·
impairment of relationships with employees, suppliers and customers as a result of the integration of new management personnel; and
 
 
·
failure to retain key employees, including members of the management team.

There are significant market risks associated with our business.

We have formulated our business plan and strategies based on certain assumptions regarding the size of the rice bran market, our anticipated share of this market and the estimated price and acceptance of our products. These assumptions are based on the best estimates of our management; however there can be no assurance that our assessments regarding market size, potential market share attainable by us, the price at which we will be able to sell our products, market acceptance of our products or a variety of other factors will prove to be correct. Any future success may depend upon factors including changes in the dietary supplement industry, governmental regulation, increased levels of competition, including the entry of additional competitors and increased success by existing competitors, changes in general economic conditions, increases in operating costs including costs of production, supplies, personnel, equipment, and reduced margins caused by competitive pressures.

We rely upon a limited number of product offerings.

All of our products are based on stabilized rice bran. Although we will market rice bran as a dietary supplement, as an active food ingredient for inclusion in our products and in other companies' products, and in other ways, a decline in the market demand for our products, as well as the products of other companies utilizing our products, could have a significant adverse impact on us.

We are dependent upon our marketing efforts.

We are dependent on our ability to market products to animal food producers, food manufacturers, mass merchandise and health food retailers, and to other companies for use in their products. We must increase the level of awareness of dietary supplements in general and our products in particular. We will be required to devote substantial management and financial resources to these marketing and advertising efforts and there can be no assurance that it will be successful.
 
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We rely upon an adequate supply of raw rice bran.

Our proprietary technology is used to stabilize rice bran, which is a by-product from milling paddy rice to white rice. We currently have a supply arrangement with one of the largest rice mills in the United States, Farmers Rice Cooperative. We are pursuing other supply sources in the United States and in foreign countries. However, there can be no assurance that we will continue to secure adequate sources of raw rice bran to meet our requirements to produce stabilized rice bran products. Since rice bran has a limited shelf life, the supply of rice bran is affected by the amount of rice planted and harvested each year. If economic or weather conditions adversely affect the amount of rice planted or harvested, the cost of rice bran products that we use may increase. We are not generally able to pass cost increases to our customers and any increase in the cost of stabilized rice bran products would have an adverse effect on our results of operations.

The inability of our production plants to produce stabilized rice bran products to fulfill our current and future requirements could materially and adversely adverse affect our business, results from operations, and financial condition.

We have a unique process to stabilize rice bran products that results in an increase of the shelf life of such products from hours to at least one year. We require this long shelf life in our products to avoid unacceptable losses from spoilage. Our ability to manufacture rice bran raw materials is currently limited to the production capability of our facility at Farmers Rice Cooperative and our isolate plant in Dillon, Montana. Between the Dillon, Montana plant and the facility at Farmers Rice Cooperative, we currently are capable of producing all of our required rice bran raw materials, but that capacity may not be sufficient to meet all of our long-term supply needs.

We face competition.

Competition in our targeted industries, including nutraceuticals, functional food ingredients, rice bran oils, animal feed supplements and companion pet food ingredients is vigorous, with a large number of businesses engaged in the various industries. Many of our competitors have established reputations for successfully developing and marketing their products, including products that incorporate bran from other cereal grains and other alternative ingredients that are widely recognized as providing similar benefits as rice bran. In addition, many of our competitors have greater financial, managerial, and technical resources than us. If we are not successful in competing in these markets, we may not be able to attain our business objectives.

Our products could fail to meet applicable regulations which could have a material adverse affect on our financial performance.

The dietary supplement and cosmetic industries are subject to considerable government regulation, both as to efficacy as well as labeling and advertising. There is no assurance that all of our products and marketing strategies will satisfy all of the applicable regulations of the Dietary Supplement, Health and Education Act, the Food, Drug and Cosmetic Act, the U.S. Food and Drug Administration and/or the U.S. Federal Trade Commission. Failure to meet any applicable regulations would require us to limit the production or marketing of any non-compliant products or advertising, which could subject us to financial or other penalties.
 
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Our success depends in part on our ability to obtain patents, licenses and other intellectual property rights for our products and technology.     

NutraCea has one patent entitled Methods for Treating Joint Inflammation, Pain and Loss of Mobility, which covers both humans and mammals . In addition, RiceX has five United States patents and may decide to file corresponding international applications. RiceX holds patents to the production of Beta Glucan and to a micro nutrient enriched rice bran oil process. RiceX also holds patents to a method to treat high cholesterol, to a method to treat diabetes and to a process for producing Higher Value Fractions from stabilized rice bran. The process of seeking patent protection may be long and expensive, and there can be no assurance that patents will be issued, that we will be able to protect our technology adequately, or that competition will not be able to develop similar technology. There currently are no claims or lawsuits pending or threatened against us or RiceX regarding possible infringement claims, but there can be no assurance that infringement claims by third parties, or claims for indemnification resulting from infringement claims, will not be asserted in the future or that such assertions, if proven to be accurate, will not have a material adverse affect on our business, financial condition and results of operations. In the future, litigation may be necessary to enforce our patents, to protect our trade secrets or know-how or to defend against claimed infringement of the rights of others and to determine the scope and validity of the proprietary rights of others. Any litigation could result in substantial cost and diversion of our efforts, which could have a material adverse affect on our financial condition and results of operations. Adverse determinations in any litigation could result in the loss of our proprietary rights, subjecting us to significant liabilities to third parties, require us to seek licenses from third parties or prevent us from manufacturing or selling our systems, any of which could have a material adverse affect on our financial condition and results of operations. There can be no assurance that a license under a third party's intellectual property rights will be available to us on reasonable terms, if at all.
 
We are dependent on key employees and consultants.
 
Our success depends upon the efforts of our top management team, including the efforts of Bradley D. Edson, our President and Chief Executive Officer, Todd C. Crow, our Chief Financial Officer, Ike E. Lynch, our Chief Operating Officer, Patricia McPeak, our founder and former Chief Executive Officer, Margie D. Adelman, our Secretary and Senior Vice President, and Reddy Cherukuri and Rukmini Cheruvanky, our primary research scientists. Although we have written employment agreements or consulting agreements with each of the foregoing individuals there is no assurance that such individuals will not die or become disabled. In addition, our success is dependent upon our ability to attract and retain key management persons for positions relating to the marketing and distribution of our products. There is no assurance that we will be able to recruit and employ such executives at times and on terms acceptable to us.

Our products may require clinical trials to establish efficacy and safety.

Certain of our products may require clinical trials to establish our benefit claims or their safety and efficacy. Such trials can require a significant amount of resources and there is no assurance that such trials will be favorable to the claims we make for our products, or that the cumulative authority established by such trials will be sufficient to support our claims. Moreover, both the findings and methodology of such trials are subject to challenge by the FDA and scientific bodies. If the findings of our trials are challenged or found to be insufficient to support our claims, additional trials may be required before such products can be marketed.

Risks Related to Our Stock

Our Stock Price is Volatile.

The market price of a share of our common stock has fluctuated significantly in the past and may continue to fluctuate significantly in the future. During 2005, through November 15, the high and low sales prices of a share of NutraCea common stock were $1.81 and $0.30, respectively. During 2004, the high and low sales prices of a share of our common stock were $2.14 and $0.29, respectively. The market price of a share of our common stock may continue to fluctuate in response to a number of factors, including:

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·
announcements of new products or product enhancements by us or our competitors;
 
 
·
fluctuations in our quarterly or annual operating results;
 
 
·
developments in our relationships with customers and suppliers;
 
 
·
the loss of services of one or more of our executive officers or other key employees;
 
 
·
announcements of technological innovations or new systems or enhancements used by us or its competitors;
 
 
·
developments in our or our competitors intellectual property rights;
 
·
adverse effects to our operating results due to impariment of goodwill;
 
 
·
failure to meet the expectation of securities analysts' or the public; and
 
 
·
general economic and market conditions.

We have significant "equity overhang" which could adversely affect the market price of our common stock and impair our ability to raise additional capital through the sale of equity securities.

As of October 21, 2005, NutraCea had approximately 66,891,667 shares of common stock outstanding and 7,850 shares of preferred stock outstanding, which preferred shares are convertible into 15,700,000 shares of our common stock. Additionally, as of October 21, 2005, options and warrants to purchase a total of 29,055,359 shares of our common stock were outstanding. The possibility that substantial amounts of our outstanding common stock may be sold by investors or the perception that such sales could occur, often called "equity overhang," could adversely affect the market price of our common stock and could impair our ability to raise additional capital through the sale of equity securities in the future.

We may need to raise funds through debt or equity financings in the future, which would dilute the ownership of our existing shareholders and possibly subordinate certain of their rights to the rights of new investors.

We may choose to raise additional funds in debt or equity financings if they are available to us on terms it believes reasonable to increase its working capital, strengthen its financial position or to make acquisitions. Any sales of additional equity or convertible debt securities would result in dilution of the equity interests of our existing shareholders, which could be substantial. Additionally, if we issue shares of preferred stock or convertible debt to raise funds, the holders of those securities might be entitled to various preferential rights over the holders of our common stock, including repayment of their investment, and possibly additional amounts, before any payments could be made to holders of our common stock in connection with an acquisition of the company. Such preferred shares, if authorized, might be granted rights and preferences that would be senior to, or otherwise adversely affect, the rights and the value of our common stock. Also, new investors may require that we and certain of our shareholders enter into voting arrangements that give them additional voting control or representation on our board of directors.

Inadequate market liquidity may make it difficult to sell our stock.

There is currently a public market for our common stock, but we can give no assurance that there will always be such a market. Only a limited number of shares of our common stock are actively traded in the public market and we cannot give assurance that the market for our stock will develop sufficiently to create significant market liquidity. An investor may find it difficult or impossible to sell shares of our common stock in the public market because of the limited number of potential buyers at any time. In addition, the shares of our common stock are not eligible as a margin security and lending institutions may not accept our common stock as collateral for a loan.

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The application of the “penny stock regulation” could adversely affect the market price of our common stock

Penny stocks generally are equity securities with a price of less than $5.00 per share other than securities registered on certain national securities exchanges or quoted on the NASDAQ Stock Market, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. Our securities may be subject to “penny stock rules” that impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse). For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of such securities and have received the purchaser’s written consent to the transaction prior to the purchase. Consequently, the “penny stock rules” may restrict the ability of broker-dealers to sell our securities and may have the effect of reducing the level of trading activity of our common stock in the secondary market.

The senior rights and preferences of our outstanding Series B preferred stock may have an adverse economic effect on our common shareholders and could impair our ability to obtain future financing when and if needed.

As long as any shares of our Series B preferred stock remain outstanding, Series B preferred shareholders will enjoy various economic rights and contractual benefits not held by our common shareholders. Most significantly, holders of Series B preferred stock are entitled to a liquidation preference upon a liquidation of NutraCea, and for purposes of the Series B preferred stock, a liquidation is deemed to include a merger, acquisition, or similar transaction involving NutraCea. As a result, the Series B preferred stock is entitled to receive its liquidation preference prior to any payments or distributions being made to holders of our common stock. After payment of the liquidation preference, holders of Series B preferred stock and holders of common stock share pro-rata in any remaining proceeds. The aggregate outstanding liquidation preference of our Series B preferred stock currently totals approximately $7.85 million. Holders of our Series B preferred stock also hold certain preferential voting rights, including the right to approve liquidation events and future financings.

Based on the senior rights of the Series B preferred stock, particularly the liquidation preference, common shareholders may receive a substantially reduced portion of the proceeds of any merger, acquisition, or other liquidation of NutraCea compared to the amount they would have received if the Series B preferred stock were converted into common stock. In addition, any new investor who may wish to invest any substantial amounts of capital in NutraCea may require that any securities it purchases rank senior in priority to the Series B preferred stock. Based on the rights of the Series B preferred shareholders, we would not be able to conclude such a financing without their consent.

The authorization of our preferred stock may have an adverse effect on the rights of holders of our common stock.

We may, without further action or vote by holders of our common stock, designate and issue shares of our preferred stock. The terms of any series of preferred stock could adversely affect the rights of holders of our common stock and thereby reduce the value of our common stock. The designation and issuance of preferred stock favorable to current management or shareholders could make it more difficult to gain control of the Board of Director or remove our current management and may be used to defeat hostile bids for control which might provide shareholders with premiums for their shares.

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We may engage in future acquisitions that dilute our shareholders and cause us to incur debt or assume contingent liabilities.

As part of our strategy, we expect to review opportunities to buy other businesses or technologies that would complement its current products, expand the breadth of its markets or enhance technical capabilities, or that may otherwise offer growth opportunities. In the event of any future acquisitions, we could:
 
 
·
issue stock that would dilute current shareholders' percentage ownership;

 
·
incur debt; or

 
·
assume liabilities.

These purchases also involve numerous risks, including:

 
·
problems combining the purchased operations, technologies or products;

 
·
unanticipated costs;

 
·
diversion of management's attention from our core business;

 
adverse effects on existing business relationships with suppliers and customers;

 
·
risks associated with entering markets in which we have no or limited prior experience; and

 
·
potential loss of key employees of purchased organizations.

We cannot assure you that we will be able to successfully integrate RiceX's business or any businesses, products, technologies or personnel that it might purchase in the future.

Compliance with corporate governance and public disclosure regulations may result in additional expenses.  

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, and new regulations issued by the Securities and Exchange Commission, are creating uncertainty for companies. In order to comply with these laws, we may need to invest substantial resources to comply with evolving standards, and this investment would result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.

Our officers and directors have limited liability and have indemnification rights

Our Articles of Incorporation and by-laws provide that we may indemnify our officers and directors against losses sustained or liabilities incurred which arise from any transaction in that officer’s
or director’s respective managerial capacity unless that officer or director violates a duty of loyalty, did not act in good faith, engaged in intentional misconduct or knowingly violated the law, approved an improper dividend, or derived an improper benefit from the transaction.
 
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USE OF PROCEEDS

The Shares offered by this prospectus are being registered for the account of the selling shareholders. We will not receive any proceeds from the sale of common stock by the selling shareholders.

PRICE RANGE OF COMMON STOCK

On September 17, 1998, our common stock was approved for quotation on the National Association of Securities Dealers’ Over-the-Counter (“OTC”) bulletin board where it traded under the name Alliance Consumer International, Inc., and was quoted under the symbol “ACIL” until June 3, 1999. On June 3, 1999, our common stock was moved to the “Pink Sheets” published by the Pink Sheets LLC (previously National Quotation Bureau, LLC). In May 2001, our common stock was again approved for quotation on the OTC bulletin board and its symbol was changed to “ACIN.” Effective December 17, 2001, we changed our name to NutraStar Incorporated and the common stock began trading on the OTC bulletin board under the symbol “NTRA.” On October 1, 2003, we changed our name to NutraCea and our common stock began trading on the OTC bulletin board under the symbol “NTRC.” On November 12, 2003, we declared a 1:10 reverse stock split. Our post-split shares trade on the OTC Bulletin Board under the Symbol “NTRZ”.

A public trading market having the characteristics of depth, liquidity and orderliness depends upon the existence of market makers as well as the presence of willing buyers and sellers, which are circumstances over which we do not have control. The following table sets forth the high and low sales prices reported by the OTC Bulletin Board for our common stock and its predecessors in the periods indicated. The quotations below reflect inter-dealer prices, without retail mark-up, markdown or commission, and may not represent actual transactions.

NUTRACEA COMMON STOCK
Low
High
     
Year Ending December 31, 2005
   
Fourth Quarter (through November 15, 2005)
$0.83
$1.17
Third Quarter
$0.39
$1.81
Second Quarter
$0.39
$0.65
First Quarter
$0.30
$0.67
     
Year Ended December 31, 2004
   
First Quarter
$0.85
$2.14
Second Quarter
$0.83
$1.33
Third Quarter
$0.29
$1.16
Fourth Quarter
$0.32
$0.56
     
Year Ended December 31, 2003
   
First Quarter
$0.60*
$1.10*
Second Quarter
$0.50*
$1.10*
Third Quarter
$0.70*
$2.90*
Fourth Quarter
$0.75
$1.85
 
*Represents stock prices adjusted for 1 for 10 share split in November 2003.

As of October 21, 2005, there were approximately 440 holders of record of our common stock.
 
11

DIVIDEND POLICY

We have never declared or paid any cash dividends on our common stock. We currently anticipate that we will retain all future earnings for the expansion and operation of our business and do not anticipate paying cash dividends in the foreseeable future. In addition our ability to pay cash dividends on our common stock is limited by the provisions of our Certificate of Determination, Rights and Privileges of Series B Convertible Preferred Stock, which provide that we may not pay dividends on our common stock unless we first pay a dividend on our Series B preferred stock equal to 5% of the sales price for the Series B preferred stock. Based upon the number of shares of Series B preferred stock outstanding as of October 21, 2005, the aggregate dividend preference that our Series B preferred stock would be entitled to receive prior to our paying dividends on our common stock equals $392,500.
 
12

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On October 4, 2005, NutraCea acquired The RiceX Company, a Delaware corporation (“RiceX”), in a merger transaction pursuant to the terms of an Agreement and Plan of Merger and Reorganization, dated April 4, 2005, by and among NutraCea, Red Acquisition Corporation, a wholly-owned subsidiary of NutraCea, and RiceX (the “Merger Agreement”). At the effective time of the merger, Red Aquisition Corporation merged with and into RiceX, with RiceX surviving the merger as a wholly-owned subsidiary of NutraCea. Pursuant to the Merger Agreement and as a result of the merger, each share of RiceX common stock outstanding immediately prior to the effective time of the merger was converted into the right to receive approximately 0.76799 shares of NutraCea common stock.

The following Unaudited Pro Forma Condensed Combined Consolidated Financial Statements, and the accompanying notes thereto (“Pro Forma Financial Statements”), describe the pro forma effect of NutraCea’s acquisition of RiceX on:

 
·
NutraCea’s Balance Sheets at September 30, 2005;

 
·
NutraCea’s Statements of Operations for the Nine Months Ended September 30, 2005; and

 
·
NutraCea’s Statements of Operations for the Year Ended December 31, 2004.

The Pro Forma Balance Sheets give effect to the acquisition of RiceX as if it had occurred on September 30, 2005, and the Pro Forma Statements of Operations give effect to the acquisition of RiceX as if it had occurred on January 1, 2004. The Pro Forma Financial Statements should be read in conjunction with and are qualified by the historical financial statements and notes thereto of NutraCea and RiceX.

NutraCea has prepared these Pro Forma Financial Statements using the purchase method of accounting for business combinations, which prescribes that assets acquired and liabilities assumed by NutraCea are recorded at estimated fair values. Because the Pro Forma Financial Statements are based upon RiceX’s financial condition and operating results during periods when RiceX was not under the control, influence, or management of NutraCea, the information presented may not be indicative of the results that would have actually occurred had the merger been completed as of January 1, 2004, nor are they indicative of future financial or operating results of NutraCea. The Pro Forma Financial Statements do not give effect to any synergies that may occur due to the integration of RiceX with NutraCea.

The Pro Forma Financial Statements are based on estimates and assumptions which are preliminary. This information is presented for informational purposes only and is not intended to represent or be indicative of the consolidated results of operations or financial condition of NutraCea that would have been reported had the acquisition been completed as of the dates presented, and should not be taken as representative of future consolidated results of operations or financial condition of NutraCea.
 
13

NUTRACEA
UNAUDITED PRO FORMA CONDENSED COMBINED
CONSOLIDATED BALANCE SHEETS
At September 30, 2005

   
HISTORICAL
(Unaudited)
 
PRO FORMA
(Unaudited)
 
   
RiceX
 
NutraCea
 
Adjustment
     
Combined
 
ASSETS
                     
Current Assets
                     
Cash and equivalents
 
$
546,148
 
$
389,034
 
$
7,850,000
   
(h
)    
$
8,785,182
 
Fees paid (7%) associated with financing transaction
   
—
   
—
   
(549,500
)
 
(h
)
 
(549,500
)
Investment advisor legal fees paid
   
—
   
—
   
(25,000
)
 
(h
)
 
(25,000
)
NutraCea legal fees for the merger and financing transaction
   
—
   
—
   
(448,521
)
 
(h
)
 
(448,521
)
Payment for 12/4/04 private placement secured promissory note
   
—
   
—
   
(2,400,000
)
 
(h
)
 
(2,400,000
)
Accrued interest paid on private placement secured promissory note
   
—
   
—
   
(137,043
)
 
(h
)
 
(137,043
)
Other RiceX employee compensation
   
—
   
—
   
(260,000
)
 
(e
)
 
(260,000
)
Other NutraCea employee compensation
   
—
   
—
   
(450,000
)
 
(f
)
 
(450,000
)
Marketable securities
   
—
   
170,977
   
—
         
170,977
 
Trade receivables
   
407,618
   
87,801
   
(7,342
)
 
(a
)
 
488,077
 
Inventory
   
398,038
   
391,740
   
—
         
789,778
 
Deposits and other current assets
   
44,043
   
410,808
   
—
         
454,851
 
                                 
Total Current Assets
   
1,395,847
   
1,450,360
   
3,572,594
         
6,418,801
 
                                 
Restricted marketable securities
   
—
   
170,977
   
—
         
170,977
 
Property and equipment, net
   
475,026
   
108,806
   
5,600,000
   
(b
)
 
6,183,832
 
Depreciation
   
—
   
—
   
(613,889
)
 
(d
)
 
(613,889
)
Patents and trademarks, net
   
—
   
354,600
   
2,000,000
   
(b
)
 
2,354,600
 
Amortization
   
—
   
—
   
(150,000
)
 
(d
)
 
(150,000
)
Other assets, net
   
2,886
   
—
   
—
         
2,886
 
Goodwill and other intangibles, net
   
—
   
250,001
   
30,247,991
   
(b
)
 
30,497,992
 
                                 
Total Assets
 
$
1,873,759
 
$
2,334,744
 
$
40,656,695
       
$
44,865,198
 
                                 
LIABILITIES AND SHAREHOLDER EQUITY (DEFICIT)
                               
                                 
Current Liabilities
                               
Accounts payable
 
$
560,076
 
$
882,684
 
$
(7,342
)
 
(a
)
$
1,435,418
 
NutraCea legal fees for the merger and financing transaction
   
—
   
—
   
(448,521
)
 
(h
)
 
(448,521
)
Accrued expenses
   
205,800
   
296,797
   
(137,043
)
 
(h
)
 
365,554
 
Deferred revenue
   
5,461
   
—
   
—
         
5,461
 
Due to related party
   
—
   
2,010
   
—
         
2,010
 
Current portion of long-term debt
   
5,433
   
2,221,684
   
(2,221,684
)
 
(h
)
 
5,433
 
Convertible, mandatorily redeemable series A preferred stock, no par value, $1 stated value, 20,000,000 shares authorized, 0 shares issued and outstanding
   
—
   
20,473
   
(20,473
)
 
(g
)
 
—
 
                                 
Total Current Liabilities
   
776,770
   
3,423,648
   
(2,835,063
)
       
1,365,355
 
                                 
 
14

UNAUDITED PRO FORMA CONDENSED COMBINED
CONSOLIDATED BALANCE SHEETS
At September 30, 2005
( --Cont. )
 
   
HISTORICAL
(Unaudited)
 
PRO FORMA
(Unaudited)
 
   
RiceX
 
NutraCea
 
Adjustment
     
Combined
 
LIABILITIES AND SHAREHOLDER EQUITY (DEFICIT) ( --cont. )
                     
Long-term Liabilities
                     
                       
Long-term debt, net of current portion
   
11,059
   
—
   
—
         
11,059
 
                                 
Total Liabilities
   
787,829
   
3,423,648
   
(2,835,063
)
       
1,376,414
 
                                 
Shareholder Equity (deficit)
                               
Series B convertible preferred stock, no par value, 25,000 shares authorized, 7,850 shares issued and outstanding
   
—
   
—
   
7,850,000
   
(h
)    
 
7,850,000
 
 
                             
Offering fees, 7%, associated with financing transaction
   
—
   
—
   
(549,500
)
 
(h
)
 
(549,500
)
Valuation of 1,099,000 warrant shares issued with offering
   
—
   
—
   
(911,071
)
 
(h
)
 
(911,071
)
Investment advisor legal fees with the financing transaction
   
—
   
—
   
(25,000
)
 
(h
)
 
(25,000
)
NutraCea legal fees for the merger and financing transaction
   
—
   
—
   
(448,521
)
 
(h
)
 
(448,521
)
Common stock, additional paid in capital
   
31,945,230
   
49,608,419
   
(31,945,230
)
 
(b
)
 
49,608,419
 
Aggregate value of NutraCea common stock consideration
   
—
   
—
   
29,120,393
   
(b1
)
 
29,120,393
 
Estimated value of the RiceX warrants and options assumed
   
—
   
—
   
9,813,528
   
(b1
)
 
9,813,528
 
Valuation of 1,099,000 warrant shares issued with offering
   
—
   
—
   
911,071
   
(h
)
 
911,071
 
Deferred compensation
   
—
   
(20,239
)
             
(20,239
)
Accumulated deficit
   
(30,859,300
)
 
(48,639,037
)
 
30,859,300
   
(b
)
 
(48,639,037
)
NutraCea legal fees for the merger and financing transaction
   
—
   
—
   
448,521
   
(h
)
 
448,521
 
Other RiceX compensation
   
—
   
—
   
(260,000
)
 
(e
)
 
(260,000
)
Other NutraCea compensation
   
—
   
—
   
(450,000
)
 
(f
)
 
(450,000
)
Depreciation
   
—
   
—
   
(613,889
)
 
(d
)
 
(613,889
)
Amortization
   
—
   
—
   
(150,000
)
 
(d
)
 
(150,000
)
Discount on promissory note
   
—
   
—
   
(178,316
)
 
(h
)
 
(178,316
)
 
   
—
   
—
   
20,473
   
(g
)
 
20,473
 
Accumulated other comprehensive income, unrealized loss on marketable securities
   
—
   
(2,038,046
)
 
—
         
(2,038,046
)
Total Shareholder Equity (Deficit)
   
1,085,930
   
(1,088,904
)
 
43,491,758
         
43,488,784
 
                                 
Total Liabilities and Shareholder Equity (Deficit)
 
$
1,873,759
 
$
2,334,744
 
$
40,656,695
       
$
44,865,198
 
 
-- See Notes to Unaudited Pro Forma Condensed Combined Consolidated Financial Statements --

15

NUTRACEA
UNAUDITED PRO FORMA CONDENSED COMBINED
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 2005
 
   
HISTORICAL
 
PRO FORMA
 
INCOME STATEMENT
 
RiceX
 
NutraCea
 
Adjustment
     
Combined
 
   
(Unaudited)
 
(Unaudited)
 
(Unaudited)
     
(Unaudited)
 
Revenues
                     
Net product sales
 
$
2,767,255
 
$
1,060,271
 
$
(179,923
)
 
(c
)    
$
3,647,603
 
Royalties
   
13,324
   
—
   
—
         
13,324
 
                                 
Total Revenues
   
2,780,579
   
1,060,271
   
(179,923
)
       
3,660,927
 
                                 
COGS
   
1,123,812
   
704,569
   
(179,923
)
 
(c
)
 
1,648,458
 
Depreciation
   
—
   
—
   
613,889
   
(d
)
 
613,889
 
                                 
Gross Profit
   
1,656,767
   
355,702
   
(613,889
)
       
1,398,580
 
                                 
Operating expense
   
5,369,087
   
3,457,937
   
—
         
8,827,024
 
Amortization
   
—
   
—
   
150,000
   
(d
)
 
150,000
 
Other RiceX employee compensation
   
—
   
—
   
260,000
   
(e
)
 
260,000
 
Other NutraCea employee compensation
   
—
   
—
   
450,000
   
(f
)
 
450,000
 
Merger legal expenses capitalized
   
—
   
—
   
(448,521
)
 
(h
)
 
(448,521
)
                                 
Loss From Operations
   
(3,712,320
)
 
(3,102,235
)
 
(1,025,368
)
       
(7,839,923
)
                                 
Customer deposit forfeiture
   
—
   
100,000
   
—
         
100,000
 
Interest income
   
9,314
   
6,036
   
—
         
15,350
 
Interest expense
   
(195
)
 
(715,046
)
 
178,316
   
(h
)
 
(536,925
)
Provision for income tax
   
(2,226
)
 
—
   
—
         
(2,226
)
Total other income (expense)
   
6,893
   
(609,010
)
 
178,316
         
(423,801
)
                                 
Net Income (Loss)
 
$
(3,705,427
)
$
(3,711,245
)
$
(847,052
)
     
$
(8,263,724
)
                                 
Cumulative Preferred Dividends
   
—
   
—
   
—
         
—
 
                                 
Net Loss Available to Common Shareholders
   
(3,705,427
)
 
(3,711,245
)
 
(847,052
)
       
(8,263,724
)
                                 
Basic and Diluted Loss Available to
Common Shareholders Per Share
 
$
(0.10
)
$
(0.10
)
 
—
       
$
(0.13
)
                                 
Basic and Diluted Weighted-Average
Shares Outstanding
   
36,721,625
   
36,756,797
   
(8,541,048
)  
(b1
)
 
64,937,374
 
                                 
 
-- See Notes to Unaudited Pro Forma Condensed Combined Consolidated Financial Statements --

16

NUTRACEA
UNAUDITED PRO FORMA CONDENSED COMBINED
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, 2004
 
   
HISTORICAL
 
PRO FORMA
 
INCOME STATEMENT
 
RiceX
 
NutraCea
 
Adjustment
     
Combined
 
           
(Unaudited)
     
(Unaudited)
 
Revenues
                     
Net product sales
 
$
4,010,186
 
$
1,009,729
 
$
(405,000
)
 
(c
)    
$
4,614,915
 
Royalties
   
—
   
—
   
—
         
—
 
Licensing fees
   
—
   
214,500
   
—
         
214,500
 
                                 
Total Revenues
   
4,010,186
   
1,224,229
   
(405,000
)
       
4,829,415
 
                                 
COGS
   
1,655,940
   
600,129
   
(405,000
)
 
(c
)
 
1,851,069
 
Depreciation
   
—
   
—
   
818,519
   
(d
)
 
818,519
 
                                 
Gross Profit
   
2,354,246
   
624,100
   
(818,519
)
       
2,159,827
 
                                 
Operating expense
   
3,268,220
   
24,175,462
   
—
         
27,443,682
 
Amortization
   
—
   
—
   
200,000
   
(d
)
 
200,000
 
Other RiceX employee compensation
   
—
   
—
   
260,000
   
(e
)
 
260,000
 
Other NutraCea employee compensation
   
—
   
—
   
450,000
   
(f
)
 
450,000
 
Merger legal expenses capitalized
   
—
   
—
   
(448,521
)
 
(h
)
 
(448,521
)
                                 
Loss From Operations
   
(913,974
)
 
(23,551,362
)
 
(1,279,998
)
       
(25,745,334
)
                                 
Customer deposit forfeiture
   
—
   
—
   
—
         
—
 
Interest income
   
33,070
   
4,497
   
—
         
37,567
 
Interest expense
   
—
   
(27,602
)
 
178,316
   
(h
)
 
150,714
 
Provision for income tax
   
1,650
   
—
   
—
         
1,650
 
Total other income (expense)
   
31,420
   
(23,105
)
 
178,316
         
186,631
 
                                 
Net Income (Loss)
 
$
(882,554
)
$
(23,574,467
)
$
(1,101,682
)
     
$
(25,558,703
)
                                 
Cumulative Preferred Dividends
   
—
   
8,373
   
—
         
8,373
 
                                 
Net Loss Available to Common Shareholders
   
(882,554
)
 
(23,582,840
)
 
(1,101,682
)
       
(25,567,076
)
                                 
Basic and Diluted Loss Available to Common Shareholders Per Share
 
$
(0.02
)
$
(1.18
)
 
—
       
$
(0.53
)
                                 
Basic and Diluted Weighted-Average Shares Outstanding
   
37,061,242
   
19,905,965
   
(8,541,048
)   
(b1
)
 
48,426,159
 
                                 
 
-- See Notes to Unaudited Pro Forma Condensed Combined Consolidated Financial Statements -
 
17
 
NUTRACEA
 
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED CONSOLIDATED FINANCIAL STATEMENTS
For the Periods Ended December 31, 2004 and September 30, 2005
 
1.
Basis of Presentation .
 
The accompanying Unaudited Pro Forma Condensed Combined Consolidated Financial Statements are presented for illustrative purposes only and do not give effect to any cost savings, revenue synergies or restructuring costs which may result from the integration of NutraCea and RiceX’s operations. In addition, actual results may be different from the projections set forth in these Unaudited Pro Forma Condensed Combined Consolidated Financial Statements.
 
As of the date of this document, NutraCea has not obtained, and does not presently intend to obtain, a third-party appraisal for the purchase price allocation, however, it has estimated the fair value of the assets acquired and allocated the purchase price accordingly. If an actual third-party appraisal is obtained by NutraCea in the future, the appraisal may contain allocations that are materially different than those presented in these Unaudited Pro Forma Condensed Combined Consolidated Financial Statements. In addition, these Unaudited Pro Forma Condensed Combined Consolidated Financial Statements have not been adjusted, as may be necessary, to conform the RiceX data to NutraCea’s accounting policies.
 
2.
Pro Forma Adjustments .
 
(a)       The Pro Forma Condensed Combined Consolidated Balance Sheet is derived from the unaudited balance sheet of RiceX as of September 30, 2005 and has been adjusted to record eliminating adjustments from transactions between RiceX and NutraCea. For purposes of the Unaudited Pro Forma Condensed Combined Consolidated Balance Sheet, eliminating adjustments consist of trade receivables and trade payables between RiceX and NutraCea for product sales and purchases, as well as for sublease amounts.
 
(b)       This entry reflects the preliminary allocation of the purchase price to identifiable net assets acquired and the excess purchase price to “Goodwill and other intangibles, net” as follows:
 
   
Common Stock
 
Additional Capital
 
Total
 
               
Value of NutraCea common stock issued to RiceX shareholders:
 
$
—
 
$
38,933,921
 
$
38,933,921
 
                     
Estimate of fair value of identifiable net assets acquired:
                   
                     
RiceX equity
               
1,085,930
 
Estimate of fair value adjustment of property, plant and equipment
               
5,600,000
 
Estimate of fair value adjustment of RiceX intellectual property
               
2,000,000
 
Estimate of fair value of identifiable net assets acquired
               
8,685,930
 
Goodwill and other intangibles, net
             
$
30,247,991
 

18

(b1)     The purchase price allocation included within these Unaudited Pro Forma Condensed combined Financial Statements is based upon a purchase price of $38,933,921, calculated as follows:

RiceX shares outstanding at October 4, 2005
   
36,813,274
 
Merger exchange ratio
   
0.76799
 
NutraCea shares reserved for issuance to RiceX shareholders
   
28,272,226
 
Net change in total combined common shares outstanding
   
(8,541,048
)
Price per share (NutraCea closing price as of October 4, 2005)
 
$
1.03
 
Aggregate value of NutraCea common stock consideration
   
29,120,393
 
Value attributed to par, no par
   
—
 
Balance to capital in excess of par value
   
29,120,393
 
Estimated value of the RiceX warrants and options assumed**
   
9,813,528
 
Total estimated consideration
 
$
38,933,921
 
 
** The purchase price allocation discussed herein accounts for the assumption by NutraCea of the outstanding RiceX options and warrants to purchase up to 15,378,465 shares of RiceX common stock that are “in-the-money” (i.e. exercisable at $1.03 per share or less), which, based on the conversion ratio of 0.76799 per share of RiceX common stock (and assuming employees will exercise the “net exercise” provision), would result in the issuance by NutraCea of options and warrants to purchase up to 11,733,708 additional shares of NutraCea common stock. The possible issuance of an additional 11,733,708 shares of NutraCea common stock would be distributed among third party warrant and option holders (warrants to purchase 3,762,740 shares of NutraCea common stock) and RiceX current employees and directors (options to purchase 7,970,968 shares of NutraCea common stock). Using the Black-Scholes option-pricing model, the estimated fair value of the aggregate warrants and options underlying the shares would be $9,813,528, or $0.84 per share.
 
(c)       The Pro Forma Condensed Combined Consolidated Statements of Operations are derived from the audited Statements of RiceX for the period ended December 31, 2004 and the unaudited Statements of RiceX for the period ended September 30, 2005, and has been adjusted to record eliminating adjustments from transactions between RiceX and NutraCea. For purposes of the Unaudited Pro Forma Condensed Combined Consolidated Statement of Operations, eliminating adjustments consist of product sales and cost of goods sold between RiceX and NutraCea.
 
(d)       This entry reflects the estimate and additional depreciation expense associated with the estimate of fair value of property, plant and equipment. NutraCea has estimated the fair value of property, plant and equipment for presentation of the purchase price allocation. If NutraCea obtains a third-party appraisal of the purchase price allocation, the appraisal may contain allocations that are materially different than those presented in these Unaudited Pro Forma Condensed Combined Consolidated Financial Statements.
 
(d)(i)       Estimate of fair value of property, plant and equipment:
 
           
Depreciation
 
       
Life / Yr.
 
Yearly
 
Nine Months
 
Property, Plant & Equipment
 
$
5,600,000
   
3-10
 
$
818,519
 
$
613,889
 
 
(d)(ii)      Estimate of fair value adjustment of RiceX intellectual property (patents, trademarks, and trade secrets):
 
           
Amortization
 
       
Life / Yr.
 
Yearly
 
Nine Months
 
Intellectual Property
 
$
2,000,000
   
10
 
$
200,000
 
$
150,000
 

19

(e)       The Unaudited Pro Forma Condensed Financial Statements have been adjusted for compensation to RiceX employees in accordance with the Merger Agreement as follows: (i) retention bonuses for three RiceX executives (at $50,000 each) totaling $150,000; and (ii) accrued vacation payout to RiceX employees in the aggregate amount of $110,000.
 
(f)       The Unaudited Pro Forma Condensed Combined Financial Statements have been adjusted for compensation to NutraCea as follows: (i) in accordance with an employment agreement, a merger success bonus for a NutraCea executive for $250,000 was awarded following the closing of the merger; and (ii) a corporate discretionary merger success bonus was awarded to two NutraCea executives totaling $200,000 (at $50,000 and $150,000, respectively).
 
(g)       The Unaudited Pro Forma Condensed Combined Financial Statements have been adjusted to eliminate a cash dividend of $20,473 owed by NutraCea to RiceX by virtue of RiceX’s prior ownership of certain shares of NutraCea Series A Convertible Preferred Stock.
 
(h)       These entries reflect NutraCea satisfying its closing requirement of debt retirement and the infusion of an additional $2.5 million in cash through a private placement of its securities. On September 28, 2005, NutraCea entered into a Securities Purchase Agreement and a Registrations Rights Agreement in connection with a private placement of its securities to certain investors for aggregate gross proceeds of approximately $7.85 million (approximately $7.3 million after estimated offering expenses). Upon the closing of the transaction on October 4, 2005, the investors purchased an aggregate of 7,850 shares of Series B Convertible Preferred Stock at a price of $1,000 per share pursuant to the Purchase Agreement. The preferred shares can be converted to shares of common stock at a conversion rate of 2,000 shares of common stock for each preferred share issued in the transaction. Additionally, pursuant to the Purchase Agreement, the investors were issued warrants to purchase an aggregate of 7,850,000 shares of common stock at an exercise price of $0.70 per share. The warrants have a term of five years and are immediately exercisable. An advisor for the financing received a customary fee based on aggregate gross proceeds received from the investors and a warrant to purchase 1,099,000 shares of common stock at an exercise price per share of $0.50 per share.
 
Total NutraCea merger financing transaction and use of funds :
 
Series B Preferred Stock
 
Additional Capital
 
Total
 
               
Sale of series B convertible preferred stock, 7,850 shares at $1,000 per share
 
$
7,850,000
   
—
 
$
7,850,000
 
Offering fees (7%) associated with financing transaction
   
(549,500
)
 
—
   
(549,500
)
Valuation of 1,099,000 warrant shares issued in conjunction with Offering (non-cash transaction)
   
(911,071
)
 
—
   
(911,071
)
Investment advisor legal fees associated with the financing transaction
   
(25,000
)
 
—
   
(25,000
)
NutraCea legal fees associated with the merger and financing transaction
 
$
(448,521
)
 
—
   
(448,521
)
Total financing, net
               
5,915,908
 
                     
Retire debt in connection with December 22, 2004 private placement of secured promissory note
               
(2,400,000
)
Discount on promissory note
               
178,316
 
Interest expense non-cash
               
(178,316
)
Accrued interest on private placement secured promissory note
               
(137,043
)
Total debt and accrued interest retired
             
$
(2,537,043
)
 
3.
Federal Income Tax Consequences of Merger .
 
The Unaudited Pro Forma Condensed Combined Consolidated Financial Statements assume that the merger qualifies as a tax-free reorganization for federal income tax purposes.
 
20

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS


The following discussion on ours financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Prospectus.

Note Regarding Forward-Looking Statements

This discussion contains forward-looking statements that relate to future events or future financial performance. In some cases, you can identify forward-looking statements by terminology such as " may ," " will ," " should ," " expects ," " plans ," " anticipates ," " believes ," " estimates ," " predicts ," " intends ," " potential " or " continue " or the negative of such terms or other comparable terminology. These statements are only predictions. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including the risks outlined under "Risk Factors" and elsewhere in this Prospectus.

Recent Developments

Merger with The RiceX Company . On October 4, 2005, NutraCea acquired The RiceX Company, or RiceX, by merger pursuant to the terms of an Agreement and Plan of Merger and Reorganization, dated April 4, 2005, by and among NutraCea, Red Acquisition Corporation, a wholly owned subsidiary of NutraCea and RiceX (“Merger Agreement”). At the effective time of the merger, Red Acquisition Corporation merged with and into RiceX, with RiceX surviving the merger as a wholly-owned subsidiary of NutraCea. Pursuant to the Merger Agreement and as a result of the Merger, each share of RiceX common stock outstanding immediately prior to the effective time of the merger was converted into the right to receive 0.76799 shares of NutraCea’s common stock.

In connection with the merger, NutraCea issued 28,272,226 shares of NutraCea common stock to holders of RiceX common stock. In addition, NutraCea assumed each outstanding option and warrant to purchase RiceX common stock and converted those options and warrants into options and warrants to purchase an aggregate of 11,810,507 shares of NutraCea common stock.

Pursuant to the terms of the merger, the number of directors serving on NutraCea’s board of directors increased from five to seven.

Financing Transaction . On September 28, 2005, NutraCea entered into a Securities Purchase Agreement (the “Purchase Agreement”) and a Registration Rights Agreement (the “Registration Rights Agreement”) in connection with a private placement of its securities to certain investors for aggregate gross proceeds of approximately $7.85 million. Upon closing of the transaction on October 4, 2005, the investors purchased an aggregate of 7,850 shares of NutraCea’s Series B Convertible Preferred Stock (the “Preferred Shares”) at a price of $1,000.00 per share pursuant to the Purchase Agreement. The Preferred Shares can be converted to shares of NutraCea common stock at a conversion rate of 2,000 shares of common stock for each Preferred Share issued in the transaction. Additionally, pursuant to the Purchase Agreement, the investors were issued warrants to purchase an aggregate of 7,850,000 shares of NutraCea common stock at an exercise price of $0.70 per share. The warrants have a term of five years and are immediately exercisable.

21

On September 13, 2005 NutraCea entered into an agreement with Dominican Republic rice mill whereby the two companies will form a joint venture to install equipment to annually produce at least 5,000 metric tons of stabilized rice bran. The joint venture will be equally owned by the two companies and will commercially sell stabilized rice bran products through retail and government in the Dominican Republic and Haiti.

In November 2005 NutraCea signed a Supply and Distribution Agreement with T. Geddes Grant, a Jamaican Corporation. The agreement requires NutraCea to deliver a customized formulated and fortified RiSolubles mix to T. Geddes Grant. The agreement requires that T. Geddes Grant purchase a minimum of $4,500,000 of the custom formulation per year for a term of two years. Under the terms of the agreement, T. Geddes Grant is also appointed as exclusive distributor for the territory of Jamaica, Barbados and Trinidad. T. Geddes Grant is obligated to obtain all necessary regulatory approvals for marketing NutraCea products in the Territory and use its best efforts to develop commercial sales in the Territory.


Comparison of Results for the Years Ended December 31, 2004 and 2003

Our revenues decreased by $311,924, to $1,224,229 in 2004, from $1,536,153 in 2003. The 20% decrease resulted from a decrease of approximately $730,500 in sales by our equine division from $1,248,996 in 2003 to $600,976 in 2004. This decrease was partially offset by product licensing fees of $214,500 in 2004 ($0 in 2003).

Cost of goods sold decreased by $245,539 to $600,129 in 2004, from $845,668 in 2003. This 29% decrease results primarily from a decrease in cost of goods sold from our equine division of $321,371 in 2004.

Gross profit decreased by $66,385 to $624,100 in 2004, from $690,485 in 2003. This 10% decrease is due to lower equine division sales, which have been partially offset by the licensing fees revenue in 2004.

Operating expenses increased by $15,257,973 to $24,175,462 in 2004, from $8,917,489 in 2003. This increase was primarily due to increased non-cash expenses related to issuances of common stock and common stock warrant and option awards. These non-cash items totaled $21,911,193 in 2004 and $1,577,938 in 2003. During 2004, these non-cash expenses included $8,360,000 relating to the issuance of 5.5 million restricted shares of common stock to our CEO for services rendered and repayment of debt; $4,100,603 representing the value of restricted shares and shares covered by the our S-8 registration statement issued to officers, directors and consultants for services; and $8,537,516 representing the value of options and warrants issued to various employees and consultants. During 2003, non-cash expenses included $14,795 representing the value of restricted stock issued to consultants for services; $1,233,567 representing the value of options issued to consultants; and $329,576 representing the value of options issued to employees and directors. The increased issuance of restricted stock, options and warrants during 2004 was deemed necessary by management to retain and compensate officers, directors, consultants and employees while conserving cash assets that would otherwise have been expended for these purposes. Management expects in the future to reduce the amount of securities issued as compensation in light of expected future increases in cash assets due to anticipated increases in revenue and anticipated availability of additional investment capital from outside sources. However, if additional invested capital is not realized as anticipated, we may be required to issue additional restricted stock, options and/or warrants to compensate service providers in the current fiscal year. Also, professional fees increased $703,360 to $1,122,250 in 2004 from $418,890 in 2003. Primary reasons for the increase in professional fees include the use of consultants instead of hiring permanent employees ($351,820), legal fees associated with transactions ($157,570), and additional costs associated with public filings ($109,042). Employee wages and related expense increased by $153,640 due to increased bonuses of $305,000 which were partially offset by reductions in the total number of employees.

22

Interest expense decreased by $4,283,194 to $27,602 in 2004, from $4,310,796 in 2003 primarily due to the recording of $4,224,246 in interest expense in 2003 relating to modifications of stock option and warrant awards attached to debt as a result of the 1 for 10 reverse stock split occurring on November 12, 2003.

Comparison of Results for the Nine-Months Ended September 30, 2005 and 2004

Our revenues increased by $397,361, to $1,060,271 for the nine months ended September 30, 2005 from $662,910 for the nine months ended September 30, 2004. Human product sales increased by 24% due to increased medical food sales while the NutraGlo animal products subsidiary accounted for 76% of the increase in revenues due to increased orders from its primary equine customer.

Costs of goods sold increased by $308,075 to $704,569 for the nine months ended September 30, 2005 from $396,494 for the nine months ended September 30, 2004. The increase in costs of goods sold generally reflects the increase in products sold during the first nine months of 2005 as well as a small deterioration in our gross profit margin from 37% in 2004 to 34% in 2005.

Operating expenses decreased by $18,109,638, to $3,457,937 for the nine months ended September 30, 2005 from $21,567,575 for the nine months ended September 30, 2004. Most of the decrease is due to an $18,075,295 reduction in expenses related to non-cash stock and option awards in 2005 as compared to 2004. During the first nine months of 2005, we issued stock valued at $812,200 to consultants and employees as compensation and stock options valued at $479,449 to consultants and employees as compensation. The significant decrease in non-cash expenses reflects management’s intention to reduce the amount of compensation paid with our stock or options/warrants. Management expects the reduced amount of securities issued as compensation during 2005 to be indicative of the future levels of securities issuances for compensation purposes. Management hopes that increasing revenues and the availability of invested capital will allow us to pay more of its operating expenses with cash rather than securities.

Other decreases in expenses include reduced commissions and finders fees in the amount of $209,437 and marketing expense of $77,961. Offsetting these decreases in expenses during the nine months ended September 30, 2005 compared to the nine months ended September 30, 2004, were the increase in salaries of $91,496 to $451,191 from $359,695; the increase in legal fees of $208,519 to $241,781 from $33,263; and the increase in travel and entertainment of $45,278 to $108,646 from $63,367. The salary and travel expense increases related primarily to more executive employees generating additional business during the quarter while the significant increase in legal fees relate primarily to the merger transaction with The RiceX Company.

A customer forfeited its $100,000 deposit by terminating a technology rights agreement which resulted in $100,000 of other income for the nine months ended September 30, 2005.

Interest expense increased substantially to $715,046 for the nine months ended September 30, 2005 from $495 for the nine months ended September 30, 2004. The increase is due to $128,536 of interest expense on notes payable that were funded in December 2004 and amortization of debt discount of $586,510 related to the same notes payable.

The net loss for the nine months ended September 30, 2005 was $3,559,689 compared to a net loss of $21,297,570 recorded for the nine months ended September 30, 2004. The lower net loss for the first nine months of 2005 was due primarily to the higher non-cash stock and options expensed during the first nine months of 2004.
 
23

Liquidity and Capital Resources

We have incurred significant operating losses since its inception, and, as of September 30, 2005 we had an accumulated deficit of $48,639,037. We used approximately $557,000 of cash to fund operations during the quarter ended September 30, 2005 leaving a cash and cash equivalents balance of $389,034 at September 30, 2005 and a working capital deficit of $1,973,288. The cash is not deemed sufficient to cover our operating deficits, expanded business plan and growth, nor the repayment of debt obligations.

To date, we have funded our operations, in addition to sales revenues, through a combination of short-term debt and the issuance of common and preferred stock. During the nine months ended September 30, 2005, we issued a total of 2,388,897 shares of common stock of which 1,957,897 shares were issued as compensation to our officers and consultants. We continue to pursue cost cutting and expense deferral strategies in order to conserve working capital.

Subsequent to September 30, 2005, on October 4, 2005 we completed a private placement of securities which generated aggregate gross proceeds of approximately $7.85 million (approximately $7.3 million after estimated offering expenses). This subsequent sale of securities will provide additional operating capital for at least the next 12 months for NutraCea.

As of September 30, 2005 , our principal commitments include a lease commitment for our corporate offices of $ 6,366 per month that expires in September 2006.

In addition to the capital raised on October 4, 2005, our management believes that it may need to raise additional capital to continue to develop, promote and conduct its operations. Such additional capital may be raised through public or private financing as well as borrowing from other sources. Although we believe that current and/or future investors will continue to fund our expenses, there is no assurance that such investors will continue to fund our ongoing operations or that the terms upon which such investments would be made will be favorable to us.  


Critical Accounting Policies

The discussion and analysis of NutraCea's financial condition and results of operations is based upon NutraCea's consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of financial statements requires managers to make estimates and disclosures on the date of the financial statements. On an on-going basis, NutraCea evaluates its estimates, including, but not limited to, those related to revenue recognition. NutraCea uses authoritative pronouncements, historical experience and other assumptions as the basis for making judgments. Actual results could differ from those estimates. NutraCea believes the following critical accounting policies affect its more significant judgments and estimates in the preparation of its consolidated financial statements.

Revenue recognition

NutraCea is required to make judgments based on historical experience and future expectations, as to the realizability of shipments made to its customers. These judgments are required to assess the propriety of the recognition of revenue based on Staff Accounting Bulletin No. 101, "Revenue Recognition," and related guidance. NutraCea makes these assessments based on the following factors: (a) customer-specific information, (b) return policies, and (c) historical experience for issues not yet identified.

Valuation of long-lived assets

Long-lived assets, consisting primarily of property and equipment, patents and trademarks, and goodwill, comprise a significant portion of NutraCea's total assets. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying values may not be recoverable. Recoverability of assets is measured by a comparison of the carrying value of an asset to the future net cash flows expected to be generated by those assets. The cash flow projections are based on historical experience, management's view of growth rates within the industry, and the anticipated future economic environment.

24

Factors NutraCea considers important that could trigger a review for impairment include the following:

(a) significant underperformance relative to expected historical or projected future operating results,

(b) significant changes in the manner of its use of the acquired assets or the strategy of its overall business, and

(c) significant negative industry or economic trends.

When NutraCea determines that the carrying value of patents and trademarks, long-lived assets and related goodwill and enterprise-level goodwill may not be recoverable based upon the existence of one or more of the above indicators of impairment, it measures any impairment based on a projected discounted cash flow method using a discount rate determined by its management to be commensurate with the risk inherent in its current business model.

Marketable securities

Marketable securities are marked to market at each period end. Any unrealized gains and losses on the marketable securities are excluded from operating results and are recorded as a component of "Other comprehensive income (loss)." If declines in value are deemed other than temporary, losses are reflected in "Net income (loss)."
 
Inventory

Inventory is stated at the lower of cost (first-in, first-out) or market and consists of nutraceutical products manufactured by RiceX, which NutraCea then enhances for final distribution to its customers. While NutraCea has an inventory of these products, which contain ingredients supplied by RiceX, any significant prolonged shortage of these ingredients or of the supplies used to enhance these ingredients could materially adversely affect NutraCea's results of operations.

Property and equipment

Property and equipment are stated at cost. NutraCea provides for depreciation using the straight-line method over the estimated useful lives as follows:

Furniture and equipment
 
5-7 years
Automobile
 
5 years
Software
 
3 years
Leasehold Improvements
 
2.4 years

Expenditures for maintenance and repairs are charged to operations as incurred while renewals and betterments are capitalized. Gains or losses on the sale of property and equipment are reflected in the statements of operations.

Fair value of financial instruments

For certain of NutraCea's financial instruments, including cash, accounts receivable, inventory, prepaid expenses, accounts payable, accrued salaries and benefits, deferred compensation, accrued expenses, customer deposits, due to related party, notes payable—related party, and notes payable, the carrying amounts approximate fair value due to their short maturities.
 
25

Stock-based compensation

Compensation is recorded for stock-based compensation grants based on the excess of the estimated fair value of the common stock on the measurement date over the exercise price. Additionally, for stock-based compensation grants to consultants, NutraCea recognizes as compensation expense the fair value of such grants as calculated pursuant to Statement of Financial Accounting Standard (" SFAS ") No. 123, recognized over the related service period. SFAS No. 148 requires companies to disclose pro forma results of the estimated effect on net income and earnings per share to reflect application of the fair value recognition provision of SFAS No. 123.

Debt satisfaction

NutraCea has adopted SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections" which requires gains and losses from extinguishment of debt to be reported as part of recurring operations.
 
26

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE RICEX COMPANY

The following discussion of the financial condition and results of operations of The RiceX Company should be read in conjunction with the consolidated financial statements and notes thereto regarding The RiceX Company included elsewhere in this Prospectus.

Comparison of Results for the Years Ended December 31, 2004 and 2003

Consolidated revenues for the year ended December 31, 2004 were $4,010,000, an increase of $499,000, or 14% on a comparative basis to the year ended December 31, 2003. RiceX experienced an increase of $303,000 in sales to its domestic animal SRB Regular and an increase to its human SRB Fine markets of $97,000, compared to the year ended December 31, 2003. RiceX also had increased sales in domestic SRB Fiber of $71,000. Central American Solubles sales increased $539,000 from zero sales last year internationally. RiceX added the SRB Dextrinized product line in 2004, which produced $82,000 in sales for the year ended December 31, 2004. RiceX experienced decreases in human SRB Regular of $60,000, animal SRB Fine of $64,000, and domestic SRB Solubles of $469,000, compared to the same period last year.

Gross margins for the year ended December 31, 2004 were $2,354,000, or 59%, compared to $1,646,000, or 47%, during the same period last year. The increase in percentage as well as gross margin dollars of $708,000 was the result of increased sales of $499,000 and decreased cost of sales of $209,000. The decrease in cost of sales was mostly the result of production efficiencies and decreased depreciation costs of production equipment at RiceX's Montana manufacturing facility. Gross margins on RiceX's different products vary widely and the gross margins are impacted from period to period by sales mix and utilization of production capacity.

R&D expenses decreased $2,000, to $224,000 for the year ended December 31, 2004, compared to the same period in 2003. The change in R&D expenses is mostly due to reduced activity in research and development. R&D expenses were mostly based on allocating SG&A costs dedicated to research personnel and process research.

SG&A expenses were $2,465,000 for the year ended December 31, 2004, an increase of $284,000. The increase was due primarily to employee costs related to an accrual for severance expenses of two executives that resigned from RiceX. Adding to SG&A expenses was $101,000 of commission expenses related to shipments to Central America and a portion relating to marketing to the equine market. RiceX put back 130,000 shares of Preferred Stock priced at $1 per share in the amount of $130,000 per a Put Agreement to NutraCea and sold 60,000 shares of NutraCea common stock offsetting SG&A expenses by approximately $181,000. Because of NutraCea financial position at the time the Put Agreement was entered into and the common stock was received, RiceX booked an allowance for loss on investment of $190,000.

Professional fees increased $62,000, to a total of $502,000, for the year ended December 31, 2004 compared to last year. The increase is primarily due to higher legal fees from increased general corporate legal activity in 2004.

Investor relations' fees decreased $42,000, to a total of $62,000, for the year ended December 31, 2004. The decrease was primarily associated with expenses related to an investor relations firm and webpage design work performed and paid for in 2003. Investor relations' fees included expenses related to printing and distribution of RiceX's annual report, annual meeting costs, and costs related to SEC reporting requirements.
 
27
 
RiceX had a net loss of $883,000 for the year ended December 31, 2004, or $0.02 per share, compared to $1,292,000 for 2003, or $0.03 per share. The net loss improvement of $410,000 was due to increased total revenues, better utilization of production capacity, and an increase in higher margin SRB Solubles sales internationally through year ended December 31, 2004. This improvement was offset by $250,000 in additional employee expenses related to the severance of two executives, but was increased by related party debt recovery of approximately $181,000.

The provision of income taxes for the years ended December 31, 2004 and 2003 consists of the $1,650 minimum state income tax.

Deferred taxes arise from temporary differences in the recognition of certain expenses for tax and financial statement purposes. At December 31, 2004, RiceX's management determined that realization of these benefits is not assured and has provided a valuation allowance for the entire amount of such benefits. At December 31, 2004, net operating loss carryforwards were approximately $14,510,000 for federal tax purposes that expire at various dates from 2011 through 2025 and $10,782,000 for state tax purposes that expire in 2005 through 2014. Utilization of net operating loss carryforwards may be subject to substantial annual limitations due to the "change in ownership" provisions of the Code and similar state regulations. The annual limitation may result in expiration of net operating loss carryforwards before utilization.

Comparison of Results for the Nine-Months Ended September 30, 2005 and 2004

For the nine months ending September 30, 2005, the RiceX’s net loss was $3,705,000, or $.10 per share, compared to $528,000 net loss, or $.01 per share, in 2004, showing a greater net loss of $3,178,000 compared to the same period last year. The increase in net loss for the year comparably was mostly due to non cash charges of $2,968,000 to compensation expense required by the variable accounting treatment to re-price director and employee stock options as well as increased professional and investor relation fees in the amount of approximately $505,000 related to merger activity as of September 30, 2005.

RiceX’s consolidated revenues through September 30, 2005 of $2,781,000 increased $44,000, or 2%, from the same period last year. The revenue increase is primarily attributed to increased sales in three categories, SRB Regular, SRB Fine and Fiber. SRB Fine increased $22,000. Solubles showed a decrease in revenue of $338,000, mostly due to no international sales through September 2005 compared to $477,000 in Solubles sales to Central America through September 2004. SRB Regular increased $263,000, and Fiber increased $73,000 compared to sales through September 2004.

Product volume movement through September 2005 was up 1,487,000 lbs., or 18%, to 9,842,000 lbs. Year to date product volume was up in all product lines except for Solubles. Solubles were down 61,000 lbs., SRB Regular volume was up 1,419,000 lbs., SRB Fine was up 64,000 lbs., and Fiber was up 65,000 lbs. over the same period last year.

RiceX’s Gross margins through September 2005 were $1,657,000, or 60%, compared to $1,658,000, or 61%, during the same period last year. The variance in gross margin dollars of $1,000 was essentially even to the same period last year.

RiceX’s SG&A expenses were $5,369,000 and $2,213,000 through period ended September 30, 2005 and 2004 respectively, an increase of $3,156,000. The increase was mostly due to a $2,968,000 non-budgeted non-cash charge to compensation expense which was the result of variable accounting treatment required for the re-pricing of director and employee stock options. Added to SG&A expenses year to date was $63,000 in final tax and legal costs related to the severance of two executives in January of 2005. RiceX experienced an increase in R&D expenses of $17,000, due to increased allocations of SG&A to research. Professional fees increased $382,000 mostly due to a year to date increase in legal costs relating to merger activity. Investor relations fees increased $11,000 compared to last year at $68,000 due to proxy material printing and filing related to merger activity.
 
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Year-to-date through September 30, 2005, RiceX incurred approximately $505,000 in legal, investor relation and professional fees that are directly associated with the merger of NutraCea and RiceX. Legal fees were $407,000 and professional fees were $50,000. Additional accounting, edgarizing, and printing costs, which are accrued and included in investor relation fees, amount to over $48,000 and are directly associated with merger activity.

RiceX’s cash balance for period ended September 30, 2005 was $546,000 versus $1,207,000 for the period last year. The Company’s operating cash position improved by $252,000 for period ending September 30, 2005 compared to September 30, 2004 monthly activities.. Our cash disbursements exceeded cash receipts by $485,000 in 2005 while cash disbursements exceeded cash receipts by $737,000 in 2004. In September 2005 RiceX received $40,000 in cash for the exercise of employee stock options. In 2004 there were no non-operations cash receipts or disbursements.

Cash used in operating activities for period ended September 30, 2005 was $483,000. Cash used in investing activities for period ended September 30, 2005 was $46,000. Investing activities include the purchase of extrusion machinery equipment and a new warehouse fork lift. There was $40,000 cash provided by financing activities during the period ended September 30, 2005.

Liquidity and Capital Resources

As discussed above, NutraCea acquired all the outstanding capital stock of RiceX on October 4, 2005 in a merger transaction. As a result of the merger, RiceX’s capital stock will no longer be traded publicly. Immediately following the merger with NutraCea, RiceX had $546,000 of cash and cash equivalents.

Critical Accounting Policies

A summary of RiceX's significant accounting policies is included in Note 1 to its Notes to Consolidated Financial Statements for the year ended December 31, 2004.
 
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BUSINESS OF NUTRACEA

General

We are a California corporation formerly known as Alliance Consumer International, Inc. As a result of the reorganization transaction discussed below, we conduct the business previously carried on by NutraStar Technologies Incorporated, or NTI, a Nevada corporation that was formed and started doing business in February 2000. In addition, we conduct business through our wholly-owned subsidiary, The RiceX Company, or RiceX, a Delaware corporation that we acquired on October 4, 2005 (For a description of the business of The RiceX Company, see the section of this prospectus titled “BUSINESS OF THE RICEX COMPANY”). We are a relatively new health science company focused on the development and distribution of products based upon the use of stabilized rice bran and proprietary rice bran formulations. Rice bran is the outer layer of brown rice which until recently was a wasted by-product of the commercial rice industry. These products include food supplements and medical foods, or " nutraceuticals, " which provide health benefits for humans and animals, as well as cosmetics and beauty aids based on stabilized rice bran, rice bran derivatives and rice bran oil. We believe that stabilized rice bran products can deliver beneficial physiological effects with fewer of the adverse side effects commonly associated with many prescription drugs. As a result, we believes that certain of our products may be used in place of, or as a supplement to, some of the most commonly used pharmaceuticals. We have conducted and are currently involved in ongoing clinical trials and third party analyses in order to support the uses for and effectiveness of our products.

We have developed a number of product lines that are currently or soon will be available for sale in the market through our four divisions: TheraFoods® , which provides health food supplements to the retail market; ProCeuticals® , which distributes medical foods through the medical community; NutraGlo® , which distributes animal feed products; and NutraBeauticals® , which is developing and marketing cosmetics   and beauty aids. We anticipate developing strategic distribution and marketing agreements with retail merchandisers, pharmaceutical companies and medical practices, including HMOs, hospitals and institutions.

Our corporate offices are located at 1261 Hawk's Flight Court, El Dorado Hills, California 95762. Our telephone number is (916) 933-7000. We have two wholly owned subsidiaries, NTI, which in turn wholly owns NutraGlo Incorporated, a Nevada corporation, and RiceX, which wholly owns RiceX Nutrients, Inc., a Montana corporation. We also own part of NutraStarSport, Inc., a Nevada corporation.

History

We originally incorporated on March 18, 1998 in California as Alliance Consumer International, Inc. On December 14, 2001, NTI effected a reorganization with the inactive publicly-held company, Alliance Consumer International, Inc., and the name was changed to NutraStar Incorporated. As a result of the reorganization NTI became a wholly-owned subsidiary of NutraStar Incorporated and NutraStar Incorporated assumed the business of NTI.

On October 1, 2003, NutraStar Incorporated changed our name to NutraCea and the common stock began trading on the OTCBB under the symbol "NTRC." On November 12, 2003, we declared a 1:10 reverse stock split. Our common stock trades on the OTCBB under the symbol "NTRZ."

On April 27, 2000, NutraStar formed NutraGlo Incorporated, or NutraClo, a Nevada corporation, which was owned 80% by NTI and 20% by NaturalGlo Investors L.P. During 2001, NutraGlo started marketing, manufacturing and distributing one of our products to the equine market. In 2002, we issued 250,001 shares of our common stock to NaturalGlo Investors L.P. in exchange for the remaining 20% of the common stock of NutraGlo. The value of the shares was $250,001. As a result, NutraGlo is now a wholly-owned subsidiary of NTI.
 
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On October 4, 2005, we acquired RiceX in a merger transaction in which our wholly-owned subsidiary, Red Acquisition Corporation, merged with and into RiceX, with RiceX surviving the merger as our wholly-owned subsidiary. For a description of the business of RiceX, see the portion of this prospectus titled “BUSINESS OF THE RICEX COMPANY.”
 
Industry Overview

By definition, nutraceuticals are products from natural sources that have biologically therapeutic effects in humans and mammals. These compounds include vitamins, antioxidants, polyphenols, phytosterols, as well as macro and trace minerals. Rice bran and rice bran oil are good sources for some of these compounds, including tocotrienols, a newly discovered complex of vitamin E, and gamma-oryzanol, which is found only in rice bran. Among other things, these compounds act as potent antioxidants. Stabilized rice bran and its derivatives also contain high levels of B-complex vitamins and beta-carotene, a vitamin A precursor. Stabilized rice bran also contains high levels of carotenoids and phytosterols, both essential fatty acids, as well as a balanced amino acid profile and both soluble and insoluble fiber which promote colon health.

Rice is one of the world's major cereal grains, although United States production of rice is only a small fraction of total world production. According to the United States Department of Agriculture, approximately 65% of the nutritional value of rice is contained in the rice bran, the outer brown layer of the rice kernel which is removed during the milling process. However, raw, unstabilized rice bran deteriorates rapidly. Because of the rapid degradation and short shelf life, rice bran has not been widely accepted as a component of nutrition, health or beauty products notwithstanding the known benefits. RiceX   has developed a method of stabilizing rice bran that we believe is superior to other methods, and provides a shelf life of approximately two years, which we believe is longer than any other stabilized rice bran. Using stabilized rice bran as an ingredient provides the longer shelf life necessary for economical production of nutrition products which incorporate rice bran ingredients.

As the population of the United States ages over the next 30 years, we believe demand for our products will increase materially. Since stabilized rice bran is a safe food product, we believe that its beneficial effects can be obtained with no known deleterious side effects, such as those that may be present in pharmaceuticals. Many physicians have taken an interest in our nutraceutical products as a means of offering alternative or complementary approaches for treating serious healthcare problems. If further clinical trials support the beneficial effects of our nutraceutical and medical foods products and if the medical community widely endorses such use of our products, we believe that our products may be used as a nutritional therapy either prior to or as a complement to traditional pharmaceutical therapies for the treatment of a variety of ailments including diabetes and coronary heart disease.

Products

In addition to the products sold by The RiceX Company, we have two segments with four primary divisions through which we currently sell our products.

Products of NutraStar Technologies Incorporated:

 
·
TheraFoods® Nutrition Supplements. We distribute our consumer products through our TheraFoods® Nutritional Supplements division. The primary products currently sold through this division are RiSolubles®, RiceMucil®, CeaFlex®, FlexBoost®, DiaBoost®, MigraCea®, ProstaCea®, Cea100®, NutraImmune™, LiverBoost®, SuperSolubles®, SynBiotics™ and StaBran® Nutritional Supplements. All the products are currently available in either capsule or powdered form for use as food supplements. The powdered form can also be used as a food additive in breads, cookies, snacks, beverages, and similar foods. We have also developed and currently produces CeaFlex® Cream, a topical, cream product for arthritic joint and muscle pain.

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·

 
·
NutraBeauticals® Beauty Products. We distribute our natural beauty products through our NutraBeauticals® Beauty Products Division. The principal product sold through this division is NutraBeauticals® Skin Cream, a topical emollient containing rice bran oil and other natural ingredients to support the health and improve the appearance of skin. We do not have an established distribution system for our beauty and skin care products.

Products of NutraGlo Incorporated:

 
·
NutraGlo® Animal Products . We developed a derivative of our CeaFlex® Nutritional Supplement to prevent and rehabilitate joint degeneration in horses and markets CeaFlex® Equine Nutritional Supplements and Absorbine Flex+® Equine Pain Relief though our NutraGlo® Animal Products Division. Our Absorbine Flex+™ Equine products are distributed exclusively through W.F. Young, Inc. pursuant to a distribution agreement in the United States and many foreign countries. Other equine and animal health care products will be distributed through this or other channels.

Other Products

On September 13, 2005, we entered into a Production Facility Development and Rice Bran Supply and Purchase Agreement (“Purchase Agreement”) with Food Trading Company Dominicana, S.A. (“FTCD”), a Dominican Republic company that owns and operates a substantial rice milling operation located in the Dominican Republic. We and FTCD have agreed to form one or more entities to operate in the Dominican Republic and Haiti and that will be equally owned by us and FTCD (the “Jointly Owned Company”). The term of the Agreement is ten years.

Under the terms of the Agreement, we will construct or improve a production facility for the processing of stabilized rice bran into a bulk fiber soluble mixture. The Jointly Owned Company will then package individual servings of the rice fiber solubles mixed with water (the “Products”). The Products are intended to be sold and distributed through government sponsored feeding programs within the Dominican Republic and Haiti. NutraCea has agreed to grant to the Jointly Owned Company an exclusive license in the Dominican Republic and Haiti to manufacture, package and distribute the Products.

FTCD is responsible for the purchase agreements for the Jointly Owned Company’s Products in the aggregate amount of at least $10.8 million annually for the first two years of the agreement, with purchase orders beginning no later than 45 days from the effective date of the Agreement and at least $4 million monthly for years three and four of the agreement. Additionally, FTCD has agreed to obtain all appropriate governmental and legal permits relating to the operation of the Jointly Owned Company, and to sell quantities of raw rice bran to the Jointly Owned Company for production of the Products.

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Should we and FTCD elect to construct a Dominican Republic production facility, FTCD has agreed to lease land to the Jointly Owned Company for the construction of the production facility and we have agreed to secure financing to construct or improve the production facility. We have agreed to ship bulk fiber soluble mixture from our production facilities in the United States until we and FTCD elect to construct a facility in the Dominican Republic.

Marketing

Our TheraFoods® Division is currently marketing its products domestically through various distribution channels including our toll-free phone number and through the Internet at http://www.nutracea.com/products.html . In addition, we distribute products under the names FlexProtex™, Rice'n Shine™, Flex Protex Cream™, RiceMucil Wafers®, SuperSolubles®, ZymeBoost® and CeaBars™ through ITV Global, Inc. (" ITV "), a direct response marketing company. We and ITV entered into a Private Label Supply Agreement (the " Supply Agreement ") and Strategic Alliance on August 24, 2005. The Supply Agreement has an initial term of two years and allows for a subsequent one-year term renewal. We have agreed in the Supply Agreement to fulfill ITV's requirements for the products specified in the agreement while ITV will use its best efforts to market, distribute and sell such products.

Our equine products are distributed under the name " Absorbine Flex +®" by W.F. Young, Inc. pursuant to agreements. We and W.F. Young entered into a distribution agreement on May 1, 2001 which provides for NutraGlo to manufacture, package and ship all W.F. Young's sales requirements while W.F. Young is granted a license to use and market our equine products. NutraGlo has agreed to sell its equine healthcare products exclusively through W.F. Young at preferred product prices. W.F. Young has agreed to use its best efforts to promote NutraGlo's current and future equine products and make minimum product purchases. In May of 2003, the purchase requirements for the three-year contract had been met. The distribution agreement was for an initial term of three years ending on August 31, 2004. On September 18, 2003, NutraCea, W.F. Young and Wolcott Farms, Inc. entered into a Technology Agreement which, among other things, extended the initial term of the Distribution Agreement through September 12, 2006, allowed for subsequent one-year term renewals and amended the minimum purchase requirement. On April 12, 2005, NutraCea and W.F. Young entered into a Manufacturing Agreement which granted to us the exclusive worldwide rights to manufacture certain equine products for W.F. Young. On the same date, NutraCea and W.F. Young entered into an Assignment of Interests in which W.F. Young transferred to us certain rights held by W.F. Young under the Technology Agreement in exchange for 1,222,222 shares of our common stock. In addition, certain rights to the Technology Agreement, held by NaturalGlo Specialty Products, LLC, a subsidiary of W.F. Young, were also transferred to NutraGlo in exchange for 166,667 shares of our common stock and W.F. Young's agreement to decline to exercise its options to acquire additional rights to certain NutraCea technologies under the Technology Agreement. Additionally, on April 12, 2005, NutraCea and W.F. Young entered into a Distribution Agreement under which we granted W.F. Young (i) the right of first offer and right of first refusal to market our stabilized rice bran food supplements (other than Equine Flex+) for the equine market and (ii) the right of first offer and right of first refusal to market the Flex+ product and Flex+ technology for the non-equine, non-human market.

We have developed a number of other animal products, which we are seeking to distribute, subject to rights granted to W.F. Young, through various distribution channels such as the Internet and strategic joint ventures in the large animal, pet and veterinarian industries.

International Initiatives

We have initiated discussions with governmental agencies within various Central and South America countries to explore securing contracts for the introduction of our highly nutritious and proprietary food supplements for use in local and national school feeding initiatives and family nutritional support programs. We are pursuing a strategy to introduce our technology to both the public and private sectors simultaneously using the strength of our local partners in foreign markets.

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We are building alliances with strong partners demonstrating our commitment to building the type of mutually beneficial strategic relationships that could launch our products through distribution channels in commercial and retail outlets in Latin America countries as well as supply a better, more cost effective solution for government feeding programs.

Product Supply

We currently purchase all of our stabilized rice bran, rice bran solubles, rice bran fiber concentrates, and other rice bran products from RiceX. We believe RiceX has a proprietary manufacturing process for stabilizing the rice bran it processes. This process results in an estimated shelf life for the rice bran products of approximately two years under proper storage conditions, compared to a typical shelf life of approximately two months for rice bran products processed by other suppliers. The extended shelf life is a critical factor in the use of rice bran products as an ingredient since the availability of rice bran products would otherwise be seasonal and inventories of products using rice bran products would spoil or become unusable between seasons.

RiceX is a wholly owned subsidiary of NutraCea. We purchase our rice bran products at RiceX's standard prices. We believe that RiceX will be able to continue supplying our requirements of stabilized rice bran products. There are no other known sources of stabilized rice bran of the quality comparable to that produced by RiceX. The interruption of supply from RiceX, either because of other significant purchasers or the damage or destruction of the RiceX processing facility, could interrupt the production of our products, and a prolonged interruption would have a material adverse effect on our business, financial condition and results of operation if we did not quickly locate another suitable supplier.

Competition

We compete with other companies that offer products incorporating stabilized rice bran as well as companies that offer other food ingredients and nutritional supplements. Suppliers of nutritional supplements and other products that use stabilized rice bran provided by other suppliers are subject to the higher costs of shorter shelf life and the seasonal availability of stabilized rice bran ingredients. We also face competition from companies providing products that use oat bran and wheat bran in the nutritional supplements as well as health and beauty aids. Many consumers may consider such products to be a replacement for the products manufactured and distributed by us even though they have a higher incidence of allergic reactions and adverse health indications. Many of our competitors have greater marketing, research, and capital resources than we do, and may be able to offer their products at lower costs because of their greater purchasing power or the lower cost of oat and wheat bran ingredients. There are no assurances that our products will be able to compete successfully.

Government Regulation

The Federal Food, Drug, and Cosmetic Act, or FFDCA , and the U.S. Food and Drug Administration regulations govern the marketing of our products.
 
The FFDCA provides the statutory framework governing the manufacturing, distribution, composition and labeling of dietary supplements for human consumption. These requirements apply to our products distributed by the TheraFoods® and ProCeutical® divisions.

Marketers of dietary supplements may make three different types of claims in labeling: nutrient content claims; nutritional support claims; and health claims.

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Nutrient content claims are those claims that state the nutritional content of a dietary supplement and include claims such as "high in calcium" and "a good source of vitamin C." The FFDCA prescribes the form and content of nutritional labeling of dietary supplements and requires the marketer to list all of the ingredients contained in each product. A manufacturer is not required to file any information with the Food and Drug Administration, or FDA, regarding nutrient content claims, but must have adequate data to support any such claims.

Nutritional support claims may be either statements about classical nutritional deficiency diseases, such as "vitamin C prevents scurvy" or statements regarding the effect of a nutrient on the structure or function of the body, such as "calcium builds strong bones." The FFDCA requires that any claim regarding the effect of a nutrient on a structure or function of the body must be substantiated by the manufacturer as true and not misleading. In addition, the label for such products must bear the prescribed disclaimer: "This statement has not been evaluated by the Food and Drug Administration. This product is not intended to diagnose, treat, cure, or prevent any disease."

Health claims state a relationship between a nutrient and a disease or a health-related condition. FDA's regulations permit certain health claims regarding the consumption of fiber and the reduction of risk for certain diseases, such claims may relate to rice bran ingredients.

The FDA has broad authority to enforce the provisions of federal law applicable to dietary supplements, including the power to seize adulterated or misbranded products or unapproved new drugs, to request product recall, to enjoin further manufacture or sale of a product, to issue warning letters, and to institute criminal proceedings. In the future, we may be subject to additional laws or regulations administered by the FDA or other regulatory authorities, the repeal of laws or regulations that we might consider favorable or more stringent interpretations of current laws or regulations. We are not able to predict the nature of such future laws or regulations, nor can we predict the effect of such laws or regulations on our operations. We may be required to reformulate certain of our products, recall or withdraw those products that cannot be reformulated, keep additional records, or undertake expanded scientific substantiation. Any or all of such requirements could have a material adverse effect on our business and financial condition.

The Federal Trade Commission, or FTC, regulates the advertising of dietary supplement and other health-related products. The FTC's primary concern is that any advertising must be truthful and not misleading, and that a company must have adequate substantiation for all product claims. The FTC actively enforces requirements that companies possess adequate substantiation for product claims. FTC enforcement actions may result in consent decrees, cease and desist orders, judicial injunctions, and the payment of fines with respect to advertising claims that are found to be unsubstantiated.

In addition to the foregoing, our operations will be subject to federal, state, and local government laws and regulations, including those relating to zoning, workplace safety, and accommodations for the disabled, and our relationship with our employees are subject to regulations, including minimum wage requirements, anti-discrimination laws, overtime and working conditions, and citizenship requirements.

We believe that we are in substantial compliance with all material governmental laws and regulations.
 
Results of Trials and Scientific Research

The beneficial attributes of stabilized rice bran, including the RiSolubles® and RiceMucil® Nutritional Supplements, have been studied and reported by several laboratories, including Medallion Laboratories, Craft's Technologies, Inc., Southern Testing & Research Laboratories, and Ralston Analytical Laboratories. We have no affiliation with any of the laboratories that performed these studies but did pay for certain portions of these studies. These analyses have verified the presence of antioxidants, polyphenols, and phytosterols, as well as beneficial macro and trace minerals, in our stabilized rice bran products. Antioxidants are compounds which scavenge or neutralize damaging compounds called free radicals. Polyphenols are organic compounds which potentially act as direct antioxidants. Phytosterols are plant-derived sterol molecules that help improve immune response to fight certain diseases.

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A 57-subject clinical trial conducted by Advanced Medical Research with funding by RiceX suggested that consumption of the stabilized rice bran used in our RiSolubles® and RiceMucil® Nutritional Supplements may lower blood glucose levels of type 1 and type 2 diabetes mellitus patients and may be beneficial in reducing high blood cholesterol and high blood lipid levels. If warranted, we may develop products which address the use of stabilized rice bran products as medical foods for, and to potentially make health benefit claims relating to, the effects of dietary rice bran on diabetes and cardiovascular disease.

Through several consulting physicians, we have relationships with several medical institutions and practicing physicians who may continue to conduct clinical trials and beta work for our products. Some of these previous clinical trials are reviewed in an article published in the March 2002 issue of the Journal of Nutritional Biochemistry. The trials produced positive results by showing that the levels of blood lipids and glycosylated hemoglobin were reduced. Subsequently, six domestic and international patents were issued.

The W.F. Young Company, distributors of Absorbine® Equine Pain Relief Products, sponsored a 50-horse equine clinical trial, which demonstrated the our Absorbine Flex+® Equine Products to be effective products for treating joint degeneration as well as inflammation in horses.

Intellectual Property

We, through NTI, filed applications with the U.S. Patent and Trademark Office and has successfully registered our logo, StaBran®, RiSolubles®, RiceMucil®, and 24 other product names, as registered federal trademarks and service marks. We also have an additional 36 trademark and service mark applications in various stages in the U.S Patent and Trademark Office.
 
RiceX® and RiceX Solubles® are RiceX's registered trade names. Mirachol®, Max "E"® and Max "E" Glo® are RiceX's registered trademarks.

We, through NTI, filed a non-provisional patent application with 47 claims entitled "Methods of Treating Joint Inflammation, Pain and Loss of Mobility" on November 6, 2001. In a December 3, 2002 office action, the U.S. Patent and Trademark Office allowed 26 and disallowed 21 of the patent's 47 claims. Subsequently, in February 2004, the 26 claims which were allowed in December of 2002 were disallowed. In March 2004, we appealed the disallowance of the 26 claims which were previously allowed. Additionally, in October 2003, nine additional preventive claims were added to the patent. In February 2005, we received a written notification that the U.S. Patent and Trademark Office had allowed 11 claims and the prosecution of the application was closed. On June 8, 2005, NutraCea was granted U.S. Patent Number 6,902,739.

We, through RiceX, have been assigned five U.S. patents relating to the production or use of Nutraceutical or HVF products. The patents include Patent Number 5,512,287 "PRODUCTION OF BETA-GLUCAN AND BETA-GLUCAN PRODUCT," which issued on April 30, 1996; Patent Number 5,985,344 "PROCESS FOR OBTAINING MICRONUTRIENT ENRICHED RICE BRAN OIL," which issued on Nov. 16, 1999; Patent Number 6,126,943 "METHOD FOR TREATING HYPERCHOLESTEROLEMIA, HYPERLIPIDEMIA, AND ATHEROSCLEROSIS," which issued on Oct. 3, 2000; Patent Number 6,303,586 B1 "SUPPORTIVE THERAPY FOR DIABETES, HYPERGLYCEMIA AND HYPOGLYCEMIA," which issued on Oct. 15, 2001 and Patent Number 6,350,473 B1 "METHOD FOR TREATING HYPERCHOLESTEROLEMIA, HYPERLIPIDEMIA AND ATHEROSCLEROSIS," which issued on Feb. 26, 2002. We plan to apply for additional patents in the future as new products, treatments and uses are developed.

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The RiceX Process is an adaptation and refinement of standard food processing technology applied to the stabilization of rice bran. We has chosen to treat the RiceX Process as a trade secret and not to pursue process or process equipment patents on the original processes. However, process improvements will be reviewed for future patent protection. We believe that the unique products, and their biological effects, resulting from RiceX's Stabilized Rice Bran are patentable.

We endeavor to protect our intellectual property rights through patents, trademarks, trade secrets and other measures. However, there can be no assurance that we will be able to protect our technology adequately or that competitors will not develop similar technology. There can be no assurance that any patent application we may file will be issued or that foreign intellectual property laws will protect our intellectual property rights. Other companies and inventors may receive patents that contain claims applicable to our systems and processes. The use of our systems covered by such patents could require licenses that may not be available on acceptable terms, if at all. In addition, there can be no assurance that patent applications will result in issued patents.

Although there currently are no pending claims or lawsuits against us regarding possible infringement claims, there can be no assurance that infringement claims by third parties, or claims for indemnification resulting from infringement claims, will not be asserted in the future or that such assertions, if proven to be true, will not have a material adverse affect on our financial condition and results of operations. In the future, litigation may be necessary to enforce our patents, to protect our trade secrets or know-how or to defend against claimed infringement of the rights of others and to determine the scope and validity of the proprietary rights of others. Any such litigation could result in substantial cost and diversion of our resources, which could have a material adverse effect on our financial condition and results of operations. Adverse determinations in such litigation could result in the loss of our proprietary rights, subject us to significant liabilities to third parties, require us to seek licenses from third parties or prevent us from manufacturing or selling our systems or products, any of which could have a material adverse effect on our financial condition and results of operations. In addition, there can be no assurance that a license under a third party's intellectual property rights will be available on reasonable terms, if at all.

Research and Development Expenditures

During fiscal years 2004 and 2003, we spent $78,331 and $63,873, respectively, on product research and development.

Employees

As of October 21, 2005, NutraCea had seven full-time employees, two hourly temporary employees and three independently contracted staff members, and RiceX had a total of twelve employees, all of whom were full-time employees. From year to year RiceX experiences normal variable labor fluctuation at its production facility in Dillon, Montana.   None of our employees are employed pursuant to a collective bargaining or union agreement, and we consider that our relationship with our employees is good.

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Description of Property

We sublease our executive offices, warehouse and laboratory, located at 1261 Hawk's Flight Court, El Dorado Hills, California, from RiceX for a monthly rental of $6,366. We have subleased this 10,080 square foot facility, and RiceX has leased the facility, through September 30, 2006. We believe that this facility will be adequate for current operations.

RiceX currently leases a 5,600 square-foot office facility at 1241 Hawk's Flight Court, El Dorado Hills, California, a 2,000 square-foot office facility at 1901 Conant Avenue, Burly, Idaho and a 17,000 square foot warehouse facility at 1755 Enterprise Boulevard, West Sacramento, California. RiceX's subsidiary, RiceX Nutrients, Inc. (formally Food Extrusion, Montana), owns a 15,700 square-foot production facility in Dillon, Montana. The lease for the El Dorado Hills facility expires in September 2006. The lease for the offices in Burley, Idaho expires in May 2009 and the lease for the West Sacramento, California warehouse facility is on a month to month basis. RiceX has aggregate annual lease payments for all of its facilities approximating $109,000, net of sub-lease payment collections approximating $76,000 per year. We believe that these facilities are adequate for current operation and that the properties are adequately covered by insurance.

Legal Proceedings

From time to time we are involved in litigation incidental to the conduct of our business. While the outcome of lawsuits and other proceedings against us cannot be predicted with certainty, in the opinion of our management, individually or in the aggregate, no such lawsuits are expected to have a material effect on our financial position or results of operations.
 
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BUSINESS OF THE RICEX COMPANY

RiceX was incorporated under Delaware law in May 1998. RiceX succeeded to the business of its predecessor corporation, Food Extrusion, Inc., a Nevada Corporation, pursuant to a re-incorporation that was effective upon completion of the merger of the Nevada corporation with the Delaware corporation on August 4, 1998. Food Extrusion, Inc, was incorporated in California in May 1989 and subsequently merged in a stock-for-stock exchange into Core Iris, a Nevada corporation and subsequently changed its name to Food Extrusion, Inc. Food Extrusion, Inc. changed its name to The RiceX Company in May 1998. RiceX Nutrients, Inc. (formally Food Extrusion Montana, Inc.) was incorporated in Montana in December 1996, as RiceX's wholly-owned subsidiary. In January 1997, RiceX Nutrients, Inc. acquired certain assets of Centennial Foods, Inc., an Idaho corporation in exchange for common stock and the assumption of certain liabilities, which were paid in full in January 1999.

The RiceX Process stabilizes rice bran, which is the portion of the rice kernel that lies beneath the hull and over the white rice. Rice bran contains over 60% of the nutritional value of rice. However, without stabilization, the nutritional value of rice bran is lost shortly after the milling process. This is due to the lipase-induced rancidity caused by the rice milling process. Consequently, a rich nutrient resource must either be thrown away or disposed of as low value animal feed. The RiceX Process deactivates the lipase enzyme and makes the bran shelf life stable for a minimum of one year. While other competing processes have been able to stabilize rice bran for a limited time, the RiceX Process naturally preserves more of the higher value nutritional and antioxidant compounds found in rice bran for a significantly longer period of time.

The RiceX Process has enabled RiceX to develop a variety of nutritional food products, including its primary product, RiceX® Stabilized Rice Bran. The RiceX® Stabilized Rice Bran RiceX produces meets microbiological standards for human consumption. RiceX's customers include consumer nutrition and healthcare companies, domestic and international food companies, and companion animal feed manufacturers.

Through RiceX's wholly-owned subsidiary, RiceX Nutrients, Inc., RiceX is engaged in custom manufacturing of grain based products for food ingredient companies at its production facility in Dillon, Montana. RiceX Nutrients, Inc. has specialized processing equipment and techniques for the treatment of grain products to cook, convert, isolate, dry and package finished food ingredients used in the formulation of health food and consumer food finished products. RiceX Solubles, a highly nutritious, carbohydrate and lipid rich fraction, is produced at the Dillon, Montana facility. RiceX believes that these manufacturing capabilities are unique among grain processors, with custom processing capabilities suited to numerous food applications.

RiceX Products

RiceX produces stabilized, nutrient-rich rice bran that may be used in a wide variety of new products. RiceX is pursuing the development of proprietary rice bran products from stabilized rice bran. RiceX's current products include:
 
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RiceX Stabilized Rice Bran:
 
Stable whole rice bran and germ. This is RiceX's basic stabilized rice bran product that is both a food supplement and an ingredient for cereals, baked goods, companion animal feed, health bars, etc., and also the base material for producing RiceX Solubles, oils and RiceX Fiber Complex.
 
RiceX Stabilized Rice Bran Fine:
 
This is the same product as the RiceX Stabilized Rice Bran, except that it has been ground to a particle size that will pass through a 20 mesh screen. It is used primarily in baking applications.
     
Dextrinized Rice Bran:
 
A carbohydrate converted RiceX Stabilized Rice Bran that is more suitably used in baking and mixed health drink applications. This product contains all of the nutrient-rich components of RiceX Stabilized Rice Bran.
     
RiceX Solubles:
 
A highly concentrated soluble carbohydrate and lipid rich fraction component of RiceX Stabilized Rice Bran with the fiber removed. RiceX Solubles also embodies a concentrated form of the vitamins and nutrients found in RiceX Stabilized Rice Bran.
     
RiceX Fiber Complex:
 
Nutrient-rich insoluble fiber source that contains rice bran oil and associated nutrients. This product, designed for use by the baking and health food markets, is the remaining ingredient when RiceX Stabilized Rice Bran is processed to form RiceX Solubles.

In addition to the above, further refining RiceX Stabilized Rice Bran into oil and its by-products can produce Max RiceX Defatted Fiber and Higher Value Fractions.

Max "E" Oil:
 
Nutrient-rich oil made from RiceX Stabilized Rice Bran. This oil has a high flash point, which provides a very long fry life, and it is not readily absorbed into food. In addition, the oil maintains many of the nutritional benefits of the whole rice bran products.
     
RiceX Defatted Fiber:
 
Low fat soluble fiber that does not contain rice bran oil. This is a product designed for use by the baking industry for its high fiber nutritional benefits.
     
Higher Value Fractions:
 
Nutraceutical like compounds naturally occurring in RiceX Stabilized Rice Bran and Rice Bran Oil that provide specific health benefits. Tocopherols, tocotrienols, and gamma oryzanol are some of the antioxidant-rich fractions that are found in rice bran and are enhanced by stabilization, with the gamma oryzanol being unique to rice.
 
The Importance of Rice

Rice is the staple food for approximately 70% of the world's population, and is the staple food source for several of the world's largest countries. World rice production is expected to be more than 500 million metric tons in the 2004-2005 crop year (according to the United States Department of Agriculture), constituting more than one quarter of all cereal grains produced worldwide. The United States accounts for less than 2% of the world's rice production. Ninety percent (90%) of world rice tonnage is produced in 13 countries with aggregate populations of 3.2 billion people (according to the USA Rice Federation, Rice Notes). Approximately 75% of all rice production occurs in China, India, South East Asia, Africa and South America. Combined, these regions have a population of 2.3 billion people (nearly 50% of the world's population), and an average per capita gross domestic product of $2,000 (less than one-tenth of the U.S. average).

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Malnutrition is a common problem in this group of nations, particularly for people located in rural villages where subsistence rice farming is a primary livelihood. Transportation and storage are poor. Consequently, locally grown rice is consumed locally and the amount of food available varies widely over time with changes in seasons and weather. Children are especially susceptible to variations in local agricultural output due to their heightened nutritional needs and dependency on others for food. Per capita rice consumption in many of the poorer rice belt countries exceeds one pound per day.

Despite the importance of rice as a worldwide food source and the problems associated with nutritional deficiencies in rice-dependent nations, more than 60% of the nutrients found in rice are destroyed during milling. Most of the rice nutrients are contained in the outer brown layer of the rice kernel known as the bran layer, which, because of poor stability, becomes inedible due to lipase-induced rancidity or microbiological spoilage shortly after the milling process.

Rice Processing and Rice Bran Stabilization

When harvested from the field, rice is in the form of paddy, or "rough" rice. In this form, the rice kernel is fully enveloped by the rice hull. The hull is dried and then removed in the first stage of milling, yielding brown rice. In the second stage of milling, the outer brown layer, or rice bran, is removed to produce white rice. Rice bran is composed of the rice germ and several sub-layers, which accounts for approximately 8% by weight of paddy rice and contain over 60% of the nutrients found in each kernel of rice. (See Juliano, B.O., 1985 Rice: Chemistry and Technology, American Assoc. of Cereal Chemists, St. Paul, MN, pp. 37-50.)

Under normal milling conditions, when brown rice is milled into white rice, the oil in the bran and a potent lipase enzyme found on the surface of the bran come into contact with one another. The lipase enzyme causes very rapid hydrolysis of the oil, converting it into glycerol, monoglycerides, diglycerides and free fatty acid, or FFA. As the FFA content increases, the rice bran becomes unsuitable for human or animal consumption. At normal room temperature, the FFA level increases to 5-8% within 24 hours and thereafter increases at the rate of approximately 4-5% per day. Rice bran is unfit for human consumption at 5% FFA, which typically occurs within 24 hours of milling.

When the lipase enzyme can be deactivated, rice bran can be stabilized, thus preserving a potentially important nutrient source that is largely wasted today. Heat will deactivate the lipase enzyme, reduce microbiological load and reduce moisture levels. Although heat serves as the basis for most attempts to stabilize rice bran, most of the rice bran nutrients are lost in this process. Parboiled, or converted rice, is subjected to soaking and steaming prior to being dried and milled. This process softens the rice kernel and reduces the problem of lipase-induced hydrolysis. The bran produced from parboiled rice, however, is only semi-stabilized, typically spoiling in 20 days or less. The parboiling process also destroys much of the nutritional value of the bran because many of the micro nutrients are water-soluble and are leached out during the parboiling process. There have been a number of attempts to develop alternative rice bran stabilization processes that deactivate the lipase enzyme using chemicals, microwave heating and variants on extrusion technology. RiceX believes each of these efforts results in an inferior product that uses chemicals or does not remain stable for a commercially reasonable period, or the nutrients in the bran are lost thereby significantly reducing the nutritional value in the bran.

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The RiceX Solution

The RiceX Process uses proprietary innovations in food extrusion technology to create a combination of temperature, pressure and other conditions necessary to deactivate the lipase enzyme without significantly damaging the structure or activity of other, higher value compounds, oils and proteins found in the bran. The RiceX Process does not use chemicals to stabilize raw rice bran, and produces an "all natural" nutrient-rich product.

RiceX's processing equipment is designed to be installed on the premises of any two-stage rice mill and is located downstream from the rice polishers. After hulling, the rice is transported pneumatically to the rice polishing room where the brown rice kernels are tumbled and the rice bran is polished from the surface of each kernel. The bran is separated from the denser polished rice grain and is transported pneumatically to a loop conveyor system designed by RiceX. The loop conveyor system immediately carries the fresh, unstabilized rice bran to the RiceX stabilization system.

Bran leaving RiceX's stabilization system is packaged in multi-walled bags or bulk for transport to RiceX customers. RiceX Bran has a shelf life of at least one year and is rich in tocopherols, tocotrienols, oryzanols, a complete and balanced amino acid profile and other nutritional and natural compounds that exhibit positive health properties.

The RiceX Process system is modular. Each stabilization module can process approximately 2,000 pounds of RiceX Bran per hour and has a capacity of over 5,700 tons per year. Stabilization production capacity can be doubled or tripled by installing additional units sharing a common conveyor and stage system, which can handle the output of the world's largest rice mills. RiceX has developed and tested a smaller production unit, which has a maximum production capacity of 840 tons per year, for installation in countries or locations where rice mills are substantially smaller than those in the United States.

The processing conditions created by the RiceX Process are unique. However, the ancillary equipment used to achieve these processing conditions is in wide use throughout the food industry. It is in the stabilizer unit that RiceX's proprietary technology resides; all of the other processing, material handling, control, and storage components are off-the-shelf equipment items.

Benefits of RiceX Stabilized Rice Bran

Rice bran is a rich source of protein, oil, vitamins, antioxidants, dietary fiber and other nutrients. The approximate composition and caloric content of RiceX Stabilized Rice Bran is as follows:

Fat
 
18%-23%
Protein
 
12%-16%
Total Dietary Fiber
 
23%-35%
Soluble Fiber
 
2%-6%
Moisture
 
4%-8%
Ash
 
7%-10%
Calories
 
3.2 kcal/gram

Rice bran is unique in the plant kingdom. Its protein is hypoallergenic and contains all of the essential amino acids, the necessary building blocks of protein in the body. Rice bran contains approximately 20% oil, which closely resembles peanut oil in fatty acid composition and heat stability. Rice bran oil contains essential fatty acids and a broad range of nutraceutical compounds that have been demonstrated to have therapeutic properties. (See Cheruvanky and Raghuram, 1991 Journal of the American College of Nutrition, Vol. 10, No. 4, pp. 593-691.)

Nutraceuticals are food constituents that have human therapeutic effects. Some of these compounds include a newly discovered complex of Vitamin E called "tocotrienols," and gamma oryzanol, which is only found in rice. These compounds are potent antioxidants that have been shown to aid in reducing damage from free radicals in the body. RiceX Bran also contains very high levels of B-complex vitamins, betacarotene (a vitamin A precursor), other carotenoids and phytosterols, as well as both soluble and insoluble fiber. (See Saunders, 1990, Rice Bran Oil, presented at Calorie Control Council Meeting, February 14, 1990, Washington, D.C.)

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Business Strategy

RiceX's goal is to become the world's leading producer and distributor of stabilized rice bran and rice bran based products in the premium consumer food and animal feed sectors of the marketplace. RiceX produces stabilized rice bran and related products in manufacturing facilities RiceX owns or through joint venture arrangements.

RiceX believes that clinical support for stabilized rice bran products will further enhance the value of its products as nutraceuticals and functional food ingredients. Finally, RiceX intends to aggressively market its products in four distinct product areas. These areas are nutraceuticals, functional food ingredients, performance feed and companion pet food supplements, and rice bran oils. In further pursuit of this goal, RiceX has focused and will continue to focus its marketing and development efforts in developed regions, including the U.S., Europe, South Africa, Argentina, Japan, Korea and Taiwan; and in developing regions, including in Central and South America, India, China, Indonesia and most of the other countries in Asia and Africa.

Developed Nations

In developed nations, RiceX's focus is on producing and selling ingredients to large consumer product marketers as health enhancing ingredients for existing or newly developed products, and as stand-alone products to consumers. In addition, RiceX has continued relationships with Korean, German and other European companies to introduce its products into these regions. Although there can be no assurance that RiceX's products will be successfully introduced into these regions, RiceX believes that interest of this type validates the potential opportunity. In addition, RiceX believes that the relationship reflects the strategy for RiceX's foreign ventures. RiceX intends to seek other opportunities in developed nations by converting stabilized rice bran grown in those countries into finished goods and into HVFs with demonstrated health or nutritional benefits.

Developing Nations

RiceX's strategic development has been focused on making its nutrient-dense stabilized rice bran products available to developing countries where nutritional deficiencies are a major concern, particularly among school-aged children. RiceX remains on the cutting edge in developing nations by reducing malnutrition and enhancing nutritional growth potential school-aged children. RiceX believes that the school nutritional and diet upgrading programs in developing countries worldwide represent a market opportunity for RiceX in excess of $100 million per year. The Food and Agriculture Organization of the United Nations and the Foreign Agricultural Service of the United States Department of Agriculture have targeted over 800 million nutritionally deficient humans for assistance in the worldwide program titled "American Special Supplemental Food Programs for Women, Infants and Children."

RiceX's first international strategic alliance was established in December 2000 with PRODESA and the Christian Children's Fund in Guatemala. Under this alliance, RiceX supplied nutritionally dense ingredients throughout Guatemala over a twelve-month period starting in January 2001. As a result, RiceX's stabilized rice bran product, RiceX Solubles, has been used as a base for nutritionally enhanced drink for school breakfast and lunch programs to over 67,000 children in rural communities throughout Guatemala. The twelve-month program in Guatemala was highly successful in reducing malnutrition in school age children and enhancing their nutritional growth potential. This proof-of-concept program in Guatemala generated nearly $2,300,000 in revenues for RiceX for the year ended December 31, 2001. In 2002, El Salvador's Ministry of Education in San Salvador purchased RiceX's stabilized rice bran product, RiceX Solubles, for applications in its school nutrition programs for El Salvadorian children. The agreement, which follows the similar program of Guatemala, resulted in revenues of approximately $1,000,000 for the year ended December 31, 2002. Other similar programs in the region resulted in receiving payment for RiceX Solubles of approximately $600,000 in December 2003, and recognizing the revenue during the calendar year 2004.

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RiceX is in the process of broadening its presence in the international markets. Building on RiceX's year 2001 successful proof-of-concept program in Guatemala, RiceX continues to develop and expand international market development activities in Central America. RiceX has two program approaches, 1) year-to-year applications and 2) multi-year self sustaining programs. The year-to-year applications approach calls for direct sales contracts financed in part through the United States government's Public Law 416 program. The multi-year self sustaining strategy will require funding from the USAID programs, philanthropic contributions and joint participation by the host country government. RiceX believes that product sales and shipments will continue and expand into Central American countries during 2005 and beyond.

RiceX continues to work with major rescue and relief agencies, congressional supporters and government offices of the USDA and the United States Agency for International Development to bring a multi-year program to provide nutritional drinks to one million children each school day from a RiceX facility located within the Central American region. RiceX has secured a financing commitment from Overseas Private Investment Corporation to assist in funding the facility. However, there can be no assurance that this financial commitment will lead to building a facility in the Central American region.

RiceX also intends to partner with local governments and companies in developing nations, on a joint venture basis, to stabilize locally grown rice bran for local consumption and for future export. RiceX plans to introduce its stabilization process systems in large rice mills located in Central and South America, China, India and Southeast Asia in the future. In many developing nations, the average person has a 300-500 calorie daily diet deficit. (See The Food and Agriculture Organization of the United Nations (FAO), Agrostat PC, on diskette (FAO, Rome, 12993); and the World Resources Institute in collaboration with the United Nations Environment Programme and the United Nations Development Programme, World Resources 1994-95 (Oxford University Press; New York, 1994), p. 108.) If RiceX is able to expand into these areas, the installation of 100 RiceX processing systems has the capacity to provide up to 500 nutritionally dense calories per day to over 15 million people each year. The diet supplement provided by the locally grown and stabilized rice bran would help those people approach U.S. levels of nutrition.

RiceX has had preliminary discussions regarding the demonstration of its system and the end products for its technology with a number of companies and governments including countries in Central America, India, China, Argentina, Brazil, Malaysia and certain African countries. However, there can be no assurance that these discussions will lead to implementation of the RiceX Process with these companies or governments.

Sales and Marketing

RiceX has targeted four distinct product areas in which RiceX Bran and related products may be used as the primary ingredient. RiceX's key marketing strategy is to form strategic alliances with industry leaders in each of its target markets. This strategy will allow RiceX to leverage the research, marketing and distribution strengths of its partners in order to more economically and efficiently introduce and market products. RiceX has formed alliances, or has entered into negotiations to form alliances, in each of its target markets, which are nutraceuticals, functional food ingredients, performance feed and companion pet food supplements. RiceX continues to develop its rice bran oil marketing initiatives.

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RiceX's overall marketing plans in each of the target markets are discussed below.

Nutraceuticals

Nutraceuticals are food-derived substances with pharmaceutical-like properties, including vitamins and dietary supplements. RiceX Bran can be used as a nutraceutical to provide certain specific nutrients or food components (including antioxidants, oryzanols, Vitamin E, Vitamin B, and bran fiber) or to address specific health applications such as cardiovascular health, diabetes control, fighting free radicals and general nutritional supplementation. RiceX has sold RiceX Bran products as ingredients to consumer nutrition and healthcare companies, national nutritional retailers, and multi-level personal product marketers. However, there can be no assurance that such marketing efforts will be successful or that any of the proposed products will be developed in a commercially reasonable time or at all.

Functional Food Ingredients

RiceX Bran is a low cost, all natural food product that contains a unique combination of oil, protein, carbohydrates, vitamins, minerals, fibers, and antioxidants that can be used to enhance the nutritional value of popular consumer products. Foods that are ideally suited for the addition of RiceX Bran to their products include cereals, snack foods and breads. RiceX is marketing RiceX Bran to consumer food companies for use in already established products and for development of new products.
 
The functional food market in the United States is $16 billion and RiceX estimates that this represents more than a $35 to $45 million per year market share opportunity for RiceX. Premium ingredient manufacturers are in high demand and RiceX is strategically positioned to take advantage of this growing and sustainable market opportunity. RiceX believes that its proprietary technology and product patents represent valuable assets for achieving strategic leverage in this industry segment.

Performance Feed and Companion Pet Food Supplements

RiceX also markets RiceX Bran as a feed supplement for animals. RiceX Bran is used as an equine feed supplement and has proven to provide greater muscle mass, improved stamina, and hair-coat luster when added to a normal diet. Show and performance horses represent the premium end of the equine market and present a $12 to $15 million market share opportunity for RiceX's future revenue growth. During 2003, RiceX launched its own equine supplement label "Max E Glo". In 2004, RiceX entered into a distribution agreement with MannaPro, a national feed distributor. RiceX continued to hold numerous discussions with several major domestic equine feed manufacturers and distributors. However, there can be no assurance that these discussions will be successful.

Rice Bran Oils

Nutrient-rich oil made from RiceX Stabilized Rice Bran has a high flash point, which provides a long fry life and is not readily absorbed into food. The oil also maintains many of the nutritional benefits of whole rice bran products, making it ideally suited for healthy salad and cooking oils. RiceX holds a patent on the process for obtaining micronutrient enriched rice bran oil. There can be no assurance that any of RiceX's Stabilized Rice Bran Oil marketing efforts will be successful.

Marketing Methods

RiceX has an Executive Vice President of Sales and Marketing and two domestic sales representatives. In addition, RiceX has entered into agreements with PRODESA for Central America markets, and Kreglinger Europe for the United Kingdom and Benelux markets, for developing and marketing RiceX Bran products. RiceX also continues to work to develop additional significant alliances in efforts to increase its sales volume.

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Pursuant to the Stabilized Rice Bran Processing Sales and Marketing Agreement between Farmers' Rice Cooperative, or Farmers, a cooperative association organized under the California Food and Agriculture Code, and RiceX, dated May 1, 2002, Farmers has an exclusive license to use RiceX's rice bran processing equipment for production of stabilized rice bran for sale to a limited number of Farmers customers.

Customers

RiceX has in excess of 125 active customer accounts. For 2004, RiceX's major customers were Project Concern International, Natural Glo, NutraCea, MannaPro and PGP International. RiceX depended on these customers for approximately 50% of all sales revenue during 2004. Loss of any of these customers could have a material adverse effect on RiceX's business, financial condition and results of operations.

Supply and Manufacturing

RiceX purchases unstabilized rice bran from one major supplier, Farmers. Pursuant to RiceX's agreement with Farmers, RiceX's stabilization machinery is physically attached to Farmers' rice processing plants and the rice bran by-product is directly transferred to RiceX's machinery for stabilization without the need for shipping. The relationship with Farmers is symbiotic, as the rice manufacturer searches for raw rice bran marketing channels while RiceX has ready access to unstabilized bran. Farmers is currently RiceX's only supplier of unstabilized rice bran. RiceX is seeking additional relationships with rice processors, both in the United States and abroad as part of its overall business strategy. RiceX's production capacity currently stands at 1,500 tons per month. RiceX believes suitable alternative supply arrangements are readily available if needed, however, there can be no assurance that RiceX will be successful in securing additional supply agreements.

As required, RiceX ships RiceX Bran from its facility in California to its plant in Dillon, Montana for further processing into RiceX Solubles, Dextrinized Rice Bran and RiceX Fiber Complex. Current monthly production capacity is approximately 50 tons of RiceX Solubles, 50 tons of Dextrinized Rice Bran and 50 tons of RiceX Fiber Complex. Additional equipment could more than double production capacity. RiceX intends to acquire or construct an additional processing facility when and if the demand for RiceX Solubles, Dextrinized Rice Bran and RiceX Fiber Complex justifies expansion.

Every food product that RiceX manufactures is produced under published FDA and USDA regulations for "Good Manufacturing Practices." RiceX's General Manager oversees quality control and quality assurance testing. Product samples for each product code are analyzed for microbiological adherence to a predetermined set of product specifications and each lot is released only when it demonstrates its compliance with specifications.

Competition

RiceX competes with other companies attempting to stabilize rice bran, as well as companies producing other food ingredients and nutritional supplements. RiceX believes that its only significant competitor is Producer's Rice Mill. This competitor may have greater capital resources than RiceX; however, RiceX believe that it has more experience in the rice bran industry. However, there can be no assurance that RiceX will be able to compete successfully in the rice bran industry. RiceX believes that its major nutritional supplement competitors include producers of wheat bran and oat bran, particularly in the functional food ingredients market segment.
 
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Research and Development

Rice bran contains a wide variety of antioxidants, vitamins and other nutrients associated with good health and resistance to disease. RiceX has conducted a preliminary clinical evaluation that indicates RiceX products have efficacy in the nutritional management of certain conditions and diseases, such as diabetes mellitus and coronary vascular disease. Data from this study has been analyzed and the data supports the initiation of clinical trials. RiceX intends to vigorously conduct these trials and, if successful, will develop foods containing the active nutraceutical components of RiceX Bran to manufacture products targeted at specific conditions or suitable for the maintenance of general health and well-being. However, there can be no assurance that the results of additional clinical trials will prove successful or that RiceX will be able to develop additional new products.
 
RiceX’s expenditures for research and development for the years ended December 31, 2004 and 2003 totaled $224,000 and $226,000, respectively. RiceX expects to continue research and development expenditures to establish the scientific basis for health claims of existing products and to develop new products and applications.
 
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MANAGEMENT

Our directors, executive officers and key employees and their ages as of October 21, 2005 are as follows:
 
Name
 
Age
 
Position
Directors and Executive Officers:
  
 
  
 
Bradley D. Edson
  
46
  
Chief Executive Officer, President and Director
Todd C Crow
  
57
  
Chief Financial Officer
Ike E. Lynch
  
60
  
Chief Operating Officer
Margie D. Adelman
  
45
  
Secretary and Senior Vice President
David Bensol
  
50
  
Director
Eliot Drell
  
51
  
Director
James C. Lintzenich
  
51
  
Director
Edward L. McMillan
  
59
  
Director
Patricia McPeak
  
64
  
Director
Steven W. Saunders
  
50
  
Director
 
Biographical information for directors and executive officers:
 
Bradley D. Edson , has served as our Chief Executive Officer since October 2005 and as our President and as one of our directors since December 2004. Mr. Edson was formerly the Chairman and CEO of Vital Living Inc. (OTC BB: VTLV), a company that primarily developed and marketed nutraceuticals. Prior to Vital Living, Mr. Edson spent a decade developing a nationwide insurance agency focused on distribution channels for specialty products for the retail market. Prior to that, Mr. Edson was a former principal and officer of a NASD broker/dealer firm.

Todd C. Crow , has served as our Chief Financial Officer since October 2005. Mr. Crow has served as Vice President of Finance and Chief Financial Officer of The RiceX Company since November 1998, and as Secretary of The RiceX Company since January 1999. From September 1997 to November 1998, Mr. Crow was Controller of The RiceX Company and from May 1996 to September 1997, he was The RiceX Company’s Chief Financial Officer. Prior to joining The RiceX Company, Mr. Crow held senior financial positions with the Morning Star Group, an agri-business holding company, and Harter, Inc., a food-processing manufacturer.

Ike E. Lynch has served as our Chief Operating Officer since October 2005. Mr. Lynch also currently serves as Chief Operating Officer of The RiceX Company. From January 1997 to October 2005, Mr. Lynch served as Chief Executive Officer and Vice President of International Business Development and since January 1997, President and Chief Operating Officer of RiceX Nutrients, Inc. From 1966 through 1982, Mr. Lynch was employed by the H. J. Heinz Company in various management roles, culminating with the President and CEO position of the Hubinger Company, a subsidiary of Heinz. In 1982, Mr. Lynch left Heinz to become President and CEO of Dawn Enterprises LLC, specializing in Ethanol production and marketing. Mr. Lynch left Dawn Enterprises in 1989 to form Centennial Foods, Incorporated, where he served as President and Chief Executive Officer until the acquisition of Centennial Foods by The RiceX Company in 1997.

Margie D. Adelman , was appointed Senior Vice President in January 2005 and Secretary of NutraCea in February 2005. From 2000 to 2004 Ms. Adelman owned and operated Adelman Communications a full service public relations firm based in Boca Raton, Florida. From 1994 to 2000 Ms. Adelman was President of TransMedia Group, the largest public relations firm in Florida. Ms. Adelman holds a doctorate in Naturopathic Medicine from the Clayton School of Natural Medicine.

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David Bensol, has served as one of our directors since March 2005. Mr. Bensol currently is a management consultant. Mr. Bensol was the former CEO of Critical Home Care, which recently merged with Arcadia Resources, Inc. (OTC BB: ACDI). Mr. Bensol was the Executive Vice President and Director of Arcadia Resources from May 2004 until his resignation from those positions in December 2004. In 2000, Mr. Bensol founded what eventually became Critical Home Care, through a series of acquisitions and mergers. From 1979 to 1999 Mr. Bensol founded several companies which became successful companies in the areas of home medical equipment providers, acute care pharmacy providers and specialty support surface providers. Mr. Bensol became a registered pharmacist in 1979.

Dr. Eliot Drell , has been on of our directors since February 2004. Dr. Drell has been the Chief of Gastroenterology at Mercy Hospital, Folsom, California since 1984. Dr. Drell’s past medical appointments including acting as a Director of the Endoscopic unit at Mercy Hospital of Folsom, California and Marshall Hospital; Chief of Medicine at Mercy Hospital; Member of the Medical Executive Committee at both Mercy Hospital and Marshall Hospital; and Assistant Professor at U.C. Davis Medical Center. Dr. Drell is an active speaker and lecturer for major pharmaceutical companies.

James C. Lintzenich , has served as one of our directors since October 2005. Mr. Lintzenich has been a director of The RiceX Company since June 2003. Mr. Lintzenich has been a management consult since April 2001 . From August 2000 to April 2001 Mr. Lintzenich served as President and Chief Operating Officer of SLM Corporation (Sallie Mae), an educational loan institution. From December 1982 to July 2000, Mr. Lintzenich held various senior management and financial positions including Chief Executive Officer and Chief Financial Officer of USA Group, Inc., a guarantor and servicer of educational loans. Mr. Lintzenich currently serves on the Board of Directors of the Student Loan Marketing Association (an SLM Corp subsidiary) and the Lumina Foundation for Education.

Edward L. McMillan , has served as one of our directors since October 2005. From January 2000 to present Mr. McMillan owns and manages McMillan LLC., a transaction consulting firm which provides strategic consulting services and facilitates mergers and/or acquisitions predominantly to food and agribusiness industry sectors. From July 2004 to October 2005, Mr. McMillan was a director of The RiceX Company. From June 1969 to December 1987 he was with Ralston Purina, Inc. and Purina Mills, Inc. where he held various senior level management positions including marketing, strategic planning, business development, product research, and business segment management. From January 1988 to March 1996, McMillan was President and CEO of Purina Mills, Inc. From August 1996 to July 1997, McMillan presented a graduate seminar at Purdue University. From August 1997 to April 1999 he was with Agri Business Group, Inc. Mr. McMillan currently serves on the boards of directors of Balchem, Inc. (AMEX:BCP); Durvet, Inc.; Newco Enterprises, Inc.; CHB LLC.; and Hintzsche, Inc. Mr. McMillan also serves as Chair of the University of Illinois Research Park, LLC and the University of Illinois Alumni Association.

Patricia McPeak , founder, has served as one of our directors since December 2001. From December 2001 to October 2005, Ms. McPeak served as our Chief Executive Office and Board Chairman. She was the founder of NutraStar Technologies Incorporated and was the Chief Executive Officer, President and a director of NutraStar Technologies Incorporated from its formation in February 2000 until the reorganization transaction with NutraCea. From May 1989 until February 2000 she was the President and a director of The RiceX Company, which she co-founded. From 1981 to 1989, Ms. McPeak was an executive officer of Brady International, Inc. a company engaged in providing stabilized rice bran, which she also co-founded. Ms. McPeak has extensive experience in the field of protein and ingredient production, having served as an executive in the industry for 25 years.

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Steven W. Saunders , has served as one of our directors since October 2005. He was a director of The RiceX Company from August 1998 to October 2005. Mr. Saunders has been President of Saunders Construction, Inc., a commercial construction firm, since February 7, 1991, and President of Warwick Corporation, a business-consulting firm.

All directors are elected annually and serve until the next annual meeting of shareholders or until the election and qualification of their successors. Each of our directors has served continuously since the date indicated above. Directors are elected annually at the meeting of the shareholders to serve a term of one year or until the next annual meeting of shareholders unless they die, resign or are removed. The remaining directors, though less than a quorum, may fill vacancies occurring on the Board of Directors and persons elected to fill vacancies serve until the next annual meeting of shareholders unless they die, resign or are removed. The Board of Directors has not designated a separate Audit Committee. Drs. Drell and Messrs. Lintzenich, Bensol and McMillan are considered independent directors according to Rule 4200(a)(15) of the NASD’s listing standards. The Board of Directors has determined that Mr. Lintzenich meets the requirements of an audit committee financial expert.

All executive officers serve at the discretion of our board of directors. There are no family relationships between any of our directors or executive officers.
 
Our success, if any, will be dependent to a significant extent upon certain key management employees, including Messrs. Edson, Crow and Lynch and Mesdames McPeak and Adelman. We have entered into employment agreements with them as described under caption “Employment Contracts.”

Director Compensation

NutraCea provides compensation to its directors for serving in such capacity in the form of grants of common stock from our 2003 Stock Compensation Plan. NutraCea provides 35,000 shares of restricted common stock to each board member, whether an employee or non-employee, for each year of service on the board plus reimbursement of expenses.

Common Stock Grants to Directors in the Year Ended December 31, 2004
 
Name
 
Shares Acquired
 
Value Realized
Patricia McPeak
 
35,000
 
$53,200
John Howell *
 
35,000
 
$53,200
Eliot Drell
 
35,000
 
$53,200
Ernie Bodai, MD **
 
35,000
 
$53,200
________________    
* Mr. Howell resigned as President and Director on July 20, 2004.
** Mr. Bodai resigned as Director on September 28, 2005.
 
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Executive Compensation

The following Summary Compensation Table shows the aggregate compensation paid or accrued by NutraCea during fiscal years 2004, 2003 and 2002 to (i) each person who served as NutraCea’s Chief Executive Officer during 2004, and (ii) the four most highly compensated officers other than the Chief Executive Officer who were serving as executive officers at the end of 2004 and whose total annual salary and bonus in such year exceeded $100,000 (of which there was only one such persons), and (iii) up to two additional individuals for whom disclosures would have been provided in this table but for the fact that such persons were not serving as executive officers as of the end of fiscal 2004 (collectively with the Chief Executive Officer, the “Named Executive Officers”).

       
Summary Compensation Table
     
       
for Years Ended December 31, 2004, 2003 and 2002
     
       
Annual Compensation
 
Long-Term Compensation
     
           
Awards
     
                               
Name and
             
Other
annual
 
Restricted
stock
 
Securities
underlying
 
All
other
 
principal position
 
Year
 
Salary
 
Bonus
 
compensation
 
awards
 
options
 
compensation
 
Bradley Edson,
   
2004
 
$
2,000
   
—
   
—
   
—
   
6,000,000
   
125,000
(2) 
Chief Executive
   
2003
   
—
   
—
   
—
   
—
   
—
   
—
 
Officer(1)
   
2002
   
—
   
—
   
—
   
—
   
—
   
—
 
                                             
Patricia McPeak,
   
2004
 
$
150,000
 
$
100,000
 
$
85,096
(5)   
$
53,200
   
2,000,000
 
$
8,360,000
(3)
Chief Executive
   
2003
   
150,000
   
100,000
   
12,000
   
—
   
—
   
—
 
Officer(4)
   
2002
   
150,000
   
100,000
   
12,000
   
—
   
—
   
—
 
                                             
John Howell,
   
2004
   
106,412
   
80,000
   
4,154
   
—
   
—
   
—
 
President(6)
   
2003
   
120,000
   
101,284
   
6,000
   
—
   
1,000,000
   
—
 
     
2002
   
—
   
—
   
—
   
—
   
—
   
—
 

(1)
Mr. Edson became President of the Registrant on December 17, 2004 and Chief Executive Officer of the Registrant on October 4, 2005.
(2)
Consists of $125,000 paid as consulting fees prior to Mr. Edson becoming President.
(3)
Represents the market value at time of issuance of 5,500,000 shares of NutraCea common stock issued to Ms. McPeak for services rendered and stock reimbursements.
(4)
Ms. McPeak resigned as Chief Executive Officer on October 4, 2005.
(5)
Includes $73,096 paid by NutraCea to purchase an automobile for Ms. McPeak.
(6)
Mr. Howell resigned from NutraCea on July 20, 2004.

Option Grants in Last Fiscal Year

NutraCea’ Board of Directors adopted the 2003 Stock Compensation Plan, or the 2003 Plan, on October 31, 2003. Under the terms of the 2003 Plan, NutraCea may grant up to 10,000,000 warrants, options, restricted common or preferred stock, or unrestricted common or preferred stock to officers, directors, employees or consultants providing services to NutraCea on such terms as are determined by the NutraCea board of directors. The 2003 Plan provides that the NutraCea board of directors may also permit officers, directors, employees or consultants to have their bonuses and/or consulting fees payable in warrants, restricted common stock, unrestricted common stock and other awards, or any combination thereof. In addition, NutraCea has granted options to certain officers, directors and employees outside of the 2003 Plan.

51
 
The following table summarizes the options granted by NutraCea to its Named Executive Officers during the year ended December 31, 2004. None of the options granted to the Named Executive Officers during the year ended December 31, 2004 were granted pursuant to the 2003 Plan.

   
Individual Grants
 
Name
 
Number of Securities Underlying Options
Granted
 
% of Total Options
Granted to
Employees in Fiscal Year
 
Exercise Price
Per Share
 
 
 
 
Expiration
Date
 
                   
Bradley Edson(1)
   
6,000,000
   
75%
 
 
$0.30
   
12/17/14
 
Patricia McPeak (2)
   
2,000,000
   
25%
 
 
$0.30
   
12/14/14
 
John Howell
   
—
   
—
   
—
   
—
 
 
 
(1)
Consists of a warrant to purchase 6,000,000 shares of NutraCea common stock. This warrant is fully vested and exercisable.
 
(2)
Consists of a warrant to purchase 2,000,000 shares of NutraCea common stock. This warrant is fully vested and exercisable.

Aggregated Option/SAR Exercises In Last Fiscal Year and Fiscal Year End Option/SAR Values

The following table sets forth information regarding options and warrants to purchase NutraCea common stock held by the Named Executive Officers as of December 31, 2004.

   
Shares Acquired  
 
Value
 
Number of Securities Underlying Unexercised Options at 12/31/04
 
Value of Unexercised In-the-Money Options at 12/31/04 (1)
 
Name
 
on Exercise
 
Realized
 
Exercisable
 
Unexercisable
 
Exercisable
 
Unexercisable
 
Bradley Edson
   
—
   
—
   
6,000,000
   
—
 
$
780,000
   
—
 
Patricia McPeak
   
—
   
—
   
2,002,306
   
576
 
$
260,000
   
—
 
John Howell
   
500,000
 
$
454,500
   
—
   
—
   
—
   
—
 

(1)

Employment Agreements

On December 17, 2004, NutraCea entered into an employment agreement that expires December 31, 2007 with its current President and Chief Executive Officer, Bradley D. Edson, pursuant to which NutraCea is to pay Mr. Edson a base salary of $50,000 in year one; a base salary of $150,000 in year two; and a base salary of $250,000 in year three. The agreement also provides that Mr. Edson is entitled to an annual incentive bonus based upon performance and to be provided a car allowance of $600 per month. The incentive bonus is payable annually within 10 days of the completion of NutraCea’s annual independent audit. The bonus is one percent of NutraCea’s “Gross Sales over $25,000,000,” but only if NutraCea reports a positive EBITDA for the period. The bonus amount is limited to a maximum of $750,000 in any calendar year. In addition, Mr. Edson was issued warrants to purchase 6,000,000 shares of NutraCea’s common stock at an exercise price of $0.30 per share. The warrants are immediately exercisable and expire ten years from the date of issuance.

52
 
On January 25, 2005, NutraCea entered into a three year employment agreement with Margie D. Adelman, NutraCea’s Senior Vice President and Secretary, pursuant to which NutraCea is to pay Ms. Adelman a base salary of $150,000 per year. The agreement also provides that Ms. Adelman is entitled to a one-time initial bonus of $25,000 and will be eligible for future incentive bonuses based solely on the discretion of NutraCea’s Chief Executive Officer or President and the approval of NutraCea’s Compensation Committee. Ms. Adelman was issued a warrant to purchase 1,000,000 shares of NutraCea’s common stock at an exercise price of $0.30 per share, 500,000 shares of which vested upon signing and 500,000 shares of which will vest on January 25, 2006, subject to forfeiture under certain terms and conditions. In addition, Ms Adelman was issued warrants to purchase 1,000,000 shares of NutraCea’s common stock at an exercise price of $0.30 that will vest upon the achievement of NutraCea obtaining “Gross Sales over $25,000,000” and NutraCea reporting a positive EBITDA for the period. All warrants expire ten years from the date of issuance.

In September 2005, we entered into a First Amendment to employment agreement with Todd C. Crow, pursuant to which we assumed the employment agreement between Mr. Crow and The RiceX Company. The employment agreement, as amended, provides that Mr. Crow will serve as   Chief Financial Officer of NutraCea and the RiceX Company. Mr. Crow’s employment agreement, as amended, provides that Mr. Crow will receive an annual base salary of $150,000, which salary will be reviewed annually and be adjusted to compensate for cost of living adjustments in the Sacramento metropolitan area. The agreement terminates on October 4, 2008. The term will be automatically extended for an additional one-year term unless either party delivers notice of election not to extend the employment at least 90 days prior to the expiration of the initial term. Mr. Crow's employment may be terminated prior to the expiration of the agreement by the mutual written agreement of the parties or in the event of Mr. Crow's disability. For the purposes of the employment agreement, "disability" means Mr. Crow's inability, due to physical or mental impairment, to perform his duties and obligations, despite reasonable accommodation by us, for a period exceeding three months. Mr. Crow's employment may also terminated in the event of his death, notice by us of termination for cause (as defined in the agreement), or written notice by us of termination without cause, upon fourteen (14) days notice. Mr. Crow is entitled to compensation for early termination. If Mr. Crow is terminated without cause, we will pay to Mr. Crow, as liquidated damages and in lieu of any and all other claims which Mr. Crow may have against us, the amount equal to Mr. Crow's monthly base salary multiplied by the number of months remaining in the term of this agreement, or a payment amount equal to one year of Mr. Crow's base salary, whichever is greater. If Mr. Crow is terminated as the result of a change in control transaction (as defined in the employment agreement, as amended) and Mr. Crow is not employed in the same capacity or being paid the same base salary as he was employed with us, then Mr. Crow will receive a severance payment equal to two (2) years of Mr. Crow’s Base Salary, or the balance remaining to be paid under the terms of the agreement, whichever is greater.

In September 2005, we entered into a First Amendment to employment agreement with Ike E. Lynch, pursuant to which we assumed the employment agreement between Mr. Lynch and The RiceX Company. The employment agreement, as amended, provides that Mr. Lynch will serve as Chief Operating Officer of NutraCea, The RiceX Company and RiceX Nutrients, Inc., a subsidiary of The RiceX Company. The employment agreement, as amended, provides that Mr. Lynch will receive an annual base salary of $150,000, which salary will be reviewed annually and be adjusted to compensate for cost of living adjustments in the Sacramento metropolitan area. The agreement terminates on October 4, 2008. The term will be automatically extended for an additional one-year term unless either party delivers notice of election not to extend the employment at least 90 days prior to the expiration of the initial term. Mr. Lynch's employment may be terminated prior to the expiration of the agreement by the mutual written agreement of the parties or in the event of Mr. Lynch's disability. For the purposes of the employment agreement, "disability" means Mr. Lynch's inability, due to physical or mental impairment, to perform his duties and obligations, despite reasonable accommodation by us, for a period exceeding three months. Mr. Lynch's employment may also terminated in the event of his death, notice by us of termination for cause (as defined in the agreement), or written notice by us of termination without cause, upon fourteen (14) days notice. Mr. Lynch is entitled to compensation for early termination. If Mr. Lynch is terminated without cause, we will pay to Mr. Lynch, as liquidated damages and in lieu of any and all other claims which Mr. Lynch may have against us, the amount equal to Mr. Lynch's monthly base salary multiplied by the number of months remaining in the term of this agreement, or a payment amount equal to one year of Mr. Lynch's base salary, whichever is greater. If Mr. Lynch is terminated as the result of a change in control transaction (as defined in the employment agreement, as amended) and Mr. Lynch is not employed in the same capacity or being paid the same base salary as he was employed with us, then Mr. Lynch will receive a severance payment equal to one hundred eighty thousand dollars ($180,000).

53
 
On December 10, 2004, Patricia McPeak entered into an employment agreement with us. The employment agreement has a term of three years and provides that Ms. McPeak will be paid a base salary of $150,000 per year for the first two years of the term and $250,000 for the third year of the term. The agreement also provides that Ms. McPeak is entitled to an annual incentive bonus based upon performance. The incentive bonus is payable annually within 10 days of the completion of NutraCea’s annual independent audit. The bonus is one percent of our “Gross Sales over $25,000,000,” but only if we report a positive EBITDA for the period. The bonus amount is limited to a maximum of $750,000 in any calendar year. In addition, we issued to Ms. McPeak a warrant to purchase 2,000,000 shares of our common stock at an exercise price of $0.30 per share. The warrant is immediately exercisable and expires ten years from the date of issuance.
 
Limitation of Liability and Indemnification Matters

NutraCea’s Articles of Incorporation provide that it will indemnify its officers and directors, employees and agents and former officers, directors, employees and agents unless their conduct is finally adjudged as involving intentional misconduct, fraud or a knowing violation of the law and were material to the cause of action. This indemnification includes expenses (including attorneys’ fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by these individuals in connection with such action, suit, or proceeding, including any appeal thereof, subject to the qualifications contained in California law as it now exists. Expenses (including attorneys’ fees) incurred in defending a civil or criminal action, suit, or proceeding will be paid by NutraCea in advance of the final disposition of such action, suit, or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount, unless it shall ultimately be determined that he or she is entitled to be indemnified by NutraCea as authorized in the Articles of Incorporation. This indemnification will continue as to a person who has ceased to be a director, officer, employee or agent, and will benefit their heirs, executors, and administrators. These indemnification rights are not deemed exclusive of any other rights to which any such person may otherwise be entitled apart from the Articles of Incorporation. California law generally provides that a corporation shall have the power to indemnify persons if they acted in good faith in a manner reasonably believed to be in, or not opposed to, the best interests of NutraCea and, with respect to any criminal action or proceeding, had no reasonable cause to believe the conduct was unlawful. In the event any such person is judged liable for negligence or misconduct, this indemnification will apply only if approved by the court in which the action was pending. Any other indemnification shall be made only after the determination by NutraCea’s board of directors (excluding any directors who were party to such action), by independent legal counsel in a written opinion, or by a majority vote of shareholders (excluding any shareholders who were parties to such action) to provide such indemnification.

54
 
NutraCea carries Officers and Directors insurance. The aggregate limit of liability for the policy period (inclusive of costs of defense) is $3,000,000. The policy period ends on October 1, 2006.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of NutraCea pursuant to the foregoing provisions, or otherwise, NutraCea has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.


CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Loans from Officer and Related Parties

At December 31, 2002, NutraCea owed Ms. Patricia McPeak, then Chief Executive Officer of NutraCea, $175,800 on a demand note payable bearing interest at 10%. NutraCea executed an additional demand note payable in the amount of $20,422, bearing interest at 10%, to her during 2003. Additionally, Ms. McPeak made short-term advances to NutraCea amounting to $210,000 during 2003. All of this debt was repaid prior to December 31, 2003. Cash payments retired $258,335 of the debt, while $147,887 was retired by conversion to 344,956 shares of common stock.

In November 2004 the Board of Directors resolved to purchase a new automobile from Patricia McPeak in exchange for her waiving a monthly car allowance provided in her employment agreement. At December 31, 2004, NutraCea booked the purchase price of this automobile ($73,096) as a payable to a related party.

Private Placement Transaction

In October 2005, we sold approximately 7,850 shares of our Series B preferred stock at a price of $1,000.00 per share, and warrants to purchase an aggregate of 7,850,000 shares of our common stock with an exercise price of $0.70 per share, to a small number of sophisticated investors in a private placement transactions. Our Series B preferred stock can be converted to shares of our common stock at a conversion rate of 2,000 shares of common stock for each share of Series B preferred Stock. Gross proceeds from the offering were approximately $7.85 million. The investors included Leonardo, L.P., funds related to Pequot Capital Management, Inc., The Pinnacle Fund, L.P., funds related to Enable Partners, and funds related to Xerion Partners, which purchased 2,500, 1,750, 1,000, 750 and 700 shares of Series B preferred stock, respectively. Information concerning the beneficial ownership of our securities by such persons is set forth below under the heading “Security Ownership of Certain Beneficial Owners and Management.”

55

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
The following table sets forth certain information regarding beneficial ownership of our common stock and Series B preferred stock as of October 21, 2005, by (i) each person or entity who is known by us to own beneficially more than 5% of the outstanding shares of that class of our stock, (ii) each of our directors, (iii) each of the Named Executive Officers, and (iv) all directors and executive officers as a group. We have authorized Series A preferred stock, but none of these shares are outstanding.
 
The table is based on information provided to us or filed with the Securities and Exchange Commission (“SEC”) by our directors, executive officers and principal shareholders. Beneficial ownership is determined in accordance with the rules of the SEC, and includes voting and investment power with respect to shares. Shares of common stock issuable upon conversion of Series B Preferred Stock or issuable upon exercise of options and warrants that are currently exercisable or are exercisable within 60 days after October 21, 2005, are deemed outstanding for purposes of computing the percentage ownership of the person holding such options or warrants, but are not deemed outstanding for computing the percentage of any other shareholder in the first four columns. The shares of common stock issuable upon conversion of Series B Preferred Stock are deemed outstanding for the purposes of computing the percentage ownership of all persons in the last two columns. Unless otherwise indicated, the address for each shareholder listed in the following table is c/o NutraCea, 1261 Hawk’s Flight Court, El Dorado Hills, CA 95762.  

 
 
Shares of Common Stock
Beneficially Owned
 
Shares of Series B
Preferred
Stock Beneficially Owned
 
Shares of Common Stock
Beneficially Owned
(Assuming Preferred
Stock Conversion)
 
Name and Address of Beneficial Owner
 
Number
(1)
 
Percentage
(1)
 
Number
(2)
 
Percentage
(2)
 
Number
(3)
 
Percentage
(3)
 
                                       
Patricia McPeak(4)
   
14,043,557
   
19.86
%
 
-
   
*
%
 
14,043,557
   
17.02
%
                                       
Leonardo, L.P.(5)
245 Park Avenue, 26 th Floor
New York, NY 10167
   
7,500,000
   
10.09
   
2,500
   
31.95
   
7,500,000
   
9.09
 
                                       
Bradley D. Edson(6)
   
6,115,000
   
8.40
   
-
   
*
   
6,115,000
   
7.41
 
                                       
Monsanto(7)
800 N. Lindbergh
St. Louis, MO 63167
   
5,498,818
   
8.23
   
-
   
*
   
5,498,818
   
6.66
 
                                       
Funds related to Pequot Capital Management, Inc.(8)
500 Myala Farm Road
Westport, CT 06880
   
5,250,000
   
7.29
   
1,750
   
22.29
   
5,250,000
   
6.36
 
                                       
The Pinnacle Fund, L.P.(9)
   
3,000,000
   
4.30
   
1,000
   
12.74
   
3,000,000
   
3.64
 
                                       
James C. Lintzenich(10)
   
2,883,019
   
4.22
   
-
   
*
   
2,883,019
   
3.49
 
                                       
Funds related to Enable Partners(11)
One Ferry Building, Suite 255
San Francisco, CA 94111
   
2,250,000
   
3.26
   
750
   
9.55
   
2,250,000
   
2.73
 

56
 
Funds related to Xerion Partners Equity(12)
   
2,100,000
   
3.05
   
700
   
8.92
   
2,100,000
   
2.54
 
                                       
Steven W. Saunders(13)
   
1,028,788
   
1.53
   
-
   
*
   
1,028,788
   
1.25
 
                                       
Eliot Drell(14)
   
946,655
   
1.41
   
-
   
*
   
946,655
   
1.15
 
                                       
John Howell(15)
   
790,000
   
1.18
   
-
   
*
   
790,000
   
*
 
                                       
Edward L. McMillan(16)
   
158,538
   
*
   
-
   
*
   
158,538
   
*
 
                                       
David Bensol
   
35,000
   
*
   
-
   
*
   
35,000
   
*
 
                                       
All directors and executive officers as a group (10 persons)(17)
   
28,727,466
   
35.11
               
28,727,466
   
28.58
 
 
*
less than 1%
 
(1)
Applicable percentage of ownership is based on 66,815,055 shares of our common stock outstanding as of October 21, 2005, together with applicable options and warrants for such shareholder exercisable within 60 days of October 21, 2005.
 
(2)
Applicable percentage of ownership is based on 7,850 shares of Series B preferred stock outstanding as of October 21, 2005.
 
(3)
Applicable percentage of ownership is based on 66,815,055 shares of our capital stock outstanding as of October 21, 2005, 15,700,000 shares of our capital stock issuable upon conversion of all of the Series B Convertible Preferred Stock outstanding as of October 21, 2005, together with applicable options or warrants for such shareholder exercisable within 60 days of October 21, 2005.
 
(4)
Includes 8,687,202 shares of common stock and 2,002,882 shares issuable upon the exercies of options and warrants. Also includes 1,311,899 shares owned and 1,887,975 shares issuable upon exercise of options held by reporting person’s spouse. Also includes 153,598 shares held by a trust controlled by the reporting person and her spouse. The reporting person disclaims beneficial ownership with regard to all shares owned by her spouse.
 
(5)
Includes 2,500,000 shares issuable upon exercise of warrants and 5,000,000 shares issuable upon conversion of Series B Convertible Preferred Stock.  Leonardo Capital Management Inc. ("LCMI") is the sole general partner of Leonardo, L.P. Andelo, Gordon & Co., L.P. ("Angelo, Gordon") is the sole director of LCMI. John M. Angelo and Michael L. Gordon are the principal executive officers of Angelo, Gordon. Each of Angelo, Gordon and Messers. Angelo and Gordon disclaim beneficial ownership of the shares held by Leonardo, L.P.
 
(6)
Includes 6,000,000 shares issuable upon exercise of warrants.
 
(7)
The natural person who has voting and dispositive power for the shares held by the reporting person is Charles Burson.
 
(8)
Shares beneficially owned by Pequot Capital Management, Inc. represent Shares of common stock underlying Series B convertible preferred, of which 2,062,000 shares are held of record by Pequot Scout Fund, L.P. and 1,438,000 shares are held of record by Pequot Mariner Master Fund L.P.. In addition, represents shares of common stock underlying warrants immediately exercisable of which 1,031,000 shares are held of record by Pequot Scout Fund L.P. and 719,000 shares are held of record by Pequot Mariner Master Fund, L.P. Pequot Capital Management, Inc, which is the Investment Manager/Advisor to the above named funds exercises sole dispositive, investment and voting power for all the shares. Arthur J. Samberg is the sole shareholder of Pequot Capital Management, Inc. and disclaims beneficial ownership of the shares except for his pecuniary interest.
 
(9)
Shares beneficially owned by The Pinnacle Fund, L.P. represent 2,000,000 shares of common stock underlying Series B convertible preferred stock and 1,000,000 shares of common stock underlying warrants immediately exercisable. Pinnacle Advisers, L.P., which is the investment advisor and general partner of The Pinnacle Fund, L.P., has sole dispositive, investment and voting power for all the shares. Pinnacle Fund Management, L.L.C is the general partner of Pinnacle Advisors, L.P. Barry M. Kitt is the sole member of Pinnacle Fund Management, L.L.C. and disclaims beneficial ownership of the shares except for his pecuniary interest. The address for The Pinnacle Fund, L.P. is 4965 Preston Park Blvd., Suite 240, Plano, Texas 75093.
 
(10)
Includes 1,396,411 shares and an additional 1,371,411 shares issuable upon exercise of a warrant held b y Intermark Group Holdings, LLC of which the filing person is the owner. Also includes 115,197 shares issuable upon exercise of options held by the reporting person.
 
(11)
Shares beneficially owned by Enable Partners represent shares of common stock underlying Series B convertible preferred stock, of which 1,200,000 shares are held of record by Enable Growth Partners LP and 300,000 shares are held of record by Enable Opportunity Partners LP. In addition, represents shares of common stock underlying warrants immediately exercisable of which 600,000 shares are hold of record by Enable Growth Partners LP and 150,000 shares are held of record by Enable Opportunity Partners LP. The natural person who has voting and dispositive power for the shares held by both funds named above is Mitch Levine, who is Managing Partner of both funds. Mr. Levine disclaims beneficial ownership of the shares except for his pecuniary interest.
 
57
 
(12)
Shares beneficially owned by Xerion Partners Equity represent shares of common stock underlying Series B convertible preferred stock, of which 700,000 shares are held of record by Xerion Partners I LLC and 700,000 shares are held of record by Xerion Partners II Master Fund Limited. In addition, represents shares of common stock underlying warrants immediately exercisable of which 350,000 shares are held of record by Xerion Partners I LLC and 350,000 shares are hold of record by Xerion Partners II Master Fund Limited. The natural persons who have voting and dispositive power for the shares held by Xerion Partners I LLC are S. Donald Sussman and Daniel J. Arbess. Messrs. Sussman and Arbess disclaim beneficial ownership of the shares except for their pecuniary interests. The natural person who has voting and dispositive power for the shares held by Xerion Partners II Master Fund Limited is Daniel J. Arbess. Mr. Arbess disclaims beneficial ownership of the shares except for his pecuniary interest. The address for Xerion Partners I LLC is Two American Lane, Greenwich, Connecticut 06836. The address for Xerion Partners II Master Fund Limited is 450 Park Avenue, New York, New York 10022.
 
(13)
Includes 394,396 shares issuable upon exercise of options.
 
(14)
Includes 252,141 shares issuable upon exercise of options and warrants. Also includes 304,282 shares owned and 164,987 shares issuable under options or warrants exercisable by Drell-Pecha Partnership of which the reporting person is a partner.
 
(15)
The reporting person resigned as the Chief Executive Officer of NutraCea on July 20, 2004. Share holdings are as of December 31, 2004.
 
(16)
Includes 140,798 shares issuable upon exercise of options and warrants.
 
(17)
Includes an aggregate of 15,497,077 shares issuable upon exercise of options and warrants.

58

DESCRIPTION OF SECURITIES


Our authorized capital stock consists of 200,000,000 shares of common stock, no par value, and 20,000,000 shares of Preferred Stock, no par value, of which 3,000,000 shares are designated Series A Preferred Stock and 25,000 shares are designated Series B Preferred Stock. As of October 21, 2005, there were 66,891,667 shares of common stock outstanding, no shares of Series A Preferred Stock outstanding and 7,850 shares of Series B Preferred Stock outstanding.

Common Stock

Holders of NutraCea common stock are entitled to receive ratably dividends when, as, and if declared by NutraCea’s board of directors out of funds legally available therefor. Upon the liquidation, dissolution, or winding up of NutraCea, the holders of the common stock are entitled to receive ratably the net assets of NutraCea available after the payment of all debts and other liabilities and subject to the prior rights of outstanding NutraCea preferred shares, if any. However, there are no assurances that upon any such liquidation or dissolution, there will be any net assets to distribute to the holders of NutraCea common stock.

The holders of NutraCea common stock are entitled to one vote for each share held on all matters submitted to a vote of NutraCea shareholders. Under certain circumstances, California law permits the holders of NutraCea common stock to cumulate their votes for the election of directors, in which case holders of less than a majority of the outstanding shares of NutraCea common stock could elect one or more of NutraCea’s directors. Holders of NutraCea common stock have no preemptive, subscription, or redemption rights. The outstanding shares of NutraCea common stock are fully paid and nonassessable. The rights and privileges of holders of NutraCea common stock are subject to, and may be adversely affected by, the rights of holders of shares of NutraCea preferred stock that NutraCea may designate and issue in the future.

Preferred Stock

NutraCea’s board of directors is authorized to issue preferred stock in one or more series and to fix the rights, preferences, privileges, qualifications, limitations and restrictions thereof, including dividend rights and rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series or the designation of such series, without any vote or action by NutraCea’s shareholders. Any preferred stock to be issued could rank prior to the NutraCea common stock with respect to dividend rights and rights on liquidation. NutraCea’s board of directors, without shareholder approval, may issue preferred stock with voting and conversion rights which could adversely affect the voting power of holders of NutraCea common stock and discourage, delay or prevent a change in control of NutraCea.

Series A Preferred Stock

We have authorized a total of 3,000,000 shares of Series A Preferred Stock. No shares of Series A Preferred Stock are outstanding.

Series B Preferred Stock
 
We have authorized a total of 25,000 shares of Series B preferred stock, 7,850 of which are issued and outstanding.

59
 
Voting
 
Series B preferred stock shall not be entitled to vote unless required by law or unless we take certain actions, which actions will require the affirmative vote of the holders of a majority of the outstanding shares of Series B preferred stock. These actions include, among other things, amending our Certificate of Determination, Rights and Privileges of Series B preferred stock, authorizing or creating any capital stock senior to, or on parity with, the Series B preferred stock, altering the powers, preferences or rights of the Series B preferred stock, issuing additional shares of Series B preferred stock and incurring certain debt.
 
Conversion
 
Each share of Series B preferred stock is convertible into the number of shares of our common stock equal to $1,000.00 divided by the conversion price, which is currently $0.50. The conversion price is subject to anti-dilution protection if we issue our common stock at prices less than the then current conversion price and for stock splits, stock dividends and other similar transactions.

Liquidation Preference
 
Upon occurrence of (1) our liquidation, (2) a merger or consolidation involving us where our existing shareholders do not retain more than 50% of the voting power in us, (3) a sale of all or substantially all of our assets or (4) a tender offer or other business combination involving us where our existing shareholders do not retain more than 50% of the voting power in us, each share of Series B preferred stock will be entitled to receive in preference to holders of our common stock an amount equal to $1,000, plus any accrued but unpaid dividends, if any. After receiving this preference, the holders of Series B preferred stock will not be entitled to any further distribution of our assets.

Transfer Agent
 
American Stock Transfer & Trust Company, New York, New York, serves as transfer agent for the shares of common stock.

60

SELLING SECURITY HOLDERS
 
The table below lists the selling shareholders and other information regarding the beneficial ownership of the common stock by each of the selling shareholders. The first column lists the name of each selling shareholder. The second column lists the number of shares of common stock beneficially owned by each selling shareholder as of October 21, 2005. The third column lists the number of shares of common stock that may be resold under this prospectus. The fourth and fifth columns list the number of shares of common stock owned and the percentage of common stock owned after the resale of the common stock registered under this prospectus. The total number of shares of our common stock outstanding as of October 21, 2005 was 66,891,667. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission, and includes voting and investment power with respect to such shares. Shares of common stock issuable upon conversion of preferred stock and shares of common stock subject to options or warrants that are currently exercisable or exercisable within 60 days after October 21, 2005 are deemed to be beneficially owned by the person holding such options for the purpose of computing the percentage ownership of such person but are not treated as outstanding for the purpose of computing the percentage ownership of any other shareholder.

   
Common Shares
Beneficially Owned
 
Common Shares
Offered by this
 
Common Shares
Beneficially Owned
After Offering
 
Name of Selling Shareholder
 
Prior to Offering
 
Prospectus
 
Number
 
Percentage
 
     _____________________              
Leonardo, L.P.
   
7,500,000
   
7,500,000
   
—
   
 
*
Pequot Capital Management, Inc.
   
5,250,000
   
5,250,000
   
—
   
 
* 
The Pinnacle Fund, L.P.
   
3,000,000
   
3,000,000
   
—
   
 
* 
Enable Growth Partners, L.P.
   
1,800,000
   
1,800,000
   
—
   
 
* 
SDS Capital Group SPC, Ltd.
   
1,500,000
   
1,500,000
   
—
   
 
* 
Xerion Partners II Master Fund Limited
   
1,050,000
   
1,050,000
   
—
   
 
* 
Xerion Partners I LLC
   
1,050,000
   
1,050,000
   
—
   
 
* 
Richard Gonda     1,000,000      1,000,000     —       * 
Nite Capital, L.P.
   
900,000
   
900,000
   
—
   
 
* 
Halpern Capital, Inc.
   
879,200
   
879,200
   
—
   
 
* 
Baruch Halpern & Shoshana Halpern WROS
   
859,900
   
859,900
   
—
   
 
* 
SMJ Partners, Inc.
   
800,000
   
800,000
   
—
   
 
* 
Steven Lee      1,001,123      500,000     501,123       * 
SRB Greenway Capital (QP), L.P.
   
486,000
   
486,000
   
—
   
 
* 
Broadlawn Master Fund, Ltd.
   
450,000
   
450,000
   
—
   
 
* 
Enable Opportunity Partners, L.P.
   
450,000
   
450,000
   
—
   
 
* 
Craig & Susan Musick     1,202,851      400,000      802,851      1.2  
Presidio Partners
   
382,500
   
382,500
   
—
   
 
* 
Geary Partners
   
284,250
   
284,250
   
—
   
 
* 
Danny Lowell      152,180      132,180      20,000       * 
David Kolb
   
109,900
   
109,900
   
—
   
 
* 
Elaine Johnson      200,693      100,000      100,693       * 
Ronnie Kinsey      200,693      100,000      100,693       * 
Edwin Bindseil
   
100,000
   
100,000
   
—
   
 
* 
Gary Loomis     198,489      85,500      112,989       * 
Brady Retirement Fund
   
83,250
   
83,250
   
—
   
 
* 
SRB Greenway Capital, L.P.
   
66,000
   
66,000
   
—
   
 
* 
Laurence Smith      110,108      55,000      55,108       * 
SRB Greenway Offshore Operating Fund, L.P.
   
48,000
   
48,000
   
—
   
 
* 
William Suhs      80,079      40,000      40,079       * 
Mark Gladden      75,064      25,000      50,064       * 
 
 
*
Represents holdings of less than one percent
 
61

PLAN OF DISTRIBUTION

Each of the selling shareholders, and any of their donees, pledgees, transferees or other successors-in-interest selling shares of common stock or interests in shares of common stock received after the date of this prospectus from a selling shareholder as a gift, pledge, partnership distribution or other transfer, may, from time to time, sell, transfer or otherwise dispose of any or all of their shares of common stock or interests in shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These dispositions may be at fixed prices, at prevailing market prices at the time of sale, at prices related to the prevailing market price, at varying prices determined at the time of sale, or at negotiated prices. A selling shareholder will act independently of NutraCea in making decisions with respect to the timing, manner and size of each sale.

Each of the selling shareholders may use any one or more of the following methods when selling shares:

 
·
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

 
·
block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

 
·
purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

 
·
an exchange distribution in accordance with the rules of the applicable exchange;

 
·
privately negotiated transactions;

 
·
settlement of short sales entered into after the date of this prospectus;

 
·
broker-dealers may agree with the selling shareholders to sell a specified number of such shares at a stipulated price per share;

 
·
a combination of any such methods of sale;

 
·
through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; or

 
·
any other method permitted pursuant to applicable law.

The selling shareholders may also sell shares under Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"), if available, rather than under this prospectus.

Broker-dealers engaged by the selling shareholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling shareholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. Each selling shareholder does not expect these commissions and discounts relating to its sales of shares to exceed what is customary in the types of transactions involved.
 
62
 
In connection with the sale of our common stock or interests therein, the selling shareholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The selling shareholders may also sell shares of our common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The selling shareholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
 
The selling shareholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Discounts, concessions, commissions and similar selling expenses, if any, that can be attributed to the sale of securities will be paid by the selling shareholders and/or the purchasers. Each selling shareholder has informed NutraCea that it does not have any agreement or understanding, directly or indirectly, with any person to distribute the common stock.

NutraCea is required to pay certain fees and expenses incurred by it incident to the registration of the shares. NutraCea has agreed to indemnify the selling shareholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

Because selling shareholders may be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. Each selling shareholder has advised us that they have not entered into any agreements, understandings or arrangements with any underwriter or broker-dealer regarding the sale of the shares. There is no underwriter or coordinating broker acting in connection with the proposed sale of the shares by the selling shareholders.

We agreed to keep this prospectus effective until the earlier of (i) October 4, 2008, (ii) the date on which the shares may be resold by the selling shareholders pursuant to Rule 144(k) under the Securities Act or any other rule of similar effect or (iii) all of the shares have been sold pursuant to the prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

Under applicable rules and regulations under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), any person engaged in the distribution of the shares may not simultaneously engage in market making activities with respect to our common stock for a period of two business days prior to the commencement of the distribution. In addition, the selling shareholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of our common stock by the selling shareholders or any other person. We will make copies of this prospectus available to the selling shareholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale.
 
63

LEGAL MATTERS

Weintraub Genshlea Chediak Law Corporation will pass upon legal matters in connection with the validity of the shares of common stock offered hereby for us.

EXPERTS

The consolidated financial statements of NutraCea as of December 31, 2004, and for each of the years in the two-year period ended December 31, 2004, have been included in the prospectus in reliance upon the report of Malone & Bailey, PC, independent auditor, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.

The consolidated financial statements of The RiceX Company as of December 31, 2004, and for the year ended December 31, 2004, have been included in the prospectus in reliance upon the report of Perry-Smith LLP, independent auditor, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.

The consolidated financial statements of The RiceX Company as of December 31, 2003, and for the year then ended, have been included in the prospectus in reliance upon the report of Moss Adams LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.


WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission. You may read and copy any reports, statements or other information filed by us at the SEC’s public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our filings with the SEC are also available to the public from commercial document retrieval services and at the SEC’s web site at “http://www.sec.gov.”

This prospectus is part of a registration statement we have filed with the SEC relating to the securities that may be offered by the selling shareholders. As permitted by SEC rules, this prospectus does not contain all of the information we have included in the registration statement and the accompanying exhibits and schedules we file with the SEC. You may refer to the registration statement, the exhibits and schedules for more information about our securities and us. The registration statement, exhibits and schedules are available at the SEC’s Public Reference Room.
 
64

 
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
NutraCea and Subsidiaries
 
Page  
     
Annual Financial Statements
 
 
 
Report of Independent Registered Public Accounting Firm
 
F-1
       
 
Consolidated Balance Sheet as of December 31, 2004
 
F-2
       
 
Consolidated Statements of Operations for the years ended December 31, 2004 and 2003
 
F-3
       
 
Consolidated Statements of Comprehensive Losses for the years ended December 31, 2004 and 2003
 
F-4
       
 
Consolidated Statements of Changes in Stockholders' Equity as of December 31, 2004 and 2003
 
F-5
       
 
Consolidated Statements of Cash Flows for the years ended December 31, 2004 and 2003
 
F-8
       
 
Notes to Consolidated Financial Statements
 
F-9
       
Interim Financial Statements
 
 
 
Consolidated Balance Sheet as of September 30, 2005 (Unaudited)
 
F-28
       
 
Consolidated Statements of Operations for the nine and three months ended September 30, 2005 and 2004 (Unaudited)
 
F-29
       
 
Consolidated Statements of Comprehensive Losses for the nine and three months ended September 30, 2005 and 2004 (Unaudited)
 
F-30
       
 
Consolidated Statements of Cash Flows for the nine months ended September 30, 2005 and 2004 (Unaudited)
 
F-31
       
 
Notes to Unaudited Consolidated Financial Statements
 
F-32
       
The RiceX Company and Subsidiaries
   
     
Annual Financial Statements
 
 
 
Reports of Independent Registered Public Accounting Firms
 
F-41
       
 
Consolidated Balance Sheets as of December 31, 2004 and 2003
 
F-43
       
 
Consolidated Statements of Operations for the years ended December 31, 2004 and 2003
 
F-44
       
 
Consolidated Statement of Shareholders' Equity as of December 31, 2004 and 2003
 
F-45
       
 
Consolidated Statements of Cash Flows for the years ended December 31, 2004 and 2003
 
F-46
       
 
Notes to Consolidated Financial Statements
 
F-47
       
Interim Financial Statements
 
 
 
Consolidated Balance Sheet as of September 30, 2005 (Unaudited)
 
F-57
       
 
Consolidated Statements of Operations for the nine and three months ended September  30, 2005 and 2004 (Unaudited)
 
F-58
       
 
Consolidated Statements of Cash Flows for the nine months ended September 30, 2005 and 2004 (Unaudited)
 
F-59
       
 
Notes to Unaudited Consolidated Financial Statements
 
F-60
 

REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM

Board of Directors
NutraCea and subsidiaries
El Dorado Hills, California

We have audited the accompanying consolidated balance sheet of NutraCea as of December 31, 2004, and the related statements of operations, changes in stockholders’ deficit, and cash flow for each of the two years then ended. These financial statements are the responsibility of NutraCea’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of NutraCea as of December 31, 2004, and the results of its operations and its cash flows for each of the two years then ended, in conformity with accounting principles generally accepted in the United States of America.

MALONE & BAILEY, PC
www.malone-bailey.com
Houston, Texas


February 14, 2005  

F-1

NUTRACEA AND SUBSIDIARIES
Consolidated Balance Sheet
December 31, 2004

ASSETS
 
       
Current assets
     
Cash
 
$
1,928,281
 
Marketable securities
   
183,801
 
Accounts receivable
   
7,681
 
Inventory
   
304,064
 
Prepaid expenses
   
30,755
 
Total current assets
   
2,454,582
 
 
       
Restricted marketable securities
   
183,801
 
Property and equipment , net
   
119,650
 
Patents and trademarks , net
   
329,851
 
Goodwill
   
250,001
 
 
       
Total assets
 
$
3,337,885
 
 
       
LIABILITIES AND SHAREHOLDERS' DEFICIT
 
       
Current liabilities
       
Accounts payable
 
$
261,073
 
Accrued expenses
   
180,049
 
Due to related parties
   
73,978
 
Notes payable
   
1,635,174
 
Convertible, mandatorily redeemable series A preferred stock, no par value, $1 stated value 20,000,000 shares authorized 0 shares issued and outstanding
   
20,473
 
Total current liabilities
   
2,170,747
 
Commitments and contingencies
       
Shareholders' equity
       
Common stock, no par value 100,000,000 shares authorized 36,130,544shares issued and outstanding
   
48,123,282
 
Deferred compensation
   
(15,954
)
Accumulated deficit
   
(44,927,792
)
Accumulated other comprehensive income, unrealized loss on marketable securities
   
(2,012,398
)
Total shareholders' equity
   
1,167,138
 
 
       
Total liabilities and shareholders' equity
 
$
3,337,885
 

The accompanying notes are an integral part of these financials

F-2

NUTRACEA AND SUBSIDIARIES
Consolidated Statements of Operations

   
For the years ended December 31
 
   
2004
 
2003
 
           
Revenues
         
Net product sales
 
$
1,009,729
 
$
1,536,153
 
Licensing fees
   
214,500
   
-
 
Total revenues
   
1,224,229
   
1,536,153
 
 
             
Cost of goods sold
   
600,129
   
845,668
 
 
             
Gross profit
   
624,100
   
690,485
 
 
             
Operating Expense
             
Sales, general and administrative expense
   
11,621,288
   
6,926,689
 
Research and development expense
   
126,212
   
224,760
 
Professional fees
   
12,389,905
   
1,667,253
 
Depreciation and amortization expense
   
38,057
   
98,787
 
Operating expenses
   
24,175,462
   
8,917,489
 
 
             
Loss from operations
   
(23,551,362
)
 
(8,227,004
)
 
             
Other income (expense)
             
Interest income
   
4,497
   
2
 
Interest expense
   
(27,602
)
 
(4,310,796
)
 
             
Total other income (expense)
   
(23,105
)
 
(4,310,794
)
 
             
Net loss
   
(23,574,467
)
 
(12,537,798
)
 
             
Cumulative preferred dividends
   
8,373
   
124,411
 
 
             
Net loss available to common shareholders
 
$
(23,582,840
)
$
(12,662,209
)
 
             
Basic and diluted loss available to common shareholders per share
 
$
(1.18
)
$
(2.07
)
 
             
Basic and diluted weighted-average shares outstanding
   
19,905,965
   
6,106,548
 

The accompanying notes are an integral part of these financials

F-3

NUTRACEA AND SUBSIDIARIES
Consolidated Statements of Comprehensive Loss
 
   
For the years ended December 31
 
   
2004
 
2003
 
           
Net loss
 
$
(23,574,467
)
$
(12,537,798
)
               
               
Other comprehensive loss
             
Unrealized loss on marketable securities
   
(2,012,398
)
 
-
 
               
Comprehensive loss
 
$
(25,586,865
)
$
(12,537,798
)

The accompanying notes are an integral part of these financials

F-4

NUTRACEA AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity
For the Years Ended December 31, 2004 and 2003

   
Convertible, Redeemable
     
Committed
 
Deferred
 
Other Com-
         
   
Series A Preferred Stock
 
Common Stock
 
Common
 
Compen-
 
prehensive
 
Accumulated
     
   
Shares
 
Amount
 
Shares
 
Amount
 
Stock
 
sation
 
Loss
 
Deficit
 
Total
 
Balance, December 31, 2002
   
2,144,707
 
$
2,060,931
   
2,375,807
 
$
5,861,702
 
$
571,674
 
$
(873,273
)
$
-
 
$
(8,682,746
)
$
(3,122,643
)
Preferred stock issued for accrued interest
   
200,000
   
8,351
   
                                     
Preferred stock dividend
         
124,411
   
                           
(124,411
)
 
(124,411
)
Preferred stock converted to common stock
   
(1,674,707
)
 
(1,633,453
)
 
254,323
   
1,651,860
                           
1,651,860
 
Preferred dividends converted to common stock
         
(208,450
)
 
278,766
   
190,043
                           
190,043
 
Common stock issued
               
                                     
for committed stock
               
145,917
   
571,674
   
(571,674
)
                   
__
 
for cash
               
134,048
   
111,500
                           
111,500
 
for services rendered
               
28,688
   
29,795
                           
29,795
 
for deferred salaries
               
475,555
   
416,899
                           
416,899
 
for accounts payable
               
80,114
   
62,724
                           
62,724
 
for convertible notes payable
               
3,431,251
   
823,119
                           
823,119
 
for loan collateral
               
50,000
                                     
Issuance costs
               
   
(7,000
)
                         
(7,000
)
Amortization of deferred compensation
         
                     
140,114
               
140,114
 
Reversal of deferred compensation
         
         
(243,605
)
       
243,605
               
__
 
Stock options exercised for cash
         
   
4,519,373
   
427,575
                           
427,575
 

The accompanying notes are an integral part of these financials

F-5

NUTRACEA AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity (Continued)
For the Years Ended December 31, 2004 and 2003
 
Stock options issued
     
 
                             
in lieu of deferred salaries
         
         
150,465
                           
150,465
 
for services rendered
         
         
1,274,584
         
(109,000
)
             
1,165,584
 
for accounts payable
         
         
40,527
                           
40,527
 
for convertible debt
         
         
183,855
                           
183,855
 
Beneficial conversion feature for convertible debt
         
         
99,516
                           
99,516
 
Stock options cancelled
         
         
(476,362
)
       
476,362
               
__
 
Modification of options and warrants
 
                                           
 non-employees
         
         
9,507,253
                           
9,507,253
 
 employees
         
         
303,750
                           
303,750
 
Net loss
   
   
   
   
   
   
   
   
(12,537,798
)
 
(12,537,798
)
           
                                           
Balance, December 31, 2003
   
670,000
 
$
351,790
   
11,773,842
 
$
20,979,874
 
$
-
 
$
(122,192
)
$
-
 
$
(21,344,955
)
$
(487,273
)
Preferred stock dividend
         
8,373
   
                           
(8,373
)
 
(8,373
)
Preferred stock dividend paid
         
(48,004
)
 
                                     
Preferred stock repurchased
   
(130,000
)
       
                                     
Preferred stock converted to common stock
   
(540,000
)
 
(348,351
)
 
630,000
   
348,351
                           
348,351
 
Preferred dividends converted to common stock
         
(5,986
)
 
5,759
   
5,986
                           
5,986
 
Common stock issued
               
                                     
for marketable securities
               
7,000,000
   
2,380,000
                           
2,380,000
 
for services rendered
               
4,407,950
   
3,470,100
                           
3,470,100
 
for patent incentive plan
               
180,000
   
239,100
                           
239,100
 
for accounts payable
               
168,626
   
57,944
                           
57,944
 
for settlements
               
5,780,000
   
8,837,816
                           
8,837,816
 

The accompanying notes are an integral part of these financials

F-6

NUTRACEA AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity (Continued)
For the Years Ended December 31, 2004 and 2003
 
Amortization of deferred compensation
         
                     
57,648
               
57,648
 
Reversal of stock options
         
         
(48,590
)
       
48,590
               
-
 
Common stock cancelled
         
   
(50,000
)
                               
-
 
Stock options exercised for cash
         
   
6,579,323
   
2,776,468
                           
2,776,468
 
Stock options issued
         
                                           
for services rendered
         
         
8,582,516
                           
8,582,516
 
for notes payable
         
         
786,370
                           
786,370
 
Reclass of options to preferred stock
         
62,651
         
(62,651
)
                         
(62,651
)
Common stock repurchased
         
   
(344,956
)
 
(230,000
)
                         
(230,000
)
 
         
                                       
 
Other comprehensive loss
         
                           
(2,012,398
)
       
(2,012,398
)
Net loss
   
-
   
    
   
-
   
-
   
    
   
-
   
-
   
(23,574,467
)
 
(23,574,467
)
           
                                           
Balance, December 31, 2004
   
-
 
$
20,473
   
36,130,544
 
$
48,123,284
 
$
-
 
$
(15,954
)
$
(2,012,398
)
$
(44,927,795
)
$
1,167,137
 

The accompanying notes are an integral part of these financials

F-7

NUTRACEA AND SUBSIDIARIES
Consolidated Statements of Cash Flows

   
For the Year Ended
December 31,
 
   
2004
 
2003
 
Cash flows from operating activities
         
Net loss
 
$
(23,574,467
)
$
(12,537,798
)
Adjustments to reconcile net loss to net cash used in operating activities
             
Accretion of warrants used as a debt discount
             
Depreciation and amortization
   
38,057
   
238,900
 
Non-cash issuances of preferred stock
   
(354,337
)
 
-
 
Non-cash issuances of common stock
   
15,339,296
   
29,795
 
Non-cash issuances of stock options & warrants
   
9,306,234
   
1,349,439
 
Beneficial conversion feature
   
-
   
99,516
 
Modifications of options and warrants, non-employees
   
62,651
   
9,507,253
 
Modifications of options and warrants, employees
   
(48,590
)
 
303,750
 
(Increase) decrease in
             
Accounts receivable
   
22,772
   
(23,180
)
Inventory
   
(233,170
)
 
(28,199
)
Prepaid expenses
   
(15,898
)
 
12,323
 
Increase (decrease) in
             
Advances from related parties
   
55,590
   
(8,206
)
Accounts payable
   
(43,280
)
 
(231,061
)
Accrued salaries and benefits
   
7,287
   
19,149
 
Deferred compensation
   
106,238
   
289,244
 
Accrued expenses
   
(51,058
)
 
(53,107
)
Customer deposits
   
-
   
57,170
 
Net cash provided (used) in operating activities
   
617,325
   
(975,012
)
Cash flows from investing activities
             
Purchase of marketable securities
   
(2,380,000
)
 
-
 
Purchase of property and equipment
   
(117,421
)
 
(20,075
)
Purchase of patents and trademarks
   
(295,284
)
 
(17,770
)
Net cash used in investing activities
   
(2,792,705
)
 
(37,845
)
Cash flows from financing activities
             
Proceeds from notes payable, net
   
1,635,174
   
544,000
 
Proceeds from notes payable-related parties
   
-
   
320,422
 
Principal payments on notes payable
   
-
   
(60,000
)
Principal payments on notes payable-related parties
   
-
   
(258,335
)
Payment of preferred dividends
   
(48,004
)
     
Repurchase of preferred stock
   
(130,000
)
     
Repurchase of common stock
   
(230,000
)
     
Proceeds from the issuance of common stock, net
         
104,500
 
Proceeds from exercise of stock options
   
2,776,468
   
427,575
 
Net cash provided by financing activities
   
4,003,638
   
1,078,162
 
Net increase (decrease) in cash
   
1,828,258
   
65,305
 
Cash, beginning of year
   
100,023
   
34,718
 
Cash, end of year
 
$
1,928,281
 
$
100,023
 
Cash paid for interest
 
$
1,391
 
$
21,631
 
Cash paid for income taxes
 
$
-
 
$
-
 
Non-cash disclosure:              
Purchase of Langley PLC Shares with common stock
 
$
2,380,000
 
$
-
 

The accompanying notes are an integral part of these financials

F-8

NUTRACEA AND SUBSIDIARIES
Notes to Consolidated Financial Statements

NOTE 1 - ORGANIZATION AND LINE OF BUSINESS

General

NutraCea was originally incorporated on February 4, 2000 in California as NutraStar Technologies Incorporated. On December 14, 2001, NutraStar Technologies Incorporated (“NTI”) effected a reorganization with the inactive publicly-held company, Alliance Consumer International, Inc., and the name was changed to NutraStar Incorporated. The name was changed again to NutraCea on October 1, 2003.

NutraCea is a relatively new health science company focused on the development and distribution of products based upon the use of stabilized rice bran and proprietary rice bran formulations. Rice bran is the outer layer of brown rice which until recently was a wasted by-product of the commercial rice industry. These products include food supplements and medical foods which provide health benefits for humans and animals (known as "nutraceuticals") as well as cosmetics and beauty aids based on stabilized rice bran, rice bran derivatives and the rice bran oils.
 
On April 27, 2000, NTI formed NutraGlo Incorporated ("NutraGlo"), a Nevada corporation, which was owned 80% by NTI and 20% by NaturalGlo Investors L.P. During 2001, NutraGlo started marketing, manufacturing and distributing one of NutraCea's products to the equine market. In 2002, NutraCea issued 250,001 shares of its common stock to NaturalGlo Investors L.P. in exchange for the remaining 20% of the common stock of NutraGlo. The value of the shares was $250,001. As a result, NutraGlo is now a wholly owned subsidiary of NTI.

For internal reporting purposes, management segregates NutraCea into two segments: (1) NutraCea, including the transactions of TheraFoods®, ProCeuticals®, and NutraBeauticals®, and (2) NutraGlo.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation - The consolidated financial statements include the accounts of NutraCea and its wholly owned subsidiaries, NutraCea Technologies Incorporated and NutraGlo® (collectively, the "Company"). All significant inter-company accounts and transactions are eliminated in consolidation.

Revenue Recognition - Revenue is generally recognized upon shipment of product with a provision for estimated returns and allowances recorded at that time, if applicable. Commission revenue is generally recognized when earned and collection is reasonably assured. Licensing revenue is recognized when earned and collection is reasonably assured.

Accounts Receivable -The Company provides for the possible inability to collect accounts receivable by recording an allowance for doubtful accounts. As of December 31, 2004, there were no uncollectible accounts.

Marketable Securities -Marketable securities are marked to market at each period end. Any unrealized gains and losses on the marketable securities are excluded from operating results and are recorded as a component of Other comprehensive income (loss). If declines in value are deemed other than temporary, losses are reflected in Net income (loss).

Inventory -Inventory is stated at the lower of cost (first-in, first-out) or market and consists of nutraceutical products manufactured by an affiliated company, RiceX, which the Company enhances for final distribution to its customers. While the Company has an inventory of these products, which contain ingredients supplied by RiceX, any significant prolonged shortage of these ingredients or of the supplies used to enhance these ingredients could materially adversely affect the Company's results of operations.

F-9

NUTRACEA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
Property and Equipment -Property and equipment are stated at cost. The Company provides for depreciation using the straight-line method over the estimated useful lives as follows:

Furniture and equipment
5-7 years
Automobile
5 years
Software
3 years
Leasehold Improvements
2.4 years

Expenditures for maintenance and repairs are charged to operations as incurred while renewals and betterments are capitalized. Gains or losses on the sale of property and equipment are reflected in the statements of operations.

Patents and Trademarks -The Company has exclusive licenses for several patents, which were acquired from independent third parties and a related party. All costs associated with the patents are capitalized. Patents acquired from related parties are recorded at the carryover basis of the transferor. The Company paid cash as consideration for all patents and trademarks acquired, except the Via-Bran registered trademark, which was acquired for 21,409 shares of common stock valued at $21,409.

Amortization is computed on the straight-line method based on estimated useful lives of 17 to 20 years. The Company also has registered trademarks, which are amortized over estimated useful lives of 10 years.

The Company recorded a loss reserve totaling $75,359 as of December 31, 2002 related to the impairment of certain patents.

Deferred Compensation -Deferred compensation at December 31, 2004 represents the intrinsic value of options previously issued to employees that have not been vested.

Fair Value of Financial Instruments -For certain of the Company’s financial instruments, including cash, accounts receivable, inventory, prepaid expenses, accounts payable, accrued salaries and benefits, deferred compensation, accrued expenses, customer deposits, due to related party, notes payable - related party, and note payable the carrying amounts approximate fair value due to their short maturities.

Stock-Based Compensation -Compensation is recorded for stock-based compensation grants based on the excess of the estimated fair value of the common stock on the measurement date over the exercise price. Additionally, for stock-based compensation grants to consultants, NutraCea recognizes as compensation expense the fair value of such grants as calculated pursuant to SFAS No. 123, recognized over the related service period. SFAS No. 148 requires companies to disclose pro forma results of the estimated effect on net income and earnings per share to reflect application of the fair value recognition provision of SFAS No. 123.
 
F-10
 
NUTRACEA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
   
For the years ended December 31,
 
   
2004
 
2003
 
Net loss available to common shareholders:
         
As reported:
 
$
(23,582,840
)
$
(12,662,209
)
Pro forma:
 
$
(25,955,080
)
$
(12,754,495
)
Basic loss per common share:
             
As reported:
 
$
(1.18
)
$
(2.07
)
Pro forma:
 
$
(1.31
)
$
(2.09
)

 
Advertising Expense- The Company expenses all advertising costs, including direct response advertising, as they are incurred. Advertising expense for 2004 and 2003 was $22,074 and $21,959, respectively.

Income Taxes- The Company accounts for income taxes under the liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

Loss Per Share- Basic loss per share is computed by dividing loss available to common shareholders by the weighted-average number of common shares outstanding. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Common equivalent shares are excluded from the computation if their effect is anti-dilutive. As such, basic and diluted loss per share is the same.

Estimates- The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Concentrations of Credit Risk- On May 1, 2001, the Company entered into a three-year, exclusive distribution agreement with a customer, in which the customer is required to purchase a minimum of 90,000 pounds of the Company's product on or before July 1, 2001, 120,000 pounds before September 1, 2002, 275,000 pounds between September 1, 2002 and August 31, 2003, and 350,000 pounds between September 1, 2003 and August 31, 2004. During 2004, sales to this customer totaled $600,976 (59% of total sales). During 2003, sales to this customer totaled $1,247,086 (81% of total sales).

F-11
 
NUTRACEA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
Recently Issued Accounting Pronouncements- SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” establishes standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. In accordance with the standard, financial instruments that embody obligations for the issuer are required to be classified as liabilities. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and otherwise will be effective at the beginning of the first interim period beginning after June 15, 2003. Having adopted of SFAS No. 150 in 2003, NutraCea has reclassified its preferred dividends as a current liability.

In December 2004, the FASB issued SFAS No. 123R, “Accounting for Stock-Based Compensation” SFAS No. 123R establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS No. 123R requires that the fair value of such equity instruments be recognized as expense in the historical financial statements as services are performed. Prior to SFAS No. 123R, only certain pro forma disclosures of fair value were required. SFAS No. 123R shall be effective for small business issuers as of the beginning of the first interim or annual reporting period that begins after December 15, 2005. The impact of the adoption of this new accounting pronouncement would be similar to the Company’s calculation of the pro forma impact on net income of SFAS 123 included above.

NOTE 3 - MARKETABLE SECURITIES

On September 8, 2004 NutraCea purchased 1,272,026 shares of Langley Park Investment Trust, PLC, a United Kingdom closed-end mutual fund that is actively traded on a London exchange. Per the Stock Purchase Agreement, NutraCea paid with 7,000,000 shares of its own common stock.

Per the Agreement, NutraCea may sell 636,013 shares of Langley at any time, and the remaining 636,013 shares of Langley and the 7,000,000 shares of NutraCea are escrowed for a 2-year period. At the end of the period, Langley’s NutraCea shares are measured for any loss in market value and if so, NutraCea must give up that pro-rata portion of its Langley shares up to the escrowed 636,013 shares.

As of December 31, 2004 the NutraCea shares had not lost any value. However, the Langley shares are marked down to their fair market value of $367,602, with one-half or $183,801 shown as a current asset because they may be sold at any time, and the other one-half shown as long-term because they are held in escrow pending the 2-year review of NutraCea’s stock valuation.

NOTE 4 - PROPERTY AND EQUIPMENT

Property and equipment at December 31, 2004 consisted of the following:

Furniture and equipment
 
$
62,007
 
Automobile
   
73,096
 
Software
   
286,047
 
Leasehold improvements
   
13,870
 
         
Subtotal
 
$
435,020
 
         
Less accumulated depreciation
   
(315,370
)
         
Total
 
$
119,650
 

F-12
 
NUTRACEA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
Depreciation expense was $16,303 and $88,589 for 2004 and 2003, respectively.

NOTE 5 - PATENTS AND TRADEMARKS

Patents and trademarks at December 31, 2004 consisted of the following:


Patents, net of $75,359 of impairment expense from 2002
 
$
317,024
 
Trademarks
   
62,328
 
     
379,352
 
Less accumulated amortization
   
(49,501
)
         
Total
 
$
329,851
 

At December 31, 2004, $91,009 of the NutraCea's patents and trademarks had been purchased from RiceX. Amortization expense was $21,754 and $10,198 for 2004 and 2003, respectively.

NOTE 6 - NOTES PAYABLE

In December 2004 NutraCea executed three promissory notes to third party investors totaling $2,400,000. The notes are for a one year term, bear interest at 7% interest compounded quarterly and are secured by all of the assets of NutraCea. The holders were issued warrants to purchase a total of 2,400,000 shares of NutraCea’s common stock at an exercise price of $0.30 per share. The warrants are immediately exercisable and expire in seven years from the date of issuance. A discount on the debt of $786,370 was recorded for these warrants and is being amortized over the life of the notes.

NOTE 7 - PUT OPTION

During the year ended December 31, 2001, NutraCea issued 130,000 shares of Series A preferred stock to a related party as payment of accounts payable totaling $130,000. On January 15, 2002, these holders of the Series A preferred stock executed a put/call agreement. The put allowed for the holder to sell to NutraCea all, but not less than all, of the 130,000 shares of NutraCea’s Series A preferred stock, or common stock if any of the Series A preferred stock were converted, for $130,000, plus all accumulated, but unpaid dividends, at any time after six months from January 15, 2002. In addition, NutraCea maintained the right to call the option and purchase back the shares of the Series A preferred stock for $130,000, plus any unpaid and accrued dividends at any time, subject to certain provisions. Prior to December 31, 2004 NutraCea purchased back the shares of the Series A preferred stock for $130,000.

NOTE 8 - INCOME TAXES

NutraCea has had losses since inception and, therefore, has not been subject to federal or state income taxes. As of December 31, 2004, NutraCea had accumulated net operating loss ("NOL") carryforwards for income tax purposes of approximately $28.2 million, resulting in a deferred tax asset amount of $9.6 million. All deferred tax asset amounts are fully reserved. These carryforwards expire in 2019 through 2024.
 
NOTE 9 - COMMITMENTS AND CONTINGENCIES

Lease

F-13
 
NUTRACEA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
NutraCea leases its office space under a non-cancelable operating lease with RiceX that expires in September 2006 and requires monthly payments of $6,366. Future minimum payments under this lease agreement at December 31, 2004 were as follows:

 Year Ending
     
December 31,
     
       
2005
 
$
76,389
 
2006
   
57,292
 
         
Total
 
$
133,681
 

Rent expense was $64,688 and $63,899 for the years ended December 31, 2004 and 2003, respectively.

Agreements

For all agreements where stock is awarded as partial or full consideration, the expense is valued at the fair value of the stock. Expense for stock options and warrants issued to consultants is calculated at fair value using the Black-Scholes valuation method.

Effective January 1, 2004, NutraCea amended two executive employment contracts to reflect quarterly bonuses. Under the contract, compensation shall be $45,000 per calendar quarter, with 250,000 shares of common stock to be granted in the event NutraCea achieves gross revenues of $1 million or more for the quarter. In addition, a one-time stock grant of 550,000 shares of common stock will be awarded for the first quarter gross revenues equal or exceed $5 million. This bonus agreement is effective until April 15, 2006, unless extended by the board. NutraCea also agreed to maintain an annual bonus program for members of the senior management group, including the Chief Executive Officer. The Chief Executive Officer shall be eligible to receive an annual bonus under terms otherwise governing the annual bonus program.

Effective January 1, 2004, NutraCea amended the stock options section of an executive employment contract dated April 15, 2003. The amendment changed the vesting conditions on 250,000 shares of common stock to “upon the completion of the twelfth month of employment “instead of “upon the Company achieving two successful calendar quarters of net profits from operations of the business of the Company before interest, taxes, depreciation and amortization as conclusively determined by the independent certified public accountant for the Company”.  

On January 12, 2004, NutraCea entered into a one-year consulting agreement with a sales and marketing company. Under the terms of the agreement, compensation shall be warrants to purchase 4,000,000 shares of common stock as follows: 300,000 shares at $.50 per share on or before January 12, 2004; 400,000 shares at $.50 per share on or before February 17, 2004; and 3,300,000 shares at $.50 per share on or before April 19, 2004. Non-cash compensation expense of $3,911,886 was recorded relating to this agreement. All of the warrants had been exercised at March 31, 2004.

On January 28, 2004, NutraCea entered into a one-year consulting agreement with a sales and marketing company. Under the terms of the agreement, compensation shall be warrants to purchase 90,000 shares of common stock at an exercise price of $.01 per share. Non-cash compensation expense of $137,158 was recorded relating to this agreement. As of March 31, 2004, these warrants had been exercised.

F-14
 
NUTRACEA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
On February 2, 2004, NutraCea entered into a six -month consulting agreement with a communications company. Under the terms of the agreement, compensation shall be $2,500 per month, plus shares of common stock valued at $6,000 issued at signing of contract. Either party may terminate the agreement with sixty days written notice. At March 31, 2004, the shares had been issued in full.

On February 23, 2004, NutraCea entered into a one-year consulting agreement with a marketing company. Under the terms of the agreement, compensation shall be monthly issuance of shares of common stock valued at $7,500 per month. In addition, the consultant is entitled to a 3% commission on equity or debt financing introduced to NutraCea.

On March 1, 2004, NutraCea entered into a 90-day consulting agreement with a financial relations company. Compensation shall be the issuance of 100,000 shares of common stock per month. As of March 31, 2004, 100,000 shares valued at $142,000 had been issued to the consultant.

On March 1, 2004, NutraCea entered into a one-year consulting agreement with a sales and marketing company. Compensation shall be the issuance of 25,000 shares of common stock. At March 31, 2004, these shares had been issued. Non-cash compensation expense of $35,500 was recorded relating to this agreement.

On March 9, 2004, NutraCea entered into a one-year consulting agreement with a communications company. Under the terms of the agreement, compensation shall be issuance of shares of common stock valued at $36,000. At March 31, 2004, these shares have been issued in full.

On March 15, 2004, NutraCea entered into a six-month consulting agreement with a sales and marketing company. Under the terms of the agreement, compensation shall be warrants to purchase 400,000 shares of common stock, at an exercise price of $.001 and warrants to purchase up to 1,000,000 shares of common stock at an exercise price of $1.20, to be exercised within three years. At March 31, 2004, the 400,000 warrants exercisable at $.001 had been exercised. Non-cash compensation expense of $2,149,598 was recorded relating to this agreement.

On March 19, 2004, NutraCea approved granting a one-time cash bonus of 2/3 of normal salary to the CEO and President. The bonus amount for both executives is $180,000, was paid by April 1, 2004.

On March 25, 2004, NutraCea entered into two, two-year consulting agreements with two medical advisors. Under the terms of the agreement, compensation shall be 100,000 shares of common stock each, payable in advance , and options to purchase 100,000 shares of common stock at a price of $.50 per share for the second year of service. The 200,000 shares of common stock are valued at $286,000, and the options are valued at $107,684. Expense for these amounts was recorded in April 2004 when the shares and options were issued.

On March 25, 2004, NutraCea entered into a three-year consulting agreement with a development and marketing company. Under the terms of the agreement, compensation shall be $1 per unit (a minimum 30-day supply of NutraCea product) for up to a total accumulated payment of $750,000, and $.50 per unit thereafter, payable quarterly within 45 days after the end of the quarter. In addition, NutraCea will issue 100,000 shares of common stock for each probiotic formulation NutraCea markets, and options to purchase 300,000 shares of common stock at an exercise price of $1 per share   with 100,000 options to be vested immediately and 50,000 shares per year thereafter. The vested options are valued at $102,782.

On April 2, 2004, NutraCea entered into a 180-day consulting agreement with a marketing and investor relations company. The term can be extended another 180 days by mutual agreement. Under the terms of the agreement, compensation shall be 400,000 shares of common stock, and $4,000 cash per month. Compensation shall also include an 8% cash commission on equity or debt financing introduced to NutraCea, as well as a warrant, exercisable within 3 years, for common shares to equal 10% of the gross financing proceeds. The warrant is to be priced at 110% of the closing bid price for the preceding 30 business days of the day of closing, such warrant or shares to be issued at closing.

F-15
 
NUTRACEA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
On April 15, 2004, NutraCea entered into a one-year consulting agreement with a sales and marketing consultant. Under the terms of the agreement, compensation shall be warrants to purchase 50,000 shares of common stock at $.80 per share upon the completion of certain benchmarks. The warrants are valued at $46,758 and expire in 3 years.

On April 29, 2004, NutraCea entered into a one-year consulting agreement (with options to extend for four successive terms of one year each) with two retired employees of NutraCea. Under the terms of the agreements, annual compensation of $70,000 and $80,000 each is payable on a monthly basis. In addition, each of the consultants received warrants to purchase 50,000 shares of common stock at $.20 a share. The 100,000 warrants are valued at $91,370 and expire in 5 years. Either party can cancel this agreement with 30-day written notice.

On April 15, 2004, NutraCea entered into a one-year consulting agreement with a sales and marketing consultant. Under the terms of the agreement, compensation shall be warrants to purchase 50,000 shares of common stock at $.80 per share upon the completion of certain benchmarks. The warrants are valued at $46,758 and expire in 3 years.

On June 2, 2004, NutraCea entered into two consulting agreements with sales and marketing consultants. Under the terms of the agreements, each consultant was issued 150,000 restricted shares of common stock, valued at $161,500. The agreement called for these shares to be included in the next registration statement filed.

On July 14, 2004, NutraCea entered into a six-month consulting agreement with a business consultant to provide NutraCea with consulting services and advice pertaining to NutraCea’s business affairs. Compensation was $12,000 payable in cash monthly. In addition, should the consultant provide assistance to NutraCea in the raising of capital either in the form of equity or debt, NutraCea agreed to pay an additional future bonus or fee, which the consultant would receive based on the efforts expended and results obtained.

On August 1, 2004, NutraCea entered in a 90-day Independent Contractor Agreement with a contractor to prepare reports regarding investor relations, prepare advertising and marketing materials, and prepare press releases. Compensation was $12,000 payable in cash monthly.

On September 2, 2004, NutraCea entered into a 90-day consulting agreement with a securities firm to serve as NutraCea’s investment advisor regarding acquisitions or similar corporate transactions and to provide assistance and advice with respect to raising capital required to consummate an acquisition or similar corporate transaction. A non-reimbursable initial fee of $50,000, to be credited again Phase I fees, was paid at execution of the agreement. Services were to be rendered as Phase I and Phase II services and compensated as follows.

Phase I services: A fee of two percent of the total value of a target acquisition to be paid simultaneously with the closing of the acquisition or similar corporate transaction, to be paid 50% in cash and 50% in newly issued stock by NutraCea based on the closing values of the transaction on that day.

F-16
 
NUTRACEA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
Phase II services: A cash fee of ten percent of the total amount of capital raised pursuant to sources introduced to NutraCea by the consultant. In the event NutraCea shall issue any equity or convertible securities to raise capital in connection with an acquisition or similar corporate transaction, NutraCea shall issue warrants for ten percent of the total amount of securities issued. The warrants shall have an exercise price equal to one hundred and twenty percent (120%) of the per share equity valuation established in the capital raising transaction, but in no case less than 100% of the market value of the shares on the date of the transaction, and shall be exercisable for a term of five years. A cash fee of six percent will be paid in any capital raising transaction involving unsecured debt securities.

On November 26, 2004, the Company hired a consultant to help in the facilitation of the Company’s business model. As compensation, the consultant was paid with 715,000 shares of common stock. Additionally, the consultant also entered into a non-exclusive, non-transferable, revocable licensing agreement to import and distribute the Company’s products in accordance with its marketing plan. The consultant paid the Company $214,500 for these distribution rights.

On December 10, 2004 the Company entered into an employment agreement that expires December 31, 2007 with its Chief Executive Officer whereby the Company is to pay the officer a base salary of $150,000 in year one; a base salary of $150,000 in year two; and a base salary of $250,000 in year three. The agreement also provides that the officer is entitled to an annual incentive bonus based upon performance and to be provided a car of the employee’s choice. The incentive bonus shall be paid annually within 10 days of the completion of the Company’s annual independent audit. Such bonuses shall be one percent of NutraCea’s “Gross Sales over $25,000,000” on an annualized basis or $6,250,000 per quarter and the Company reports a positive EBITDA for the period. The bonus amount shall be limited to a maximum of $750,000 in any calendar year and shall continue so long as the officer is an employee or consultant for the Company. In addition, the officer was issued warrants to purchase 2,000,000 shares of the Company’s common stock at an exercise price of $0.30 per share. The warrants are immediately exercisable and expire in ten years from the date of issuance.

On December 17, 2004 the Company entered into an employment agreement that expires December 31, 2007 with its President whereby the Company is to pay the officer a base salary of $50,000 in year one; a base salary of $150,000 in year two; and a base salary of $250,000 in year three. The agreement also provides that the officer is entitled to an annual incentive bonus based upon performance and to be provided a car allowance of $600 per month. The incentive bonus shall be paid annually within 10 days of the completion of the Company’s annual independent audit. Such bonuses shall be one percent of NutraCea’s “Gross Sales over $25,000,000” on an annualized basis or $6,250,000 per quarter and the Company reports a positive EBITDA for the period. The bonus amount shall be limited to a maximum of $750,000 in any calendar year. In addition, the officer was issued warrants to purchase 6,000,000 shares of the Company’s common stock at an exercise price of $0.30 per share. The warrants are immediately exercisable and expire in ten years from the date of issuance.

Minimum future payments under these two agreements at December 31, 2004 were as follows:
 
 Year Ending
     
December 31,
     
       
2005
 
$
200,000
 
2006
   
300,000
 
2007
   
500,000
 
         
Total
 
$
1,000,000
 
 
F-17
 
NUTRACEA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
Generally, if the Company terminates these agreements without cause or the employee resigns with good reason, as defined, the Company will pay the employees' salaries, bonuses, and benefits payable for the remainder of the term of the agreements.

Litigation

On July 16, 2002, the Company was summoned to answer a Complaint filed by Faraday Financial, Inc. (“Faraday”) in District Court, County of Salt Lake, Utah (Case No. 020906477). The Complaint alleges that the Company issued convertible promissory notes totaling $450,000 and a promissory note totaling $50,000. On December 13, 2001, Faraday entered into a settlement agreement with the Company, whereby Faraday agreed to cancel the promissory notes in exchange for 735,730 shares of preferred stock. Faraday claims that the settlement agreement required that the Company effect a registration statement covering the preferred stock by June 30, 2002, which the Company failed to do, and demands the Company immediately forfeit to Faraday 735,730 shares of common stock owned by the Chief Executive Officer of the Company. Faraday has filed its fourth claim for relief for a judgment against the Company for $500,000, plus accrued, but unpaid interest, attorneys’ fees and costs, and other such costs. A Settlement Agreement was executed on December 10, 2003. In consideration for the mutual releases, Faraday converted 735,730 preferred into 735,730 common shares and $90,127 of accrued preferred dividends into 1,201,692 common shares. Within the next year, if Faraday cannot realize $551,797 and approximately $9800 in legal expenses from the sale of the common shares, NutraCea will make up any deficiency. If stock sale exceeds $561,597, Faraday is entitled to keep any excess. Subsequent to December 31, 2003, the Company issued an additional 250,000 shares to Faraday. Concurrently, with the executed Settlement Agreement, a joint stipulated motion to stay all proceedings was filed with the Court. After all the above conditions are met, if Faraday has not lifted the stay within 18 months of December 10, 2003, NutraCea shall deliver to Faraday an executed stipulation for dismissal with prejudice of the Complaint and Counterclaim.

NOTE 10 - PREFERRED AND COMMON STOCK

Effective November 12, 2003 and pursuant to adoption of the Company’s “Certificate of Amendment of Restated Articles of Incorporation” dated October 27, 2003, the Company effected a reverse split of all previously issued common stock on the basis of one-for-ten shares. Additionally, per the “Certificate of Amendment of Restated Articles of Incorporation”, the number of authorized shares of common stock was increased from 50,000,000 to 100,000,000, and the number of authorized shares of preferred stock was increased from 10,000,000 to 20,000,000. All share amounts reflected in the following discussion of common stock and elsewhere in this Form 10-KSB/A have been adjusted to account for the one-for-ten reverse split.

Convertible, Redeemable Series A Preferred Stock

In December 2001, the Company approved the issuance of 3,000,000 shares of convertible, redeemable Series A preferred stock and executed a certificate of designation of the rights, preferences, and privileges of the Series A preferred stock. Each shareholder of Series A preferred stock is entitled to receive a 7% cumulative dividend, which is only payable in the case of liquidation or redemption. The Series A preferred stock has a $1 per share stated value and will receive certain liquidation preferences after satisfaction of claims of creditors, but before payment or distributions of assets and surplus funds. On November 12, 2003, the number of authorized shares of preferred stock was increased from 10,000,000 shares to 20,000,000 shares.

F-18
 
NUTRACEA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
Furthermore, the Series A preferred stock is convertible at the option of the holder at $1 per share into the Company’s common stock, subject to certain anti-dilution provisions. In addition, the Series A preferred stock will automatically convert into common stock in the event of a qualified public trading benchmark, which is defined as (i) the common stock is listed on a national exchange at twice its conversion price or (ii) the common stock is quoted on the over-the-counter bulletin board at an average bid price of at least $1.25 per share over any 30-day trading period. At December 31, 2004, all the outstanding preferred stock was converted under option (ii) above.

On July 7, 2003, the Company cancelled 634,121 shares of preferred stock previously issued to a shareholder as collateral and issued 20,000 shares of preferred stock for accrued interest totaling $8,351 on a promissory note dated September 23, 2002.

During the year ended December 31, 2003, the Company converted 1,674,707 shares of preferred stock to 254,323 shares of common stock valued at $1,651,860.

During the year ended December 31, 2003, the Company issued 278,766 shares of common stock in payment of preferred stock dividends due in the amount of $190,043.

During the year ended December 31, 2004 the Company repurchased 130,000 shares of preferred stock for $130,000.

During the year ended December 31, 2004, the Company converted 540,000 shares of preferred stock to 630,000 shares of common stock valued at $348,351.

During the year ended December 31, 2004, the Company issued 5,759 shares of common stock in payment of preferred stock dividends due in the amount of $5,986.

The Company may redeem any and all outstanding shares of Series A preferred stock. Upon the five-year anniversary of the date of issuance, the Company is required to redeem all of its outstanding shares of Series A preferred stock at $1 per share, plus all accrued and unpaid dividends declared. As of December 31, 2004 all outstanding shares of preferred stock had either been repurchased or converted into shares of common stock. As of December 31, 2004 there was a balance of unpaid and accrued dividends of $20,473.

As of December 31, 2004, cumulative dividends totaled $20,473.

Common Stock

During 2003, NutraCea issued 134,048 shares of common stock for $104,500, net of $7,000 in related commissions.

During 2003, NutraCea issued 4,519,373 shares of common stock pursuant to the exercise of stock options and warrants for $427,575.

During 2003, NutraCea issued 28,688 shares of common stock to various consultants for services rendered with a fair value of $29,795.

On August 18, 2003, NutraCea agreed to pay a consultant for unpaid fees in the amount of $9,236. NutraCea will pay $4,636 in monthly installments of $1,159, payable on the first of each month beginning October 1, 2003. NutraCea also agreed to issue 2,421 shares of common stock, valued at $4,600, to the consultant as payment in full.

F-19
 
NUTRACEA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
In September 2003, NutraCea agreed to pay $38,771 of unpaid fees to a consultant, of which $8,771 is payable upon execution of the agreement and the balance, $30,000, is payable in monthly installments of $2000, payable on the first of each month beginning October 1, 2003. NutraCea also agreed to issue 73,519 shares of common stock, valued at $56,037, to the consultant as payment in full.

On October 31, 2003, the Board of Directors approved the issuance of common stock in lieu of compensation to the Company’s Chief Operating Officer and Chief Executive Officer. Chief Operating Officer John Howell received 72,911 shares of common stock in lieu of $94,784 in salary and other compensation accrued for past services; Chief Executive Officer Patricia McPeak received 402,644 shares of common stock in lieu of $322,115 in salary and other accrued compensation for past services. These shares of common stock were issued under the 2003 Stock Compensation Plan.

Due to the termination of certain employees during 2003, the Company recorded a reversal of deferred compensation totaling $243,605.

During 2003, the Company issued 3,431,251 shares of common stock, valued at $823,119, to various parties for conversion of convertible notes payable and accrued interest in the amount of $776,887 and $46,232, respectively.

On March 25, 2004, NutraCea established the NutraCea Patent Incentive Plan, which grants 15,000 shares of common stock to each named inventor on each granted patent, which is assigned to NutraCea. Under the terms of this plan during the year ended December 31, 2004, NutraCea issued 180,000 shares of common stock valued at $239,100.

During the year ended December 31, 2004, NutraCea issued 280,000 shares of common stock to two consultants in settlement of contractual agreements valued at $477,816.

During the year ended December 31, 2004, NutraCea issued 5,500,000 shares of common stock to NutraCea’s Chief Executive Officer for services and cancellation of indebtedness. Pursuant to the Restricted Stock Agreement between NutraCea and the Chief Executive Officer (“Agreement”), the shares are subject to a repurchase option at a price of $5,000 for any unreleased shares based upon a vesting schedule. The shares vest 50% on January 1, 2006 and the remaining 50% vest on January 1, 2007 contingent on the Chief Executive Officer’s continuous employment with NutraCea. Vesting may accelerate under the Agreement and 100% of the shares not already released from the repurchase option will be immediately released upon any of: (i) a Change of Control, as defined in the Agreement; (ii) the Chief Executive Officer’s death or disability; (iii) the Chief Executive Officer’s retirement after the second anniversary of the effective date of the Agreement; (iv) termination of the Chief Executive Officer’s employment by NutraCea other than for Cause, as defined in the Agreement; or (v) at the sole discretion of NutraCea’s Board of Directors.

On April 1, 2004, NutraCea repurchased 344,956 shares of common stock valued at $230,000 from the Chief Executive Officer of NutraCea pursuant to a repurchase agreement of that date.

During the year ended December 31, 2004, NutraCea converted preferred dividends in the amount of $5,986 into 5,759 shares of common stock.

On September 8, 2004, NutraCea and Langley Park Investments PLC (“Langley”) signed a Stock Purchase Agreement under which NutraCea agreed to sell 7,000,000 shares of its common stock to Langley. The transaction will close at the time that Langley’s shares are trading on the London Stock Exchange for anticipated consideration to NutraCea (i) immediately following the closing of approximately $1,190,000 U.S.D. in Langley stock, and (ii) additional consideration of that number of Langley shares which, as of the closing, will have a value of approximately $1,190,000 (the “Langley Shares”). NutraCea has agreed to hold the Langley Shares in escrow for two years from the date of closing. After the two-year holding period, the Langley Shares will be subject to possible reduction in number if NutraCea’s common shares are trading at a value of less than $0.34 U.S.D. After such reduction, if any, the remaining Langley Shares may be sold by NutraCea at their then current value.

F-20
 
NUTRACEA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
Pursuant to the Purchase Agreement, Langley has agreed that it will not sell, transfer or assign any or all of the NutraCea shares for a period of two years following the closing without the prior written consent of NutraCea, which consent may be withheld by NutraCea in its sole discretion.

During the year ended December 31, 2004, Nutracea issued 3,767,950 shares of common stock to consultants for services rendered valued at $2,542,300.

During the year ended December 31, 2004, Nutracea issued 640,000 shares of common stock to officers and directors for services rendered valued at 927,800.

During the year ended December 31, 2004, NutraCea issued 168,626 shares of common stock to vendors in payment of accounts payable totaling $57,944.

During the year ended December 31, 2004, Nutracea issued 6,579,323 shares of common stock pursuant to the exercise of stock options for cash totaling $2,776,468.

During the year ended December 31, 2004, NutraCea converted 540,000 shares of preferred stock to 630,000 shares of common stock pursuant to the Mandatory Conversion paragraph of the Private Placement Memorandum dated November 9, 2001.

NOTE 11 - STOCK OPTIONS AND WARRANTS

Expense for stock options and warrants issued to consultants is calculated at fair value using the Black-Scholes valuation method.

On October 31, 2003, the Board of Directors approved and adopted the 2003 Stock Compensation Plan and authorized the President of the Company to execute a registration statement under the Securities Act of 1933 for 10,000,000 shares of common stock.

The expense, if any, of stock options issued to employees is recognized over the shorter of the term of service or vesting period. The expense of stock options issued to consultants or other third parties are recognized over the term of service. In the event services are terminated early, the entire amount is recognized. The unamortized portion of the expense to be recognized is recorded as deferred compensation.

In April 2003, the Company issued warrants to purchase 1,000,000 shares of common stock to its Chief Operating Officer in accordance with an employment agreement dated April 15, 2003. The warrants have an exercise price of $0.001 per share and vest as follows:

 
§
250,000 on April 15, 2003

 
§
250,000 upon the fourth month of employment

 
§
250,000 upon the eighth month of employment

 
§
250,000 upon the twelfth month of employment

F-21
 
NUTRACEA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
In relation to this transaction, the Company recorded deferred compensation expense totaling $109,000. In addition, because this grant as modified due to the reverse split of November 21, 2003 must be accounted for as a variable award, an additional $303,750 was recorded relating to this award as of December 31, 2003.

On June 20, 2003, the Company issued warrants to purchase 32,900 shares of common stock to a vendor as payment on accounts payable totaling $27,786. The warrants have an exercise price of $.01 per share and expire June 18, 2008. In addition, the Company entered into a note payable agreement with the consultant totaling $17,000, payable at $3,000 per month beginning September 2003.

On July 31, 2003, the Company issued warrants to purchase 7,143 shares of common stock to a vendor as payment on accounts payable totaling $5,676. The warrants have an exercise price of $0.01 per share and expire June 12, 2008. In addition, the Company entered into a note payable agreement with the consultant totaling $4,000, payable at $1,000 a month beginning October 1, 2003.

During September 2003, the Company entered into a compensation agreement with a consultant, whereby the Company will pay a total of $5,356 of unpaid fees due to the consultant in monthly payments of $670, payable on the first of the month beginning October 1, 2003. Per the agreement, the Company also issued warrants valued at $7,065 to purchase 4,167 shares of common stock at an exercise price of $0.01 per share. The warrants expire on August 5, 2008.

During the six months ended June 30, 2003, the Company issued warrants to purchase 321,285 shares of common stock at exercise prices ranging from $0.01 to $0.70 per share to employees in lieu of deferred salaries totaling $150,465. The warrants expire five years from date of issue.

During the year ended December 31, 2003, options and warrants representing 4,519,373 shares of common stock were exercised for a total value of $427,575.

During the year ended December 31, 2003 the Company issued 3,796,563 options to various consultants for services rendered. The options have exercise prices between $.001 and $5.00 and expire at varying times between six months and five years. Non-cash consulting expense of $1,165,584 was recorded relating to these agreements.

During the year ended December 31, 2003, the Company issued warrants to purchase 2,545,000 shares of common stock exercisable at $.20 per share and expiring five years from date of issue. The warrants were issued in connection with the conversion of $823,119 of convertible notes payable and accrued interest to common shares of the Company, and non-cash expense of $183,855 was recorded relating to these warrants.

During the year ended December 31, 2004, NutraCea issued 6,998,493 warrants with exercise prices between $.001 and $5.00 per share to consultants. The warrants expire at varying times between six months and five years. A total of $7,761,515 in non-cash compensation expense was recorded relating to the issue of these warrants.

On July 9, 2004, NutraCea issued 25,000 stock options with an exercise price of $.20, expiring in five years, to an employee of the Company. Non-cash compensation expense of $21,000 was recorded relating to the issue of these options.

During the quarter ended December 31, 2004, Nutracea issued 2,400,000 warrants with an exercise price of $0.30, in conjunction with notes payable issued by the Company during the quarter. The warrants are immediately exercisable and expire in seven years from the date of issuance. A total of $786,371 of accrued debt discount expense was recorded relating to the issue of these warrants and is being amortized over the term of the notes payable.

F-22
 
NUTRACEA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
During the quarter ended December 31, 2004, Nutracea issued 8,000,000 stock options with an exercise price of $0.30, expiring in 10 years to officers of the Company. Non-cash compensation expense of $800,000 was recorded relating to the issue of these options.

Modification of Employee Awards Accounted for Under APB 25

NutraCea granted 1,000,000 options in 2003 to an employee where the option agreement contained a provision whereby neither the number of options nor the exercise price would be adjusted by reverse splits. Effective November 12, 2003, NutraCea authorized a 1 for 10 reverse split. This triggered variable accounting for this award. As of November 12, 2003, 500,000 options had been exercised and only 500,000 remained. Variable accounting requires any intrinsic value at the modification date in excess of the amount measured at the original measurement date shall be recognized as compensation cost over the remaining future service period if the award is unvested, or immediately if the award is vested, for any employee who could benefit from the modification. The award vested 75% in 2003 and 25% in 2004. The award will be marked to market each balance sheet date with the changes charged to compensation expense and additional paid in capital. As of December 31, 2003, the additional intrinsic value on the vested portion totaled $303,750.

Modification of Non-Employee Awards Accounted for Under FAS 123

Nutracea granted 5,725,000 warrants to outsiders in 2003 where the warrant agreements contained a provision whereby neither the number of warrants nor the exercise price would be adjusted by reverse splits. Effective November 12, 2003, NutraCea authorized a 1 for 10 reverse split. This triggered a modification for this award. A modification of the terms of an award that makes it more valuable shall be treated as an exchange of the original award for a new award. In substance, the entity repurchases the original instrument by issuing a new instrument of greater value, incurring additional compensation cost for that incremental value. The incremental value shall be measured by the difference between (a) the fair value of the modified option/warrant determined in accordance with the provisions of this section and (b) the value of the old option/warrant immediately before its terms are modified, determined based on the shorter of (1) its remaining expected life or (2) the expected life of the modified option/warrant. As of December 31, 2003, the additional value totaled $9,811,002 which was recorded as non-cash compensation expense.

F-23
 
NUTRACEA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
The following table summarizes all of the Company’s stock option and warrant transactions:
 
   
  EMPLOYEES
 
   
Year Ended
 
Year Ended
 
   
  December 31, 2004
 
December 31, 2003
 
   
  Weighted Average Exercise Price
 
Number of Shares
 
Weighted Average Exercise Price
 
Number of Shares
 
                    
Outstanding, Beginning of Period
 
$
0.56
   
764,700
 
$
0.41
   
1,090,564
 
Granted
 
$
0.30
   
8,025,000
 
$
0.11
   
1,371,285
 
Expired
 
$
0.00
   
0
 
$
6.60
   
(24,361
)
Reverse Split
 
$
0.00
   
0
 
$
4.17
   
(981,503
)
Exercised
 
$
0.01
   
(500,000
)
$
0.02
   
(691,285
)
Outstanding, End of Period
 
$
0.34
   
8,289,700
 
$
0.56
   
764,700
 
Exercisable, End of Period
 
$
0.34
   
8,289,700
 
$
0.56
   
764,700
 

   
  CONSULTANTS
 
   
Year Ended
 
Year Ended
 
   
December 31, 2004
 
December 31, 2003
 
   
  Weighted Average Exercise Price
 
Number of Shares
 
Weighted Average Exercise Price
 
Number of Shares
 
                    
Outstanding, Beginning of Period
 
$
0.98
   
3,196,819
 
$
0.90
   
2,096,890
 
Granted
 
$
0.62
   
9,598,493
 
$
0.29
   
6,989,105
 
Expired
 
$
4.94
   
(220,833
)
$
5.31
   
(76,182
)
Reverse Split
 
$
0.00
   
0
 
$
8.42
   
(1,884,951
)
Exercised
 
$
0.43
   
(6,479,323
)
$
0.12
   
(3,928,043
)
Outstanding, End of Period
 
$
0.85
   
6,095,156
 
$
0.98
   
3,196,819
 
Exercisable, End of Period
 
$
0.85
   
5,845,156
 
$
0.98
   
3,196,819
 

 
Other information regarding stock options and warrants outstanding at December 31, 2004 is as follows:

       
Options/Warrants Outstanding
 
Options/Warrants Exercisable
 
Range of Exercise Price
 
Remaining Life (Years)
 
Number of Shares
 
Weighted Average Exercise Price
 
Number of Shares
 
Weighted Average Exercise Price
 
$
.001-1.20
 
3-10
   
13,846,234
 
$
.40
   
13,596,230
 
$
.38
 
$
2.50-5.00
 
4-10
   
493,259
 
$
4.30
   
493,259
 
$
4.34
 
$
10.00
 
10
   
45,363
 
$
10.00
   
45,363
 
$
10.00
 
 
F-24
 
NUTRACEA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
The weighted average fair value of the stock options granted during 2004 and 2003 was $0.69 and $1.04 respectively. Variables used in the Black Scholes option/warrant-pricing model include (1) 2.0% risk-free interest rate, (2) expected option/warrant life is the actual remaining life of the options/warrants as of each year-end, (3) expected volatility ranged from 77% to 251%, and (4) zero expected dividends.

NOTE 12 - RELATED PARTY TRANSACTIONS

In November 2004 the Board of Directors resolved to purchase a new automobile valued at $73,096 for use by the Chief Executive Officer. The CEO waived a car allowance in exchange for use of the automobile. At December 31, 2004, the Company has booked a payable to related party for $73,096.

RiceX Company is a publicly owned company. The spouse of our majority stockholder owns approximately 5% of RiceX and is the former CEO and the current Chairman of the Board and a current director of Ricex. RiceX is NutraCea®’s sole supplier for rice bran derivatives, which are integral to NutraCea®’s sales strategy and which account for about 72% of NutraCea®’s total cost of sales.

On December 12, 2001, NutraCea agreed with RiceX to be their exclusive distributor of rice solubles and rice bran fiber concentrate in the United States of America and to have the exclusive rights to various patents and trademarks owned by RiceX under a 15-year agreement. Under the terms of this agreement, RiceX agreed to cancel certain indebtedness by NutraCea in exchange for 130,000 shares of Series A preferred stock and payment of $41,335 in interest, agreed to new minimum purchase requirements, and agreed to extend the term of the agreement for five years, with two additional renewal periods of five years each. The sales price to NutraCea will be the lower of RiceX's published standard price or the price negotiated by other customers for like quantities and products.

In January 2002, NutraCea revised this 15-year agreement with RiceX. To maintain rights under this revised agreement, NutraCea was to purchase $250,000 of product from RiceX by April 2002, $500,000 by July 2002, $750,000 by October 2002, $1,250,000 by January 2003, $1,500,000 by July 2003, $2,250,000 by January 2004, $6,000,000 by January 2005, and increasing thereafter by 10% per annum through the remaining term of the agreement. During 2002, NutraCea received notice from RiceX, stating that NutraCea was in default under the terms of this distribution agreement with RiceX. On July 9, 2002, RiceX exercised its right to terminate the exclusive distribution agreement and the related license agreements with NutraCea due to NutraCea's default. However, RiceX has agreed that NutraCea has a license to use the patents in its business pursuits.

NOTE 13 - 401(K) PROFIT SHARING PLAN

Effective April 2000, NutraCea adopted a 401(k) profit sharing plan (the "Plan") for the exclusive benefit of eligible employees and their beneficiaries. Substantially all employees are eligible to participate in the Plan. Matching contributions to the Plan are 3% of the employees' gross salary, not to exceed a certain percentage. For 2004 and 2003, NutraCea made matching contributions of $16,064 and $12,616, respectively.

NOTE 14 - BUSINESS SEGMENTS

For internal reporting purposes, management segregates NutraCea into two segments as follows for 2004 and 2003:

F-25

NUTRACEA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
       
SEGMENT INFORMATION
         
                   
Twelve months ended December 31, 2004
 
Net Sales
 
(Loss) from Operations
 
Interest Expense
 
Total Assets
 
Depreciation/
Amortization
 
NutraStar Technologies Incorporated
 
$
408,753
 
$
84,431
 
$
27,602
 
$
3,302,018
 
$
38,057
 
NutraGlo Incorporated
   
600,976
   
213,023
   
-
   
35,867
   
-
 
Unallocated corporate overhead
   
-
   
(23,848,816
)
 
-
   
-
   
-
 
Total, NutraCea
 
$
1,009,729
 
$
(23,551,362
)
$
27,602
 
$
3,337,885
 
$
38,057
 

Twelve months ended December 31, 2003
 
Net Sales
 
(Loss) from Operations
 
Interest Expense
 
Total Assets
 
Depreciation/
Amortization
 
NutraStar Technologies Incorporated
 
$
251,157
 
$
(1,946,352
)
$
4,292,109
 
$
482,089
 
$
98,787
 
NutraGlo Incorporated
   
1,284,996
   
541,091
   
18,687
   
58,992
   
-
 
Unallocated corporate overhead
   
-
   
(6,821,743
)
 
-
   
-
   
-
 
Total, NutraCea
 
$
1,536,153
 
$
(8,227,004
)
$
4,310,796
 
$
541,081
 
$
98,787
 

NOTE 15 - SUBSEQUENT EVENTS (UNAUDITED)

Effective January 1, 2005, NutraCea entered into a four month consulting agreement with an individual to act as the interim Chief Financial Officer of the Company. Minimum monthly compensation is $6,250 payable in cash monthly.

On January 25, 2005 the Company entered into a three year employment agreement with its Senior Vice President whereby the Company is to pay the officer a base salary of $150,000 per year. The agreement also provides that the officer is entitled to a one-time initial bonus of $25,000 and will be eligible for future incentive bonuses based solely on the discretion of the Chief Executive Officer or President of the Company and to be approved by the Company’s Compensation Committee. Warrants to purchase 1,000,000 shares of the Company’s common stock at an exercise price of $0.30 per share were issued and will vest 500,000 at signing of the employment agreement and 500,000 on January 25, 2006. Warrants to purchase 1,000,000 shares of the Company’s common stock at an exercise price of $0.30 per share were also issued and will vest upon the achievement of NutraCea obtaining “Gross Sales over $25,000,000” and the Company reports a positive EBITDA for the period. All warrants expire in ten years from the date of issuance.

On January 26, 2005 the Company entered into a non-exclusive distribution agreement to distribute the Company’s rice based nutraceutical products in the United States. An initial order for $25,000 was made concurrently with the signing of the agreement. The term of the agreement is for three years. Products are sold to the distributor at NutraCea’s standard price schedule; purchases above certain annual minimum requirements will then receive a 5% discount. Additionally, failure to meet these minimum purchase requirements is cause for termination of the agreement at the Company’s option. NutraCea may also at its option terminate the agreement upon 60 days written notice to the distributor.

On February 9, 2005, NutraCea issued 200,000 stock options with an exercise price of $0.45 per share, vesting in three years, expiring in ten years, to two employees of the Company with each receiving 100,000 options. Non-cash compensation expense of $2,000 was recorded relating to the issue of these options.

F-26
 
NUTRACEA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
On February 10, 2005 NutraCea entered into a one year consulting agreement with a financial relations company. Compensation shall be $10,000 per month and the issuance of 700,000 warrants to purchase shares of common stock at a price of $.45 per share; 700,000 warrants to purchase shares of common stock at a price of $.65 per share; and 700,000 warrants to purchase shares of common stock at a price of $.85 per share. In conjunction with this agreement the Company agreed to pay a finder’s fee to a consulting company consisting of stock options to purchase 135,000 shares of common stock at a price of $0.45 per share.

On February 28, 2005 the Company terminated an existing consulting agreement with a retired employee that was entered into on April 19, 2004. At the Company’s sole discretion it may retain the services of the consultant on a monthly basis at a rate of $80 per hour, not to exceed 10 hours per month for the first three months following the termination of the agreement. Additionally, for each patent granted to the Company whereby the consultant is listed as inventor, the consultant shall receive 15,000 shares of restricted common stock; however the maximum value of the stock grant shall not exceed $15,000 based on the closing bid price of the Company’s common stock on the date the patent is granted, with the total shares granted reduced accordingly.

On March 1, 2005, NutraCea amended and restated a consulting agreement (with Company options to extend on an annual basis) with a retired employee of NutraCea. Under the terms of the agreement, monthly compensation of $7,500 is payable. In addition, the consultant received warrants to purchase 10,000 shares of common stock at $.43 a share. The 10,000 warrants are valued at $3,131 and expire in three years. Either party can cancel this agreement with 30-day written notice. If the agreement is extended past the first year then monthly compensation will be increased to $8,333 with additional warrants to purchase 15,000 shares of common stock at the market price per share at the date of extension. Additionally, for each patent granted to the Company whereby the consultant is listed as inventor, the consultant shall receive 15,000 shares of restricted common stock; however the maximum value of the stock grant shall not exceed $15,000 based on the closing bid price of the Company’s common stock on the date the patent is granted, with the total shares granted reduced accordingly.

On March 23, 2005, NutraCea agreed to pay $15,000 of unpaid fees to a consultant. NutraCea also agreed to issue 26,786 shares of common stock, valued at $15,000, to the consultant as payment in full During the quarter ended March 31, 2005, Nutracea issued 33,067 shares of common stock to consultants for services rendered valued at $15,000.

During the quarter ended March 31, 2005, Nutracea issued 6,000 shares of common stock pursuant to the exercise of warrants for cash totaling $432.
 
F-27
 
NUTRACEA AND SUBSIDIARIES
Consolidated Balance Sheet
September 30, 2005
(unaudited)
 
ASSETS
 
       
Current assets
     
Cash
 
$
389,034
 
Marketable securities
   
170,977
 
Accounts receivable
   
87,801
 
Inventory
   
391,740
 
Prepaid expenses
   
410,808
 
Total current assets
   
1,450,360
 
         
Restricted marketable securities
   
170,977
 
Property and equipment , net
   
108,807
 
Patents and trademarks , net
   
354,600
 
Goodwill
   
250,001
 
         
Total assets
 
$
2,334,745
 
         
LIABILITIES AND SHAREHOLDERS' DEFICIT
         
Current liabilities
       
Accounts payable
 
$
882,684
 
Accrued expenses
   
296,797
 
Due to related parties
   
2,010
 
Notes payable
   
2,221,684
 
Convertible, mandatorily redeemable series A preferred stock, no par value, $1 stated value 20,000,000 shares authorized 0 shares issued and outstanding
   
20,473
 
Total current liabilities
   
3,423,648
 
Commitments and contingencies
       
Shareholders' deficit
       
Common stock, no par value 100,000,000 shares authorized 38,519,441 shares issued and outstanding
   
49,608,419
 
Deferred compensation
   
(20,239
)
Accumulated deficit
   
(48,639,037
)
Accumulated other comprehensive income, unrealized loss on marketable securities
   
(2,038,046
)
Total shareholders' deficit
   
(1,088,903
)
Total liabilities and shareholders' deficit
 
$
2,334,745
 
 
F-28
 
NUTRACEA AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
 
   
For the nine months ended
September 30,
 
For the three months ended
September 30,
 
   
2005
 
2004
 
2005
 
2004
 
                   
Revenues
                 
Net product sales
 
$
1,060,271
 
$
662,910
 
$
301,726
 
$
249,840
 
                           
Cost of goods sold
   
704,569
   
396,494
   
232,713
   
165,069
 
                           
Gross profit
   
355,702
   
266,416
   
69,013
   
84,771
 
                           
Operating expense
                         
Sales, general and administrative expense
   
1,840,794
   
10,025,278
   
365,488
   
274,245
 
Research and development expense
   
67,959
   
105,717
   
13,112
   
22,403
 
Professional fees
   
1,501,259
   
11,330,383
   
475,406
   
862,818
 
Depreciation and amortization expense
   
47,925
   
106,197
   
16,325
   
10.225
 
                           
Total operating expense
   
3,457,937
   
21,567,575
   
870,331
   
1,169,691
 
                           
Loss from operations
   
(3,102,235
)
 
(21,301,159
)
 
(801,318
)
 
(1,084,920
)
                           
Other income (expense)
                         
Customer deposit forfeiture
   
100,000
   
-
   
-
   
-
 
Interest income
   
6,036
   
4,084
   
1,172
   
1,027
 
Interest expense
   
(715,046
)
 
(495
)
 
(235,398
)
 
-
 
                           
Total other income (expense)
   
(609,010
)
 
3,589
   
(234,226
)
 
1,027
 
                           
Net loss
   
(3,711,245
)
 
(21,297,570
)
 
(1,035,544
)
 
(1,083,893
)
                           
Cumulative preferred dividends
   
-
   
(8,373
)
 
-
   
-
 
                           
Net loss available to common shareholders
 
$
(3,711,245
)
$
(21,305,943
)
$
(1,035,544
)
$
(1,083,893
)
                           
Basic and diluted loss available to common shareholders per share
 
$
(0.10
)
$
(1.12
)
$
(0.03
)
$
(0.04
)
                           
Basic and diluted weighted-average shares outstanding
   
36,756,797
   
18,946,026
   
38,033,352
   
26,537,529
 
 
F-29

NUTRACEA AND SUBSIDIARIES
Consolidated Statements of Comprehensive Loss
(unaudited)
 
   
For the nine months ended
September 30,
 
For the three months ended
September 30,
 
   
2005
 
2004
 
2005
 
2004
 
                   
Net loss available tocommon shareholders
 
$
(3,711,245
)
$
21,305,943
)
$
(1,035,544
)
$
(1,083,893
)
                           
Other comprehensive loss
                         
Unrealized gain (loss) on marketable securities
   
(25,378
)
 
(1,667,666
)
 
54,984
   
(1,667,666
)
                           
Net and comprehensive loss
 
$
(3,736,623
)
$
(20,213,677
)
$
(980,560
)
$
(2,751,559
)
 
F-30
 
NUTRACEA AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
 
   
For the nine months ended
September 30,
 
   
2005
 
2004
 
Cash flows from operating activities
             
Net loss
 
$
(3,711,245
)
$
(21,297,570
)
Adjustments to reconcile net loss to net cash used in operating activities
             
Accretion of warrants used as a debt discount
   
586,510
   
-
 
Depreciation and amortization
   
108,640
   
73,826
 
Non-cash issuances of common stock
   
920,255
   
11,627,484
 
Non-cash issuances of stock options & warrants
   
414,449
   
7,782,515
 
(Increase) decrease in
             
Accounts receivable
   
(80,120
)
 
(83,355
)
Inventory
   
(87,676
)
 
(112,738
)
Prepaid expenses
   
(380,053
)
 
(23,134
)
Increase (decrease) in
             
Advances from related parties
   
(71,968
)
 
(9,578
)
Accounts payable
   
621,611
   
(21,711
)
Accrued salaries and benefits
   
(9,371
)
 
(37,130
)
Deferred compensation
   
-
   
(47,842
)
Accrued expenses
   
130,354
   
10,025
 
Customer deposits
   
(4,235
)
 
5,000
 
Net cash (used) in operating activities
   
(1,562,849
)
 
(2,130,208
)
Cash flows from investing activities
             
Purchase of property and equipment
   
(16,100
)
 
(35,110
)
Payment for patents and trademarks
   
(45,720
)
 
(51,534
)
Net cash used in investing activities
   
(61,830
)
 
(86,644
)
Cash flows from financing activities
             
Proceeds from exercise of stock options
   
85,432
   
2,771,868
 
Payment of preferred dividends
   
-
   
(48,004
)
Repurchase of common stock
   
-
   
(230,000
)
Net cash provided by financing activities
   
85,432
   
2,493,864
 
Net increase (decrease) in cash
   
(1,539,247
)
 
277,012
 
Cash, beginning of period
   
1,928,281
   
100,023
 
Cash, end of period
 
$
389,034
 
$
377,035
 
 
F-31
 
NUTRACEA AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
 
NOTE 1
BASIS OF PRESENTATION:

The accompanying unaudited interim consolidated financial statements of NutraCea have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in NutraCea’s Annual Report filed with the SEC on Form 10-KSB. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements that would substantially duplicate the disclosure contained in the audited financial statements for 2004 as reported in the 10-KSB have been omitted.

NOTE 2
STOCK-BASED COMPENSATION:  

Compensation is recorded for stock-based compensation grants based on the excess of the estimated fair value of the common stock on the measurement date over the exercise price. Additionally, for stock-based compensation grants to consultants, NutraCea recognizes as compensation expense the fair value of such grants as calculated pursuant to SFAS No. 123, recognized over the related service period. SFAS No. 148 requires companies to disclose proforma results of the estimated effect on net income and earnings per share to reflect application of the fair value recognition provision of SFAS No. 123.

   
For the nine months
 
For the three months
 
   
ended September 30,
 
ended September 30,
 
   
2005
 
2004
 
2005
 
2004
 
                   
Net loss available to common shareholders:
                         
As reported:
   
($3,711,245
)
 
($21,305,943
)
 
($1,035,544
)
 
($1,083,893
)
Less: compensation expensed charged to income:
   
789,251
   
7,782,515
   
552,245
   
490,455
 
Plus: proforma compensation expense:
   
(1,226,529
)
 
(7,784,542
)
 
(552,245
)
 
(490,455
)
                           
Proforma net loss available to common shareholders:
   
($4,148,523
)
 
($21,307,970
)
 
($1,035,544
)
 
($1,083,893
)
Basic loss per common share:
                         
As reported:
   
($0.10
)
 
($1.12
)
 
($0.03
)
 
($0.04
)
Proforma:
   
($0.11
)
 
($1.12
)
 
($0.03
)
 
($0.04
)
 
F-32
 
NUTRACEA AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (continued)
 
NOTE 3
MARKETABLE SECURITIES

On September 8, 2004, NutraCea purchased 1,272,026 shares of Langley Park Investment Trust, PLC, a United Kingdom closed-end mutual fund that is actively traded on a London exchange. Per the Stock Purchase Agreement, NutraCea paid with 7,000,000 shares of its own common stock.

Per the Agreement, NutraCea may sell 636,013 shares of Langley at any time, and the remaining 636,013 shares of Langley and the 7,000,000 shares of NutraCea are escrowed together for a 2-year period. At the end of the period, Langley’s NutraCea shares are measured for any loss in market value and if so, NutraCea must give up that pro-rata portion of its Langley shares up to the escrowed 636,013 shares.

As of September 30, 2005, the NutraCea shares have not lost any value. However, the Langley shares are marked down to their fair market value of $341,954, with one-half or $170,977 shown as a current asset because they may be sold at any time, and the other one-half shown as long-term because they are held in escrow pending the 2-year review of NutraCea’s stock valuation.
 
Any unrealized holding gains and losses on the marketable securities are excluded from operating results and are recognized as other comprehensive income. The fair value of the securities is determined based on prevailing market prices.

NOTE 4
COMMITMENTS AND CONTINGENCIES

Agreements

For all agreements where stock is awarded as partial or full consideration, the expense is valued at the fair value of the stock. Expense for stock options and warrants issued to consultants is calculated at fair value using the Black-Scholes valuation method.

On January 25, 2005, NutraCea entered into a three year employment agreement with its Senior Vice President whereby NutraCea is to pay the officer a base salary of $150,000 per year. The agreement also provides that the officer is entitled to a one-time initial bonus of $25,000 and will be eligible for future incentive bonuses based solely on the discretion of the Chief Executive Officer or President of NutraCea and to be approved by NutraCea’s Compensation Committee. Warrants to purchase 1,000,000 shares of NutraCea’s common stock at an exercise price of $0.30 per share were issued and will vest 500,000 at signing of the employment agreement and 500,000 on January 25, 2006. Warrants to purchase 1,000,000 shares of NutraCea’s common stock at an exercise price of $0.30 per share were also issued and will vest upon the achievement of NutraCea obtaining “Gross Sales over $25,000,000” and NutraCea reports a positive EBITDA for the period. All warrants expire in ten years from the date of issuance.

On January 26, 2005 NutraCea entered into a non-exclusive distribution agreement to distribute NutraCea’s rice based nutraceutical products in the United States. An initial order for $25,000 was made concurrently with the signing of the agreement. The term of the agreement is for three years. Products are sold to the distributor at NutraCea’s standard price schedule; purchases above certain annual minimum requirements will then receive a 5% discount. Additionally, failure to meet these minimum purchase requirements is cause for termination of the agreement at NutraCea’s option. NutraCea may also at its option terminate the agreement upon 60 days written notice to the distributor.

F-33
 
NUTRACEA AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (continued)
 
On February 9, 2005, NutraCea issued 200,000 stock options with an exercise price of $0.45 per share, vesting over three years, with lockup provisions through December 31, 2005 to two employees of NutraCea with each receiving 100,000 options. Non-cash compensation expense of $2,000 was recorded relating to the issue of these options.

On February 10, 2005, NutraCea entered into a one year consulting agreement with Trilogy, a financial relations company. Payments to Trilogy consisted of $10,000 per month and the issuance of 700,000 warrants to purchase shares of common stock at an exercise price of $.45 per share; 700,000 warrants to purchase shares of common stock at an exercise price of $.65 per share; and 700,000 warrants to purchase shares of common stock at an exercise price of $.85 per share. This agreement was subsequently terminated in April 2005. As a result, NutraCea has no further financial obligations pursuant to this contract and all warrants originally issued under the contract were cancelled. In conjunction with this agreement NutraCea agreed to pay a finder’s fee to a consulting company consisting of stock options to purchase 135,000 shares of common stock at a price of $0.45 per share.

On February 28, 2005, NutraCea terminated an existing consulting agreement with a retired employee that was entered into on April 19, 2004. At NutraCea’s sole discretion it may retain the services of the consultant on a monthly basis at a rate of $80 per hour, not to exceed 10 hours per month for the first three months following the termination of the agreement. Additionally, for each patent granted to NutraCea whereby the consultant is listed as inventor, the consultant shall receive 15,000 shares of restricted common stock; however the maximum value of the stock grant shall not exceed $15,000 based on the closing bid price of NutraCea’s common stock on the date the patent is granted, with the total shares granted reduced accordingly.

On March 1, 2005, NutraCea amended and restated a consulting agreement (with Company options to extend on an annual basis) with a retired employee of NutraCea. Under the terms of the agreement, monthly compensation of $7,500 is payable. In addition, the consultant received warrants to purchase 10,000 shares of common stock at $.43 a share. The 10,000 warrants are valued at $3,131 and expire in three years. Either party can cancel this agreement with 30-day written notice. If the agreement is extended past the first year then monthly compensation will be increased to $8,333 with additional warrants to purchase 15,000 shares of common stock at the market price per share at the date of extension. Additionally, for each patent granted to NutraCea whereby the consultant is listed as inventor, the consultant shall receive 15,000 shares of restricted common stock; however the maximum value of the stock grant shall not exceed $15,000 based on the closing bid price of NutraCea’s common stock on the date the patent is granted, with the total shares granted reduced accordingly.

On March 15, 2005, NutraCea entered into a five year consulting agreement with a medical advisor. Under the terms of the agreement, annual compensation shall be 15,000 warrants to purchase shares of common stock at the market price on each anniversary date. The option price for the first year of service is a price of $.50 per share.

On March 23, 2005, NutraCea agreed to pay $15,000 of unpaid fees to a web design consultant by issuing 26,786 shares of common stock.
 
On April 5, 2005, NutraCea hired a financial services firm to assist in evaluating the proposed merger with RiceX and to provide a fairness opinion. A fee of $50,000 for this work was paid.

F-34
 
NUTRACEA AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (continued)
 
On April 5, 2005, NutraCea hired an information technology and marketing firm to assist in the development of sales of NutraCea’s products over the Internet. The IT firm purchases from NutraCea products at 50% of the suggested retail price and has the non-exclusive right to sell them on the Internet. All sales, marketing, shipping, and handling costs are the responsibility of the IT firm. The term of the contract is for three years. Additionally, options to purchase 360,000 shares of common stock of NutraCea at an exercise price of $0.60 per share were issued at the effective date of the contract, with 45,000 options vesting at the signing of the contract and the remainder of the options vesting at 15,000 options per month over the next 21 months. All options that vest are locked up until December 31, 2007. A total of 105,000 options vested during the term that this contract was effective. This agreement was subsequently terminated in August 2005 and total of 105,000 options vested during the term that this contract was effective. As a result, NutraCea has no further financial obligations pursuant to this contract.
 
On April 12, 2005, NutraCea granted various rights to its principal equine division products customer that specifically include:

 
·
The grant to NutraCea of exclusive worldwide rights to manufacture certain equine products for the customer.

 
·
The transfer and assignment of the customer’s technology rights granted to it in a prior Technology Agreement dated September 13, 2003. 1,222,222 shares of NutraCea’s common stock were issued to the customer as consideration for the transfer and assignment.

 
·
The transfer and assignment of technology rights of a limited liability corporation formed by the customer and granted to it in a prior Technology Agreement dated September 13, 2003. 166,667 shares of NutraCea’s common stock are to be issued to the limited liability corporation as consideration for the transfer and assignment.

 
·
The grant of marketing and distribution rights to the customer covering: 1) the right of first offer to market new products as may be developed by NutraCea or proposed to be developed by the customer for non-human markets; and 2) the right of first refusal in the event that a third party independently contacts NutraCea regarding the marketing and distribution of new, non-human products. Also, the customer agrees to use NutraCea as the exclusive manufacturer for any new, non-human products as defined. Additionally, NutraCea may earn a 5% royalty on new products on revenues exceeding specified annual volume levels.

On April 18, 2005, a direct response marketing company hired the Chief Executive Officer of NutraCea whereby she will receive a royalty of $1 per unit sold resulting from infomercials that will demonstrate specific products of NutraCea. Royalty payments will be made by the direct response marketing company and are not an obligation of NutraCea.

On April 19, 2005, NutraCea signed an agreement with a direct response marketing company to market and sell products through infomercials. The agreement is for one year and may be extended for an additional year. The agreement covers pricing of specific products at wholesale prices which will be private labeled for direct sale by the marketing company. During the term of the agreement NutraCea will not sell its products through any other infomercials so long as the marketing company maintains minimum quarterly orders beginning October 1, 2005 of $500,000.

F-35
 
NUTRACEA AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (continued)
 
On May 5, 2005, NutraCea’s hired a consulting company to provide patent and license analysis. The agreement is for one year and may be terminated by either party with 30 days written notice. Compensation shall be 448,980 shares of common stock valued at $220,000 granted to the consulting company which was booked entirely in this period. 50% of the shares vest upon the signing of the agreement; a minimum of 134,693 shares vest within three months of certain reporting requirements being made by the consulting company; and the remaining shares vest upon NutraCea taking action on recommendations of the consulting company.

On May 17, 2005, NutraCea entered into a one year consulting agreement (with Company options to extend on an annual basis) with a retired employee of NutraCea primarily for research and development work. Under the terms of the agreement, monthly compensation of $6,667 is payable. In addition, the consultant received warrants to purchase 10,000 shares of common stock at $0.50 a share. The 10,000 warrants are valued at $3,395 and expire in three years. Either party can cancel this agreement with 30-day written notice. Additionally, for each patent granted to NutraCea whereby the consultant is listed as inventor, the consultant shall receive 15,000 shares of restricted common stock.

Effective June 1, 2005, NutraCea entered into a one year consulting agreement with an investor relations firm. Either party may terminate the agreement upon four months written notice to the other party. Under the terms of the agreement monthly compensation is $5,000. In addition, the consulting firm received options to purchase 250,000 shares of common stock at $0.65 per share. The 250,000 options are valued at $90,044, expire in five years, and may not be exercised for the first year from the date of grant.

On July 1, 2005 NutraCea hired a company to provide potential qualified customer introductions. The term of the service agreement is 12 months and may be terminated by either party upon written notice. NutraCea granted the company an option to purchase 250,000 shares of restricted common stock at a price of $0.65 per share. The option shall not vest until NutraCea has received purchase orders of at least $2,000,000 from a qualifying agreement during the term of the agreement plus 12 months from the termination of the service agreement from any qualifying agreement. Additionally, upon vesting of the option NutraCea shall pay the company a reasonable royalty fee based on the net profits received from a qualifying agreement.

On July 1, 2005 NutraCea entered into a consulting agreement with an individual to assist in the research and validation of NutraCea’s products in the medical foods market. The term of the agreement is for six months. NutraCea granted the individual an option to purchase 250,000 shares of restricted common stock at a price of $0.65 per share.

On July 13, 2005 NutraCea hired a financial advisory services company to act as the exclusive financial advisor in connection with the issuance of equity securities during the term of the agreement. The term of the agreement is 12 months. Compensation consists of an initial $10,000 advisory fee; transaction fees of varying amounts based on the amount of capital raised by NutraCea through the efforts of the financial advisor; and warrants of varying amounts based on the amount of capital raised by NutraCea through the efforts of the financial advisor.

On July 14, 2005 NutraCea hired an individual to assist in forming a joint operating agreement with a rice mill in two certain foreign countries. The term of the finder’s agreement is for nine months and may be terminated by either party for any reason at any time. NutraCea shall pay the finder a fee based on net income. The joint entity transaction must include a purchase commitment arranged by the venture party from the applicable country for a minimum of one hundred thousand servings per day for the first two years while a production plant is being constructed and a subsequent commitment for an additional one million servings per day for at least two additional years after the production plant has been constructed. The venture party must fund the construction of the production plant.

F-36
 
NUTRACEA AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (continued)
 
On August 23, 2005 NutraCea entered into a one year consulting agreement with a medical advisor. NutraCea granted the individual an option to purchase 30,000 shares of restricted common stock at a price of $0.60 per share. Additionally, NutraCea will pay the individual a $500 per day per diem for attendance at meetings and appearances on behalf of NutraCea.

On August 24, 2005, NutraCea signed an agreement with a direct response marketing company to market and sell products through infomercials. The agreement is for two years and may be extended for an additional year. The agreement covers pricing of specific products at wholesale prices which will be private labeled for direct sale by the marketing company. During the term of the agreement NutraCea will not sell its products through any other infomercials so long as the marketing company maintains minimum quarterly orders beginning October 1, 2005 of $500,000. Additionally, NutraCea granted the company an option to purchase 250,000 shares of restricted common stock at a price of $1.275 per share. The options vest 50,000 shares upon payment in full of the contract quarter minimum purchase orders during the term of the agreement.

On September 13, 2005 NutraCea entered into an agreement with Dominican Republic rice mill whereby the two companies will form a joint venture to install equipment to annually produce at least 5,000 metric tons of stabilized rice bran. The joint venture will be equally owned by the two companies and will commercially sell stabilized rice bran products through retail and government in the Dominican Republic and Haiti.

Merger with The RiceX Company
At special meetings of shareholders held on September 28, 2005 the shareholders of NutraCea and The RiceX Company ("RiceX") approved various matters relating to the proposed merger between the two companies.

On October 4, 2005, NutraCea, through its wholly-owned subsidiary, Red Acquisition Corporation, a Delaware corporation (“Merger Sub”), consummated its acquisition of RiceX by merger (the “Merger”) pursuant to the terms of an Agreement and Plan of Merger and Reorganization, dated April 4, 2005, by and among NutraCea, Merger Sub and RiceX (the “Merger Agreement”). At the effective time of the Merger, Merger Sub merged with and into RiceX, with RiceX surviving the Merger as a wholly-owned subsidiary of NutraCea. Pursuant to the Merger Agreement and as a result of the Merger, each share of RiceX common stock outstanding immediately prior to the effective time of the Merger was converted into the right to receive 0.76799 shares of NutraCea’s common stock.

At the completion of the Merger, the stockholders of RiceX received 28,272,226 shares of NutraCea common stock in exchange for their shares of RiceX common stock, and NutraCea assumed the outstanding options and warrants to purchase 11,810,507 shares of RiceX common stock.

F-37
 
NUTRACEA AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (continued)
 
On September 28, 2005, NutraCea entered into a Securities Purchase Agreement and a Registrations Rights Agreement in connection with a private placement of its securities to certain investors for aggregate gross proceeds of approximately $7.85 million (approximately $7.3 million after estimated offering expenses). Upon closing of the transaction on October 4, 2005, the investors purchased an aggregate of 7,850 shares of Series B Convertible Preferred Stock at a price of $1,000 per share pursuant to the Purchase Agreement. The preferred shares can be converted to shares of common stock at a conversion rate of 2,000 shares of common stock for each preferred share issued in the transaction. Additionally, pursuant to the Purchase Agreement, the investors were issued warrants to purchase an aggregate 7,850,000 shares of common stock at an exercise price of $0.70 per share. The warrants have a term of five years and are immediately exercisable. An advisor for the financing received a customary fee based on aggregate gross proceeds received from the investors and a warrant to purchase 1,099,000 shares of common stock at an exercise price per share of $0.50 per share.

NOTE 5
COMMON STOCK

Common and Preferred Stock

All stock issued is valued at the fair value of the stock.

During the quarter ended September 30, 2005, NutraCea issued 174,667 shares of common stock to consultants for services rendered valued at $85,400.

During the quarter ended September 30, 2005, NutraCea issued 97,000 shares of common stock in settlement of contractual agreements valued at $97,655.

During the quarter ended September 30, 2005, Nutracea issued 425,000 shares of common stock pursuant to the exercise of stock options for cash totaling $85,000.

Stock Options & Warrants

Expense for stock options and warrants issued to consultants is calculated at fair value using the Black-Scholes valuation method.

During the quarter ended September 30, 2005, NutraCea issued 310,000 warrants with exercise prices of $0.60 per share to consultants. The warrants expire between four years and five years from the date of issue. A total of $177,443 in non-cash compensation expense was recorded relating to the issue of these warrants.

NOTE 6
BUSINESS SEGMENTS

For internal reporting purposes, management segregates NutraCea into operating segments as follows for the nine and the three months ended September 30, 2005 and 2004:

F-38
 
NUTRACEA AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (continued)
 
Nine months ended September 30, 2005
 
Net Sales
 
(Loss) from Operations
 
Interest Expense
 
Total Assets
 
Depreciation/
Amortization
 
NutraStar Technologies Incorporated
 
$
698,465
 
$
795,692
 
$
715,046
 
$
2, 292,3178
 
$
47,925
 
NutraGlo Incorporated
   
659,536
   
256,443
   
-
   
42,428
   
-
 
Unallocated corporate overhead
         
(4,154,370
)
             
60,715
 
Total, NutraCea
 
$
1,358,001
 
$
(3,102.235
)
$
715,046
 
$
2,334,745
 
$
108,640
 

Nine months ended September 30, 2004
 
Net Sales
 
(Loss) from Operations
 
Interest Expense
 
Total Assets
 
Depreciation/
Amortization
 
NutraStar Technologies Incorporated
 
$
306,113
 
$
(9,505,506
)
$
495
 
$
1,914,563
 
$
24,167
 
NutraGlo Incorporated
   
356,797
   
109,200
   
-
   
136,669
   
-
 
Unallocated corporate overhead
   
-
   
(11,904,853
)
 
-
   
-
   
-
 
Total, NutraCea
 
$
662,910
 
$
(21,301,159
)
$
495
 
$
2,051,232
 
$
24,167
 

Three months ended September 30, 2005
 
Net Sales
 
(Loss) from Operations
 
Interest Expense
 
Total Assets
 
Depreciation/
Amortization
 
NutraStar Technologies Incorporated
 
$
484,122
 
$
264,505
 
$
235,398
 
$
2,292,317
 
$
16,326
 
NutraGlo Incorporated
   
115,334
   
28,592
   
-
   
42,428
   
-
 
Unallocated corporate overhead
         
(1,094,415
)
             
20,234
 
Total, NutraCea
 
$
599,456
 
$
(801,318
)
$
235,398
 
$
2,334,7451
 
$
36,560
 

Three months ended September 30, 2004
 
Net Sales
 
(Loss) from Operations
 
Interest Expense
 
Total Assets
 
Depreciation/
Amortization
 
NutraStar Technologies Incorporated
 
$
88,916
 
$
304,277
 
$
-
 
$
1,914,563
 
$
10,225
 
NutraGlo Incorporated
   
160,924
   
49,091
   
-
   
136,669
   
-
 
Unallocated corporate overhead
   
-
   
(1,438,288
)
 
-
   
-
   
-
 
Total, NutraCea
 
$
249,840
 
$
(1,084.920
)
$
-
 
$
2,051,232
 
$
10,225
 

NOTE 7
SUBSEQUENT EVENTS

On October 1, 2005, NutraCea entered into a one-year consulting agreement with an independent contractor. Under the terms of the agreement, compensation shall be an initial issuance of 50,000 shares of common stock plus $15,000 in cash or its equivalent value in shares of common stock. Also, during the term of the contract, NutraCea shall pay monthly either $5,000 cash or common stock valued at $5,000, with the type of payment at NutraCea’s discretion. In addition, the independent contractor is entitled to a 2% commission based on net profits resulting from contracts with customers introduced to NutraCea by the independent contractor.

On October 4, 2005 NutraCea completed the merger with The RiceX Company. See Note 4 for additional information.

On October 6, 2005 NutraCea issued 100,000 shares of common stock pursuant to the exercise of stock options and warrants for cash totaling $20,000.

On October 25, 2005 NutraCea signed a binding letter of intent with an industrial consortium in Columbia. The terms of the binding letter of intent include the creation of a joint entity to share equally in the profits generated from sales of NutraCea products in the Colombian market. The agreement includes provisions for the Colombian consortium to provide 50% of all the financing necessary to construct the plants (with NutraCea providing the remaining 50% of the financing) and to be responsible for providing all the necessary land and space required for the implementation of the plants to be constructed. The Colombian consortium is responsible for providing all of the sales and distribution as part of its contribution to the joint entity. As dictated by the letter of intent, it is the intention of the parties to execute a formal definitive agreement on or before December 25, 2005. Unless the parties to the binding letter of intent agree to extend, the binding letter of intent will expire 60 days after signing.

F-39
 
NUTRACEA AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (continued)
 
On October 28, 2005 NutraCea signed a binding letter of intent with an Ecuadorian company. The letter of intent provides for an exclusive 60 day period of time during, in which NutraCea and the Ecuadorian company will attempt to arrive at a definitive agreement for a working arrangement that will allow the Ecuadorian company the right to utilize NutraCea's proprietary ingredients and value-added processing in their multi-faceted food business, which includes animal feed, poultry and cereals. Unless the parties to the binding letter of intent agree to extend, the binding letter of intent will expire 60 days after signing.

In November 2005 NutraCea signed a Supply and Distribution Agreement with T. Geddes Grant, a Jamaican Corporation. The agreement requires NutraCea to deliver a customized formulated and fortified RiSolubles mix to T. Geddes Grant. The agreement requires that T. Geddes Grant purchase a minimum of $4,500,000 of the custom formulation per year for a term of two years. Under the terms of the agreement, T. Geddes Grant is also appointed as exclusive distributor for the territory of Jamaica, Barbados and Trinidad. T. Geddes Grant is obligated to obtain all necessary regulatory approvals for marketing NutraCea products in the Territory and use its best efforts to develop commercial sales in the Territory.

F-40

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors
The RiceX Company

We have audited the accompanying consolidated balance sheet of The RiceX Company and Subsidiary (the Company) as of December 31, 2004 and the related consolidated statements of operations, shareholders’ equity and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The RiceX Company and Subsidiary as of December 31, 2004, and the results of their consolidated operations and their consolidated cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.


/s/ Perry-Smith LLP

Sacramento, California
March 4, 2005

F-41

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


The Board of Directors and Shareholders
The RiceX Company

We have audited the accompanying consolidated balance sheet of The RiceX Company and Subsidiary (the Company) as of December 31, 2003, and the related consolidated statements of operations, shareholders’ equity (deficit) and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of The RiceX Company and Subsidiary as of December 31, 2003, and the results of their consolidated operations and their consolidated cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.


/s/ Moss Adams LLP

Stockton, California
February 20, 2004

F-42

THE RICEX COMPANY
CONSOLIDATED BALANCE SHEETS

ASSETS

   
DECEMBER 31,
 
   
2004
 
2003
 
           
CURRENT ASSETS:
         
Cash and cash equivalents
 
$
1,034,913
 
$
2,219,091
 
Trade accounts receivable, net of allowance for doubtful accounts, $20,000 in 2004 and 2003
   
499,413
   
679,243
 
Inventories
   
401,554
   
340,513
 
Deposits and other current assets
   
91,978
   
76,214
 
               
Total current assets
   
2,027,858
   
3,315,061
 
               
PROPERTY AND EQUIPMENT, net
   
542,576
   
694,161
 
OTHER ASSETS, net
   
27,186
   
59,586
 
               
   
$
2,597,620
 
$
4,068,808
 
               
               
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
CURRENT LIABILITIES:
             
Accounts payable and accrued liabilities
 
$
811,055
 
$
607,742
 
Deferred revenue
   
2,959
   
539,899
 
               
Total current liabilities
   
814,014
   
1,147,641
 
               
COMMITMENTS AND CONTINGENCIES
             
               
SHAREHOLDERS’ EQUITY
             
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, 36,713,274 and 38,060,238 shares issued and outstanding in 2004 and 2003, respectively
   
36,714
   
38,060
 
Additional paid-in capital
   
28,900,767
   
29,154,428
 
Accumulated deficit
   
(27,153,875
)
 
(26,271,321
)
               
               
Total shareholders’ equity
   
1,783,606
   
2,921,167
 
               
   
$
2,597,620
 
$
4,068,808
 

The accompanying notes are an integral part of these statements.
 
F-43
 
THE RICEX COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS

   
YEARS ENDED DECEMBER 31,
 
   
2004
 
2003
 
           
REVENUES:
             
Sales
 
$
4,010,186
 
$
3,511,295
 
               
TOTAL REVENUES
   
4,010,186
   
3,511,295
 
               
COST OF SALES
   
1,655,940
   
1,865,055
 
               
GROSS PROFIT
   
2,354,246
   
1,646,240
 
               
RESEARCH AND DEVELOPMENT EXPENSES
   
223,685
   
226,452
 
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
   
2,465,380
   
2,180,963
 
STOCK OPTION AND WARRANT EXPENSE
   
15,000
   
3,000
 
INVESTOR RELATIONS
   
61,948
   
104,423
 
PROFESSIONAL FEES
   
502,207
   
440,039
 
               
Loss from operations
   
(913,974
)
 
(1,308,637
)
               
OTHER INCOME (EXPENSE):
             
Interest and other income
   
33,070
   
17,864
 
               
Loss before income taxes
   
(880,904
)
 
(1,290,773
)
               
INCOME TAX expense
   
1,650
   
1,650
 
               
Net loss
 
$
(882,554
)
$
(1,292,423
)
               
BASIC AND DILUTED EARNINGS PER SHARE,
             
Net loss per share
 
$
(.02
)
$
(.03
)
               
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
   
37,061,240
   
38,301,484
 
 
The accompanying notes are an integral part of these statements.
 
F-44
 
THE RICEX COMPANY
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2004 AND 2003

   
Common Stock
 
Additional
Paid-In
 
Accumulated
 
Deferred Expenses Related to Equity
 
Total Shareholders’
 
   
Shares
 
Amount
 
Capital
 
Deficit
 
Issuance
 
Equity
 
                           
Balance, January 1, 2003
   
38,680,724
 
$
38,681
 
$
29,315,287
 
$
(24,978,898
)
$
(57,418
)
$
4,317,652
 
                                       
                                       
Stock repurchase
   
(620,486
)
 
(621
)
 
(163,859
)
 
-
   
-
   
(164,480
)
                                       
Amortization of warrants issued to former employees
   
-
   
-
   
3,000
   
-
   
-
   
3,000
 
                                       
Amortization of warrants issued for consulting fees
   
-
   
-
   
-
   
-
   
57,418
   
57,418
 
                                       
Net loss for the year
   
-
   
-
   
-
   
(1,292,423
)
 
-
   
(1,292,423
)
                                       
Balance, December 31, 2003
   
38,060,238
   
38,060
   
29,154,428
   
(26,271,321
)
 
-
   
2,921,167
 
                                       
                                       
                                       
Stock repurchase
   
(1,346,964
)
 
(1,346
)
 
(268,661
)
 
-
   
-
   
(270,007
)
                                       
Amortization of warrants issued to employees
   
-
   
-
   
15,000
   
-
   
-
   
15,000
 
                                       
Net loss for the year
   
-
   
-
   
-
   
(882,554
)
 
-
   
(882,554
)
                                       
Balance, December 31, 2004
   
36,713,274
 
$
36,714
 
$
28,900,767
 
$
(27,153,875
)
$
-
 
$
1,783,606
 

The accompanying notes are an integral part of these statements.

F-45

THE RICEX COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS

   
YEARS ENDED DECEMBER 31,
 
   
2004
 
2003
 
CASH FLOW FROM OPERATING ACTIVITIES:
             
Net loss
 
$
(882,554
)
$
(1,292,423
)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
             
Depreciation and amortization
   
230,475
   
380,019
 
Amortization of shares and warrants issued for services, prepaid interest, and debt issuance cost
   
15,000
   
60,419
 
Net changes in operating assets and liabilities:
             
Trade accounts receivable
   
179,830
   
686,232
 
Inventories
   
(61,041
)
 
(33,202
)
Deposits and other current assets
   
(15,764
)
 
24,968
 
Accounts payable and accrued liabilities
   
203,313
   
18,772
 
Deferred revenue
   
(536,940
)
 
539,898
 
               
Net cash from operating activities
   
(867,681
)
 
384,683
 
               
CASH FLOWS FROM INVESTING ACTIVITIES:
             
Purchases of property and equipment, and other assets
   
(46,490
)
 
75,177
 
               
Net cash from investing activities
   
(46,490
)
 
75,177
 
               
CASH FLOWS FROM FINANCING ACTIVITIES:
             
Repurchase of common stock and warrants
   
(270,007
)
 
(164,480
)
               
Net cash from financing activities
   
(270,007
)
 
(164,480
)
               
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
   
(1,184,178
)
 
295,380
 
CASH AND CASH EQUIVALENTS, beginning of year
   
2,219,091
   
1,923,711
 
CASH AND CASH EQUIVALENTS, end of year
 
$
1,034,913
 
$
2,219,091
 

The accompanying notes are an integral part of these statements.

F-46

THE RICEX COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 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, RiceX Nutrients, Inc. (formally Food Extrusion Montana, Inc.). The consolidated financial statements include the accounts of RiceX and RiceX Nutrients (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 a rice mill in Northern California. The Company purchases raw rice bran from the mill and mill employees, under Company supervision, operate the Company’s equipment to stabilize rice bran. The Company pays a processing fee to the mill for this service. Under an agreement with the mill, the mill may use the Company’s equipment to stabilize rice bran for its customers in exchange for the payment of a royalty fee to the Company. The Company intends to enter into additional relationships with rice processors as part of its overall business strategy.

RiceX Nutrients 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 concentrate forms of the Company’s rice bran products are produced at the Montana facility.

The processing, formulation, packaging, labeling and advertising of the Company’s products are subject to regulation by one or more federal agencies. Congress enacted the Dietary Supplement Health Education Act of 1994 (“DSHEA”), which limits the FDA’s jurisdiction in regulating dietary supplements.

A summary of the significant accounting principles and practices used in the preparation of the consolidated financial statements follows:

Use of estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Concentration of credit risk - Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of trade accounts receivable for sales to major customers. The Company performs credit evaluations on its customers’ financial condition and generally does not require collateral on accounts receivable. The Company maintains an allowance for doubtful accounts on its receivables based upon expected collectibility of all accounts receivable. Uncollected accounts have not been significant.

In 2004, three major customers each accounted for 13%, 12%, and 10% of sales, respectively. Accounts receivable includes amounts due from three customers comprising of 17%, 14%, and 12% of the total outstanding.

In 2003, three major customers each accounted for 22%, 17%, and 7% of sales, respectively. Accounts receivable includes amounts due from two customers comprising 29% and 24% of the total outstanding.

F-47

THE RICEX COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Cash and cash equivalents - Cash equivalents consist of highly liquid investments with an original or remaining maturity at the time of purchase of three months or less.

Allowance for doubtful accounts - The Company provides an allowance for accounts receivable it believes it may not collect in full. It evaluates collectibility of its accounts based on a combination of factors. In circumstances where it is aware of a specific customer’s inability to meet its financial obligations such as bankruptcy, it records a specific reserve. For all other customers, the Company recognized reserves for bad debts based on current and historical collection experience. Accounts receivable are considered delinquent based on contractual terms. The Company does not charge interest on delinquent accounts.

Inventories - Inventories are stated at the lower of cost or market determined on a first-in, first-out basis. The costs associated with the milling process are allocated to inventory.

Property and equipment - Property and equipment are stated at cost. Depreciation or amortization is computed on the straight-line method over the shorter of the estimated life of the asset or the lease term, generally ranging from three to ten years. Upon sales or retirement, the related cost and accumulated depreciation or amortization are removed from the accounts and the resulting gain or loss, if any, is included in results of operations. The cost of additions, improvements, and interest on construction are capitalized, while maintenance and repairs are charged to operations when incurred.

The estimated lives used in determining depreciation and amortization are:

Buildings
 
10 years
Equipment
 
5 - 7 years
Leasehold improvements
 
7 years
Furniture and fixtures
 
5 - 7 years

Deferred expenses related to equity issuance - Costs incurred in connection with equity issuances are deferred and are amortized over the terms of the related service.

Revenue recognition - Revenues from product sales are recognized as products are shipped and when the risk of loss has transferred to the buyer. Deposits are deferred until either the product has shipped or conditions relating to the sale have been substantially performed.

Shipping and handling - Shipping and handling expenses totaled $61,000 and $74,000 in 2004 and 2003 respectively and are captured in SG&A.

Research and development - Research and development costs are expensed when incurred.

Stock options - At December 31, 2004, the Company has one stock-based employee compensation plan, which is described more fully in Note 6. The Company accounts for this plan under the recognition and measurement principles of Accounting Principles Board Opinions No. 25, Accounting for Stock Issued to Employees , and related Interpretations. During 2004, the amount of $15,000 stock-based employee compensation cost is reflected in net income, as some options granted under those plans had an exercise price lower than the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of Financial Accounting Standards Board (“FASB”) Statement No. 123, Accounting for Stock-Based Compensation , to stock-based employee compensation.

F-48

THE RICEX COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

   
DECEMBER 31,
 
   
2004
 
2003
 
Net loss, as reported
 
$
(882,554
)
$
(1,292,423
)
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards
   
(73,100
)
 
(45,600
)
               
Pro forma net loss
 
$
(955,654
)
$
(1,338,023
)
Loss per share:
             
Basic and diluted net loss per share - as reported
 
$
(.02
)
$
(.03
)
Basic and diluted net loss per share - pro forma
 
$
(.03
)
$
(.04
)
               
Weighted average fair value of options granted to employees during the year
 
$
.21
 
$
.15
 

Net loss per share - Basic net loss per share is computed based on the weighted average number of shares of common stock outstanding during each period. Diluted loss per share reflect the potential dilution that could occur if common shares were issued pursuant to the exercise of options or warrants. For the years ended December 31, 2004 and 2003 there is no diffeence between basic and diluted loss per share, as there were no dilutive stock options.

Income taxes - Deferred income tax assets and liabilities result from the future tax consequences associated with temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is established to reduce deferred tax assets if it is more likely than not, that all, or some portion, of such deferred tax assets will not be realized.

Accounting for long-lived assets - Long-lived assets are recorded at the lower of amortized cost or fair value. As part of an ongoing review of the valuation of long-lived assets, management assesses the carrying value of such assets if facts and circumstances suggest they may be impaired. If this review indicates that the carrying value of these assets may not be recoverable, as determined by a non-discounted cash flow analysis over the remaining useful life, the carrying value would be reduced to its estimated fair value. There has been no impairment recognized in these consolidated financial statements.

Reclassifications - Certain reclassifications have been made to the 2003 financial information to conform to the 2004 presentation.

Recent accounting pronouncements  

Consolidation of Variable Interest Entities (VIE).
In January 2003, the FASB issued Financial Interpretation No. 46 (“FIN 46”), Consolidation of Variable Interest Entities (VIE). It defined a VIE as a corporation, partnership, trust, or any other legal structure used for the business purpose that either a) does not have equity investors with voting rights or b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. This interpretation will require a VIE to be consolidated or deconsolidated by a company if that company is subject to a majority of the risk of loss from the VIE's activities or entitled to receive a majority of the entity's residual return. Most of the provisions of FIN 46 have been delayed until March 31, 2004. The Company does not have any VIE and accordingly the implementation of FIN 46 did not have any impact on the Company’s financial position or results of operations.

F-49

THE RICEX COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recent accounting pronouncements   (continued)

Amendment of Statement 133 on Derivative Instruments and Hedging Activities .

In April 2003, FASB issued Statement No. 149 (“Statement No. 149”), Amendment of Statement 133 on Derivative Instruments and Hedging Activities . This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under FASB Statement No. 133, Accounting for Derivative Instrumentsand Hedging Activities. Statement No. 149 is effective for contracts entered into or modified after June 30, 2003. Adoption of Statement No. 149 did not result in an impact on the Company’s statement of financial position or results of operations.

Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.

In May 2003, FASB issued Statement No. 150 (“Statement No. 150”), Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. Statement No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. Statement No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatory redeemable financial instruments of nonpublic entities. Adoption of Statement No. 150 did not result in an impact on the Company’s statement of financial position or results of operations.

Share-Based Payments
In December 2004 the FASB issued Statement Number 123 (revised 2004) (FAS 123 (R)), Share-Based Payments. FAS 123 (R) requires all entities to recognize compensation expense in an amount equal to the fair value of share-based payments, such as stock options, granted to employees. The company is required to apply FAS 123 (R) on a modified prospective method. Under this method, the Company is required to record compensation expense (as previous awards continue to vest) for the unvested portion of previously granted awards that remain outstanding at the date of adoption. In addition, the Company may elect to adopt FAS 123 (R) by restating previously issued financial statements, basing the expense on that previously reported in their pro forma disclosures required by FAS 123. FAS 123 (R) is effective for the first reporting period beginning after June 15, 2005. Management has not completed its evaluation of the effect that FAS 123 (R) will have, but believes that the effect will be consistent with its previous pro forma disclosures.

Inventory Costs
In November 2004, the FASB issued Statement Number 151 (FAS 151), Inventory Costs. FAS 151 amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that ". . . under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges. . . ." FAS 151 requires that those items be recognized as current-period charges regardless of whether they meet the criterion of "so abnormal." In addition, FAS 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. FAS 151 is effective for fiscal years beginning after June 15, 2005. Management has not completed its evaluation of the effect that FAS 151 will have on the Company’s financial statements.

F-50

THE RICEX COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2 - INVENTORY

Inventory consists of the following:

   
DECEMBER 31,
 
   
2004
 
2003
 
Finished goods
 
$
307,456
 
$
240,708
 
Packaging
   
94,098
   
99,805
 
   
$
401,554
 
$
340,513
 

NOTE 3 - PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

   
DECEMBER 31,
 
   
2004
 
2003
 
           
Land and buildings
 
$
380,154
 
$
380,154
 
Equipment
   
4,619,726
   
4,593,237
 
Leasehold improvements
   
381,642
   
381,642
 
Furniture and fixtures
   
228,071
   
208,071
 
     
5,609,593
   
5,563,104
 
Less accumulated depreciation and amortization
   
(5,067,017
)
 
(4,868,943
)
               
   
$
542,576
 
$
694,161
 

NOTE 4 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consist of the following:

   
DECEMBER 31,
 
   
2004
 
2003
 
           
Trade accounts payable
 
$
287,751
 
$
203,591
 
Other accrued liabilities
   
523,304
   
404,151
 
Deferred revenue
   
2,959
   
539,899
 
               
   
$
814,014
 
$
1,147,641
 

Included in Other accrued liabilities at December is $250,000 for the severance cost of two executives whose resignations from the Company were finalized in January 2005.

NOTE 5 - COMMITMENTS AND CONTINGENCIES

The Company leases office, laboratory and warehouse space under operating leases which expire in 2006 and 2009. The Company has the unilateral right to terminate the facilities’ operating leases with six months’ written notice. Rent expense under operating leases was $77,350 and $59,577 for the years ended December 31, 2004 and 2003, respectively.

F-51

THE RICEX COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5 - COMMITMENTS AND CONTINGENCIES ( CONTINUED )
 
The following is a schedule of future minimum lease payments required under the above leases:
 
Year ending December 31,
 
2005
   
126,592
 
2006
   
94,944
 
Total
 
$
221,536
 

Lease expenses of $4,000 per month on a month by month basis for a warehouse facility in West Sacramento, California are included in the 2005 and 2006 minimum lease payments.

NOTE 6 - SHAREHOLDERS’ EQUITY  

A.
Common and preferred stock.

In conjunction with RiceX’s re-incorporation in Delaware, the Company increased its authorized number of common shares from 50,000,000 to 100,000,000, authorized 10,000,000 shares of preferred stock which may be issued from time to time, in one or more series, and authorized its Board of Directors to establish the rights, preferences and privileges of each such series, when issued. At December 31, 2004, an aggregate of 18,971,047 shares of the Company’s common stock was reserved for future issuance upon the exercise of stock options and warrants.

B.
Stock issued for services.

None

C.
Conversion of debt to equity.

None

D.
Private placement.

During 2000, the Company issued 182,137 shares of common stock and warrants to purchase 182,137 shares of common stock for cash proceeds of $116,400 in conjunction with a $6 million dollar private placement. The warrants, which expire three years from issue date, have an exercise price for the first year of $1.00 per share, for thesecond year of $1.25 per share and for the third year of $1.50 per share. As of December 31, 2003, all warrants issued in conjunction with this private placement had expired.

E.
Repurchase of common stock.

In 2002, the Board of Directors approved resolutions authorizing the Company to repurchase up to a total of $1,000,000 of its own stock on the open market for a period of one year. The Company repurchased 620,486 shares of its own stock on the open market during the year ended December 31, 2003.

In April 2004, the Board of Directors approved an agreement authorizing us to purchase 1,346,964 common shares of our own stock and 3,030,669 warrants in a private transaction. This was the only purchase transaction through the period ended December 31, 2004. We paid $270,007 for the shares and warrants at an average cost of $0.20 per share.

F-52

THE RICEX COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6 - SHAREHOLDERS’ EQUITY (continued)

F.
Warrants and non-qualified stock options issued.

At December 31, 2004, warrants and non-qualified stock options outstanding were as follows:

Shares issuable under warrants and non-qualified options
 
Number of Shares
 
Exercise Price Per Share
 
Exercise Period
 
               
Balance, January 1, 2003
   
18,330,923
 
$
0.70 - $1.65
   
1 - 10 years
 
                     
Cancelled during the year
   
(4,091,207
)
$
0.75 - $1.50
   
3 - 5 years
 
                     
Balance, December 31, 2003
   
14,239,716
 
$
0.70 - $1.65
   
1 - 10 years
 
                     
Issued during the year
   
75,000
 
$
0.18
   
3 years
 
                     
Expired during the year
   
(25,000
)
$
0.75
   
5 years
 
                     
Canceled during the year
   
(3,030,699
)
$
0.70
   
5 years
 
                     
Balance, December 31, 2004
   
11,259,047
 
$
0.18 - $1.65
   
3 - 10 years
 

The balances outstanding at December 31, 2004 and 2003 includes incentive warrants to purchase 6,030,582 and 7,714,287 shares, respectively, which are restricted from sale and or transfer until such time when certain sales targets are achieved.

G.
Stock option plan.
 
The Company has 10,000,000 shares of common stock reserved for grant to its officers, directors and key employees under its stock option plan (the “Plan”). At December 31, 2004, options to purchase 7,712,000 shares of common stock had been granted under the Plan and 2,288,000 shares were available for future grants. Options granted pursuant to the Plan have lives of 10 years from the date subject to earlier expiration in certain cases, such as termination of the grantees’ employment. Options vest 1/3 on the date of the grant, 1/3 on the first anniversary, and 1/3 on the second anniversary. Stock option information is as follows:

   
Number of Shares
 
Weighted-Average Exercise Price
 
           
Shares under option at January 1, 2003
   
6,849,000
 
$
.66
 
Granted
   
330,000
   
.24
 
Forfeited
   
(196,000
)
 
.32
 
               
Shares under option at December 31, 2003
   
6,983,000
   
.65
 
Granted
   
750,000
   
.21
 
Forfeited
   
(21,000
)
 
.30
 
               
Shares under option at December 31, 2004
   
7,712,000
 
$
.61
 
               
Options exercisable at December 31, 2004
   
7,220,333
 
$
.64
 
 
F-53

THE RICEX COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 6 - SHAREHOLDERS’ EQUITY (continued)

The weighted average fair value of the options granted in 2004 and 2003 were $0.21 and $0.15 respectively.

   
Options Outstanding
 
Options Exercisable
Range of Exercise Prices
 
Number Outstanding
 
Weighted Average Remaining Contractual Life (Years)
 
Weighted Average Exercise Price
 
Number Exercisable
 
Weighted Average Exercise Price
                     
$ 0.15-0.30
 
1,350,000
 
8.40
 
0.23
 
858,333
 
$ 0.25
0.36-0.40
 
1,450,000
 
6.71
 
0.38
 
1,450,000
 
0.38
0.72-0.79
 
4,772,000
 
4.68
 
0.75
 
4,772,000
 
0.75
1.81
 
140,000
 
3.69
 
1.81
 
140,000
 
1.81
$.15 - $1.81
 
7,712,000
 
6.91
 
0.61
 
7,220,333
 
$ 0.64

Pro Forma Information related to Option Grants

Pro forma information regarding net income and earnings per share is required by SFAS 123 for awards granted after December 31, 1995, as if the Company had accounted for its stock-based awards to employees under the fair value method of SFAS 123. The fair value of the Company’s stock-based awards to employees was estimated using a Black-Scholes option pricing model. The Black-Scholes options valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In  addition, the Black-Scholes model requires the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s stock-based awards to employees have characteristics significantly different  from those of traded options, and because changes in the opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock-based awards to employees. The effects of applying SFAS 123 in this pro forma disclosure are not indicative of future amounts. The fair value of the Company’s options grants under the 1997 plan was estimated assuming no expected dividends and the following weighted-average assumptions:

   
2004
 
2003
 
Expected life (years)
   
3
   
3
 
Expected volatility
   
104
%
 
103
%
Risk-free interest rate
   
2.06
%
 
1.50
%

NOTE 7 - EMPLOYEE BENEFIT PLAN

The Company has a 401(k) plan, The RiceX Company 401(k) Profit Sharing Plan & Trust , which requires an employee to have completed one year of service and attained the age of 21 to participate in the plan. The Company contributes 3% of each employee’s salary annually to the plan regardless of employee participation. Additionally, the Company may, at its discretion, make additional employer contributions. In order to participate in the plan, the employee must work 1000 hours in and be employed on the last day of the plan year. Employees are immediately vested in company contributions. Plan contributions amounted to $36,000 in 2004 and 2003.

F-54

THE RICEX COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 8 - RELATED PARTY TRANSACTIONS

Ms. Patricia McPeak, the spouse of Daniel L. McPeak, Sr., Chairman of the Board of Directors of the Company and its Chief Executive Officer until March 31, 2004, served as a director of the Company from its formation in 1989 until the expiration of her term on June 29, 2001. From February 1989 to March 2000, Ms. McPeak also served as the President of the Company. Ms. McPeak, who resigned that position on March 31, 2000, retained her seat on Board of Directors until June 29, 2001, at which time her term expired.

Ms. McPeak is an officer and director of NutraCea (formally NutraStar) a California corporation. NutraStar changed its name to NutraCea in November 2003. In late 2001, the Company entered into an Exclusive Distribution Agreement and Licensing Agreement with NutraStar. This agreement was terminated in July 2002 for NutraStar’s failure to meet certain performance requirements as specified in the Exclusive Distribution Agreement. Also during December 2001 the Company agreed to cancel $190,000 of NutraStar’s indebtedness in exchange for 190,000 shares of NutraStar’s Series A preferred stock. Subsequently, in 2004, the Company put 130,000 shares back to NutraCea for $130,000 under a put provision and sold 60,000 shares in the open market for $52,000. The Company has recognized sales to NutraCea of $405,000 and $229,000 during 2004 and 2003, respectively.

In connection with the conversion of a $2,500,000 note to equity in 2000, the Company issued common stock and warrants to two principle parties, one of which is GBV Intermark Fund, LLC. The manager of this fund was appointed to the Company’s Board of Directors in October 2000 until the expiration of his term in June 2003. The shares of RiceX common stock and warrants issued to GBV Intermark Fund, LLC, were acquired by Intermark Group Holdings, LLC, on April 4, 2002 in a private transaction. The principle owner of Intermark Group Holdings, LLC was elected to the Company’s Board of Directors in June 2003. Mr. Lintzenich remains on our Board.

NOTE 9 - INCOME TAXES

The provision for income taxes on the statements of income consists of $1,650 for the years ended December 31, 2004 and 2003, respectively.
 
Deferred tax assets (liabilities) are comprised of the following:

   
DECEMBER 31,
 
   
2004
 
2003
 
           
Net operating loss carryforward
 
$
5,562,000
 
$
4,768,000
 
Options and warrants
   
-
   
-
 
Accrued reserves
   
64,000
   
326,000
 
Research costs
   
714,000
   
770,000
 
Fixed assets
   
124,000
   
228,000
 
Other
   
-
   
-
 
               
     
6,464,000
   
6,092,000
 
Less valuation allowance
   
(6,464,000
)
 
(6,092,000
)
               
   
$
-
 
$
-
 
 
F-55

THE RICEX COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9 - INCOME TAXES ( continued )

Deferred taxes arise from temporary differences in the recognition of certain expenses for tax and financial statement purposes. At December 31, 2004 and 2003, management determined that realization of these benefits is not assured and has provided a valuation allowance for the entire amount of such benefits. At December 31, 2004, net operating loss carryforwards were approximately $14,510,000 for federal tax purposes that expire at various dates from 2011 through 2025 and $10,782,000 for state tax purposes that expire in 2005 through 2014.

Utilization of net operating loss carryforwards may be subject to substantial annual limitations due to the “change in ownership” provisions of the Internal Revenue Code of 1986, as amended, and similar state regulations. The annual limitation may result in the expiration of substantial net operating loss carryforwards before utilization.

The provision for income taxes differs from the amount computed by applying the U.S. federal statutory tax rate (34% in 2004 and 2003) to income before taxes as follows:

   
DECEMBER 31,
 
   
2004
 
2003
 
           
Computed expected tax
 
$
(300,069
)
$
(438,863
)
Change in valuation allowance
   
372,000
   
1,220,000
 
Change in carryovers and tax attributes
   
(70,281
)
 
(779,487
)
               
   
$
1,650
 
$
1,650
 


NOTE 10 - SUPPLEMENTAL CASH FLOW INFORMATION

   
YEARS ENDED DECEMBER 31,
 
   
2004
 
2003
 
Non cash activities:
         
Amortization/issuance of common stock and warrants for services
 
$
15,000
 
$
60,419
 

NOTE 11 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of the Company’s financial instruments approximated carrying value at December 31, 2004 and 2003. The Company’s financial instruments include cash and accounts receivable for which the carrying amount approximates fair value due to the short maturity of the instruments.

F-56

THE RICEX COMPANY
CONSOLIDATED BALANCE SHEET
(Unaudited)

   
September 30, 2005
 
ASSETS
     
 
 
 
 
CURRENT ASSETS:
     
Cash and cash equivalents
 
$
546,148
 
Trade accounts receivable, net
   
407,618
 
Inventories
   
398,038
 
Deposits and other current assets
   
44,043
 
 
     
Total current assets
   
1,395,847
 
 
     
PROPERTY AND EQUIPMENT, net
   
475,026
 
 
     
OTHER ASSETS
   
2,886
 
 
     
 
 
$
1,873,759
 
 
     
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
     
 
     
CURRENT LIABILITIES:
     
Accounts payable and accrued liabilities
 
$
765,876
 
Unrecognized revenue
   
5,461
 
Current portion of long-term debt
   
5,433
 
 
       
Total current liabilities
   
776,770
 
         
LONG-TERM LIABILITIES:
       
Long-term debt, net of current portion
   
11,059
 
         
Total liabilities
   
787,829
 
 
     
COMMITMENTS AND CONTINGENCIES
     
 
     
SHAREHOLDERS’ EQUITY (DEFICIT)
     
Preferred stock, par value $0.00l per share, 10,000,000 shares authorized, no shares issued and outstanding
   
—
 
Common stock, par value $0.001 per share, 100,000,000 shares authorized, 36,813,274 shares issued and outstanding
   
36,813
 
Additional paid-in capital
   
31,908,417
 
Accumulated deficit
   
(30,859,300
)
Total shareholders’ equity
   
1,085,930
 
 
     
 
 
$
1,873,759
 
 
-- See Notes to Consolidated Financial Statements --

F-57

THE RICEX COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Nine Months Ended September 30, 2005 and 2004
(Unaudited)
 
 
 
Nine Months Ended
 
 
 
September 30, 2005
 
September 30, 2004
 
Revenues:
 
 
 
 
 
Sales
 
$
2,767,255
 
$
2,736,188
 
Royalties
   
13,324
   
—
 
Total revenues
   
2,780,579
   
2,736,188
 
 
           
Cost of sales
   
1,123,812
   
1,077,848
 
 
   
1,656,767
   
1,658,340
 
 
           
Research and development expenses
   
181,873
   
164,451
 
Selling, general and administrative expenses
   
4,399,772
   
1,653,405
 
Professional fees
   
719,808
   
338,001
 
Investor relations fees
   
67,634
   
56,993
 
 
           
Loss from operations
   
(3,712,320)
)
 
(554,510
)
Other income:
           
Interest and other income
   
9,119
   
28,547
 
Loss before provision for income taxes
   
(3,703,201
)
 
(525,963
)
Provision for income taxes
   
(2,226
)
 
(1,589
)
 
           
Net loss
 
$
(3,705,427
)
$
(527,552
)
               
Basic and diluted earnings per share:
             
Net loss per share
 
$
(0.10
)
$
(0.01
)
               
Weighted average number of shares outstanding
   
36,721,625
   
36,713,274
 

-- See Notes to Consolidated Financial Statements -

F-58

THE RICEX COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2005 and 2004
(Unaudited)
 
   
Nine Months Ended September 30,
 
 
 
2005
 
2004
 
 
 
 
 
 
 
Cash flow from operating activities:
         
Net loss
 
$
(3,705,427
)
$
(527,552
)
Adjustments to reconcile net loss to net cash (used in)/provided by operating activities:
         
Depreciation and amortization
   
137,574
   
157,856
 
Issuance of stock options
   
—
   
15,000
 
Stock-based compensation
   
2,967,750
   
—
 
Deferred revenue, net
   
2,502
   
(477,838
)
               
Net changes in operating assets and liabilities:
         
Trade accounts receivable
   
91,795
   
273,297
 
Inventories
   
3,516
   
(34,583
)
Deposits and other current assets
   
47,935
   
(40,705
)
Accounts payable and accrued liabilities
   
(28,687
)
 
(77,299
)
Net cash used in operating activities
   
(483,042
)
 
(711,824
)
               
Cash from investing activities:  
         
Purchases of property, and equipment, net
   
(45,723
)
 
(30,687
)
Net cash used in investing activities
   
(45,723
)
 
(30,687
)
Cash flows used in financing activities:
         
Proceeds from issuance of common stock in exercise of options
   
40,000
   
—
 
Retirement of common stock
   
—
   
(270,005
)
Net cash provided by (used in) financing activities
   
40,000
   
(270,005
)
               
Net decrease in cash and cash equivalents
   
(488,765
)
 
(1,012,516
)
Cash and cash equivalents, beginning of period
   
1,034,913
   
2,219,091
 
Cash and cash equivalents, end of period
 
$
546,148
 
$
1,206,575
 

-- See Notes to Consolidated Financial Statements --

F-59

THE RICEX COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2005

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, RiceX Nutrients, Inc. (formally Food Extrusion Montana, Inc. and referred to hereinafter as “RiceX Nutrients”). The consolidated financial statements include the accounts of RiceX and RiceX Nutrients (collectively “we,” “us” or “our”), after the elimination of all inter-company balances and transactions.

We are an agribusiness food technology company and have developed a proprietary process to stabilize rice bran. We are headquartered in El Dorado Hills, California and have stabilization equipment located at a rice mill in Northern California. We purchase raw rice bran from this mill and mill employees, under our supervision, operate our equipment to stabilize the rice bran. We pay a processing fee to the mill for this service. Under an agreement with the mill, the mill may use our equipment to stabilize rice bran for its customers in exchange for the payment of a royalty fee to us under certain conditions. As the need arises, we intend to enter into additional relationships with rice processors as part of our overall business strategy.

RiceX Nutrients 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, dextrinized, and fiber concentrate forms of our rice bran products are produced at the Montana facility.

We are subject to regulations that govern the processing, formulation, packaging, labeling and advertising of our products. However, our principal operations are governed by the Dietary Supplement Health Education Act of 1994, which limits the regulatory authority and jurisdiction of most state and federal agencies, including the U.S. Food and Drug Administration.

On April 4, 2005, we entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with NutraCea and Red Acquisition Corporation, a wholly-owned subsidiary of NutraCea (“Merger Sub”). On the effective date of the merger, and pursuant to the Merger Agreement, Merger Sub will be merged with and into RiceX (the “Merger”), and RiceX will become a wholly-owned subsidiary of NutraCea.

Simultaneous with the execution of the Merger Agreement, on April 4, 2005, all of our directors and three of our executive officers (collectively, the “RiceX Affiliates”) each entered into voting agreements with NutraCea (the “NutraCea Voting Agreements”). Additionally, on April 4, 2005, three of NutraCea’s executive officers each entered into voting agreements with us (the “RiceX Voting Agreements” and, together with the NutraCea Voting Agreements, the “Voting Agreements”). Under the terms of the Voting Agreements, the executive officers and directors of NutraCea and RiceX agreed to vote their shares in favor of the Merger, the Merger Agreement and the transactions contemplated thereby. Also on April 4, 2005, each of the RiceX Affiliates entered into Affiliate Agreements with NutraCea (the “Affiliate Agreements”), pursuant to which the RiceX Affiliates have agreed to certain restrictions on the sale of the shares of NutraCea common stock to be received by them in connection with the Merger. For additional information regarding the Voting Agreements and the Affiliate Agreements, please refer to the form of Voting Agreement and form of Affiliate Agreement, copies of which are attached as exhibits to our Current Report on Form 8-K filed with the Securities and Exchange Commission (“SEC”) on April 4, 2005.

F-60

At separate special meetings of shareholders held on September 28, 2005, the respective shareholders of NutraCea and RiceX approved the Merger between the two companies.

On October 4, 2005, NutraCea, through Merger Sub, consummated its acquisition of RiceX pursuant to the terms of the Merger Agreement. At the effective time of the Merger, Merger Sub merged with and into RiceX, with RiceX surviving the Merger as a wholly-owned subsidiary of NutraCea. Pursuant to the Merger Agreement and as a result of the Merger, each share of RiceX common stock outstanding immediately prior to the effective time of the Merger was converted into the right to receive 0.76799 shares of NutraCea’s common stock.

At the completion of the Merger, the stockholders of RiceX received 28,272,226 shares of NutraCea common stock in exchange for their shares of RiceX common stock, and NutraCea assumed the outstanding options and warrants to purchase 11,810,507 shares of RiceX common stock.

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“FAS”) No. 123 (revised 2005), Share Based Payments (“FAS No. 123(R)”). FAS No. 123(R) requires us to recognize compensation expense in an amount equal to the fair value of share-based payments such as stock options granted to employees. In April 2005, the SEC adopted a rule that effectively defers the compliance date of FAS No. 123(R) to January 1, 2006. Our management has not completed its evaluation of the effect that FAS No. 123(R) will have on us, but believes that the effect will be consistent with our previous pro-forma disclosure. For additional information regarding the effects of FAS No. 123(R), please see Section 7 of these Notes to Unaudited Consolidated Financial Statements.

In November 2004, the FASB issued FAS No. 151, Inventory Costs . FAS No. 151 requires that abnormal amounts of idle facility expense, freight, handling costs and spoilage be recognized as current-period charges. Further, FAS No. 151 requires the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. Unallocated overheads must be recognized as an expense in the period in which they are incurred. FAS No. 151 is effective for inventory costs incurred beginning in the first quarter of 2006. We are currently evaluating the effect of FAS No. 151 on our financial statements and related disclosures.

On June 7, 2005, the FASB issued FAS No. 154, Accounting Changes and Error Corrections , a replacement of Accounting Principles Board (“APB”) Opinion No. 20, Accounting Changes , and FAS No. 3, Reporting Accounting Changes in Interim Financial Statements . FAS No. 154 changes the requirements for the accounting for and reporting of a change in accounting principle. Previously, most voluntary changes in accounting principles required recognition of a cumulative effect adjustment within net income of the period of the change. FAS No. 154 requires retrospective application of prior periods’ financial statements, unless it is impracticable to determine either the period-specific effect or the cumulative effect of the change. FAS No. 154 is effective for accounting changes made in fiscal years beginning after December 15, 2005; however it does not change the transition provisions of any existing accounting pronouncements. We do not believe adoption of FAS No. 154 will have a material effect on our consolidated financial position, results of operations or cash flows.

There have been no changes in our significant accounting policies as set forth in our audited financial statements for the year ended December 31, 2004, which statements were included in our Form 10-KSB for such year. These unaudited financial statements for the three months and nine months ended September 30, 2005 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 our management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations for the three months and nine months ended September 30, 2005 are not necessarily indicative of the results expected for the full year.

F-61

2.
INVENTORY.

At September 30, 2005, inventories are composed of $289,000 of finished goods and $109,000 of packaging supplies.

3.
PROPERTY AND EQUIPMENT.

At September 30, 2005, property and equipment consist of the following:
 
Land and buildings
 
$
380,154
 
Equipment
   
4,665,447
 
Leasehold improvements
   
381,642
 
Furniture and fixtures
   
228,071
 
 
   
5,655,314
 
Less accumulated depreciation and amortization
   
(5,180,288
)
         
 
 
$
475,026
 


At September 30, 2005, accounts payable and accrued liabilities consist of the following:

Trade accounts payable
 
$
538,212
 
Accrued liabilities
   
227,664
 
 
 
$
765,876
 

5.
NET INCOME (LOSS) PER SHARE.

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during all periods presented. Options and warrants are excluded from the basic net income (loss) per share calculation because they are currently anti-dilutive.

6.
CONCENTRATION OF CREDIT RISK.

Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of trade accounts receivable for sales to major customers. We perform credit evaluations on our customers’ financial condition and generally do not require collateral on accounts receivable. We maintain an allowance for doubtful accounts on our receivables based upon expected collection of all accounts receivable. Uncollected accounts have not been significant.

For the nine months ended September 30, 2005, one customer accounted for 12% of sales. At September 30, 2005, accounts receivable due from this one customer were 22% of the total aged outstanding accounts receivable.

7.
OTHER INFORMATION.

Stock Options . At September 30, 2005, we had one stock-based employee compensation plan. We account for this plan under the recognition and measurement principles of APB No. 25, Accounting for Stock Issued to Employees , and related Interpretations. Options are granted under our employee compensation plan at an exercise price equal to the market value of the underlying common stock on the respective dates of grant; except that 6,595,000 options were modified in March 2005 making them subject to variable accounting treatment. The following table illustrates the effect on net loss and earnings (loss) per share if we had applied the fair value recognition provisions of FAS No. 123, Accounting for Stock-Based Compensation , to stock-based employee compensation.

F-62
 
   
Nine Months Ended September 30,
 
   
2005
 
2004
 
Net loss, as reported
 
$
(3,705,427
)
$
(527,552
)
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards
 
$
(179,700
)
 
101,700
 
Pro forma net income
 
$
(3,525,727
)
$
(629,252
)
Earnings per share:
             
Basic and diluted net income per share - as reported
 
$
(0.10
)
$
(0.01
)
Basic and diluted net income per share - pro forma
 
$
(0.10
)
$
(0.01
)
Weighted average fair value of options granted to employees during the quarter
 
$
0.11
 
$
0.19
 

In March 2005, our board of directors granted non-statutory stock options to our officers, directors and key employees to acquire an aggregate of 2,917,333 shares of common stock at an exercise price of $0.30 per share. The estimated fair value of $0.11 per share, determined by using the Black-Scholes option-pricing model assuming a life of three years, volatility of 111% and a risk free rate of 3.79%. Approximately half of the options granted, or 1,334,000 options, were fully vested and exercisable on the date of grant. Another 1,333,333 options vest proportionately on a monthly basis over thirty-six months and 250,000 become fully vested at the end of twelve months. All options expire in September 2015.

Also in March 2005, our board of directors approved the modification of 6,595,000 non-statutory stock options ranging in exercise price from $0.19 to $1.81 per share by changing the exercise prices to $0.30 per share. These non-statutory options were granted to officers, directors and key employees from 1996 to 2005. Our board of directors also approved the re-pricing of 400,000 non-statutory stock options held by non-employee directors to change the exercise prices thereof, which were below $0.30 per share, to $0.30 per share. An additional 700,000 stock options held by non-employee directors, with exercise prices ranging from $0.30 to $1.66 per share, were not modified. According to the pending Merger transaction with NutraCea, the underlying option shares may not be sold or otherwise transferred without the prior written consent of NutraCea until after the third anniversary of the closing of the Merger. Our management believes the consequence of re-pricing these options is that the awards will be subject to variable accounting treatment from the date of the modification to the date the award is exercised, forfeited or expires unexercised. In two non-cash transactions relating to the variable accounting treatment of modified options, compensation expense was recognized in June 2005 of $660,000 as the market price was $0.40 for the options that were re-priced at $0.30, and in September 2005 compensation expense was recognized in the amount of $2,298,000, as the market price of $0.75 per share on September 30, 2005 was above the modified exercise price of $0.40 per share previously adjusted for variable accounting.

In September 2005, a former employee exercised options pursuant to The RiceX Company 1997 Stock Option Plan. We issued 100,000 shares of common stock as a result of this transaction.

Revenue Recognition . We derive our revenue primarily from product sales. Product is shipped when an approved purchase order is received. Products shipped by us are generally sold FOB Origin, with the customer taking title to the product once it leaves our warehouse via common carrier. At this point, the price to the customer is fixed and determinable, and collectibility is reasonably assured. On occasion, we enter into negotiated sales agreements to provide products to governments in underdeveloped countries. In these situations, each contract is individually evaluated to determine appropriate revenue recognition. Each delivery is generally considered to be a separate unit of accounting for the purposes of revenue recognition and, in all instances, persuasive evidence of an arrangement, delivery, pricing and collectibility must be determined or accomplished, as applicable, before revenue is recognized. In the case of partial shipments, the specific amounts of revenue recognized upon each partial shipment of the products is determined 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 delivered under the memorandum of understanding. In addition, if the contract includes customer acceptance provisions, no revenue is recognized until customer acceptance occurs. We are not obligated, under the terms of our contracts, to refund payments for which shipments have been made and, if applicable, accepted, even under circumstances in which we would be unable to fulfill the remaining balance of product ordered under the contract.

F-63

Regarding sales from underdeveloped countries in which third party financing is involved, all such revenue derived under these arrangements is historically prepaid prior to any shipments of our product. Revenue is accounted for at the point of shipment FOB Origin, unless accompanied by a memorandum of understanding detailing the requirement of customer acceptance in order to transfer title, in which case revenue is recognized at the time of such acceptance.

Our royalty fees are generally recognized when it is probable that an economic benefit will flow to us, the amount of the benefit can be reliably measured and collectibility is reasonably assured.

Income Taxes . Future tax benefits are subject to a valuation allowance when management is unable to conclude that our deferred tax assets will more likely than not be realized from the results of operations.  The ultimate realization of deferred tax assets is dependent upon generation of future taxable income during the periods in which those temporary differences become deductible.  Management considers projected future taxable income and tax planning strategies in making this assessment.  Based on historical taxable income and projections for future taxable income over the periods in which the deferred tax assets become deductible, management believes it more likely than not that we will not realize benefits of these deductible differences as of September 30, 2005.  Management has, therefore, established a full valuation allowance against our net deferred tax assets as of September 30, 2005.

F-64

PART II

INFORMATION REQUIRED IN THE REGISTRATION STATEMENT

Item 24:
Indemnification of Directors and Officers .  

The California General Corporation Law and our Restated Articles of Incorporation and Bylaws provide that we may indemnify our officers, directors, employees or agents or former officers, directors, employees or agents, against expenses actually and necessarily incurred by them, in connection with the defense of any legal proceeding or threatened legal proceeding, except as to matters in which such persons shall be determined to not have acted in good faith and in our best interest. This means that if indemnity is determined by the Board of Directors to be appropriate in any case we and not the individual might bear the cost of any suit that is filed by a shareholder against the individual officer, director or employee unless the court determines that the individual acted in bad faith. These provisions are sufficiently broad to permit the indemnification of such persons in certain circumstances against liabilities arising under the Securities Act.
 
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors and officers, and to persons controlling our company pursuant to the foregoing provisions, we have been informed that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

Item 25:
Other Expenses of Issuance and Distributions .

The estimated expenses of this offering in connection with the issuance and distribution of the securities being registered, are as follows:

Registration Fee
 
$
1,500
 
Blue Sky Fees
   
2,500
 
Printing
   
2,000
 
Legal Fees and Expenses
   
40,000
 
Accounting Fees and Expenses
   
25,000
 
Miscellaneous
   
4,000
 
         
Total
 
$
75,000
 

Item 26:
Recent Sales of Unregistered Securities .

The following issuances of stock, warrants, and other equity securities were made without any public solicitation to a limited number of investors or related individuals or entities in separately negotiated transactions. Each investor represented to us that the securities were being acquired for investment purposes only and not with an intention to resell or distribute such securities. Each of the individuals or entities had access to information about our business and financial condition and was deemed capable of protecting their own interests. The stock, warrants and other securities were issued pursuant to the private placement exemption provided by Section 4(2) or Section 4(6) of the Securities Act of 1933. These are deemed to be “restricted securities” as defined in Rule 144 under the 1933 Act and the warrant certificates and the stock certificates bear a legend limiting the resale thereof. Each of the transactions involving the common stock of the Company prior to the November 2003 1-for-10 reverse stock split are reported in post-split share numbers.

(a)
In March 2003, the Company sold an aggregate of 78,333 shares of its common stock to two individuals for total proceeds to the Company of $65,157. In April 2003, the Company sold 30,714 shares of its common stock to one individual for total proceeds to the Company of $25,547. We paid a commission of $7,000 to Hookipa Capital Partners relating to these transactions.

II - 1

(b)
In June 2003, the Company sold 35,000 shares of its common stock to one individual for total proceeds to the Company of $47,250. There were no underwriting discounts or commissions associated with this sale.

(c)
On July 7, 2003 we issued 20,000 shares of our Series A Preferred Stock to Dr. Wade Harris for $8,351 in accrued interest on a promissory note dated September 23, 2002.

(d)
On July 31, 2003, we issued warrants to purchase 7,142 shares of our common stock to a vendor to the company in settlement of $5,278 of accounts payable.

(e)
On August 15, 2003, we issued warrants to purchase 37,500 shares of our common stock to a vendor to the Company in settlement of $33,750 of accounts payable for royalties.

(f)
On August 18, 2003, we issued 2,421 shares of our common stock to a consultant to the company in settlement of $4,600 of accrued and unpaid fees under a consulting agreement.

(g)
In August 2003, the Company sold an aggregate of 39,850 shares of its common stock to three individuals for total proceeds to the Company of $400. There were no underwriting discounts or commissions associated with these sales.

(h)
On October 14, 2003, we issued 73,519 shares of our common stock in settlement of $56,037 of accrued and unpaid fees under a consulting agreement.
 
(i)
In October 2003, the Company sold an aggregate of 103,921 shares of its common stock to four individuals for total proceeds to the Company of $1039. There were no underwriting discounts or commissions associated with these sales.

(j)
In November 2003, the Company sold an aggregate of 500,000 shares of its common stock to one individual for total proceeds to the Company of $500. There were no underwriting discounts or commissions associated with this sale.

(k)
In December 2003, the Company sold an aggregate of 4,093,146 shares of its common stock to fourteen individuals for total proceeds to the Company of $424,041. There were no underwriting discounts or commissions associated with these sales.

(l)
During 2003 we issued an aggregate of 278,766 shares of our common stock to the holders of our Series A Preferred Stock in payment of $190,043 in preferred stock dividends.

(m)
On December 30, 2003, we issued 4,174 shares of our common stock to a vendor to the Company in settlement of $2,087 of accounts payable.

(n)
During 2004 we issued an aggregate of 168,626 shares of our common stock to three venders in payment of $57,944 in accounts payable for goods and services.

(o)
During 2004 we issued an aggregate of 280,000 shares of our common stock to two consultants in settlement of $477,816 of contractual payments.

II - 2

(p)
In January 2004, the Company sold an aggregate of 1,897,143 shares of its common stock to eight individuals for total proceeds to the Company of $656,221.

(q)
In February 2004, the Company sold an aggregate of 616,452 shares of its common stock to four individuals for total proceeds to the Company of $272,614.

(r)
In March 2004, the Company sold an aggregate of 1,539,262 shares of its common stock to five individuals for total proceeds to the Company of $810,143.

(s)
During the quarter ended March 31, 2004, the Company issued 168,095 shares of common stock to vendors in payment of accounts payable totaling $57,111.

(t)
During the quarter ended March 31, 2004, the Company issued a total of 280,000 shares of common stock to two consultants in settlement of contractual agreements totaling $499,816.

(u)
On March 24, 2004, we issued 5,500,000 shares of common stock to our then Chief Executive Officer, Ms. Patricia McPeak, in exchange for services rendered.

(v)
In April 2004, the Company sold an aggregate of 1,347,299 shares of its common stock to four individuals for total proceeds to the Company of $514,973.

(w)
In May 2004, the Company sold an aggregate of 125,000 shares of its common stock to two individuals for total proceeds to the Company of $12,475.

(x)
During the quarter ended June 30, 2004, the Company issued 531 shares of common stock to a vendor in payment of accounts payable totaling $833.

(y)
In September 2004, the Company sold an aggregate of 25,000 shares of its common stock to one individual for total proceeds to the Company of $4,500.

(z)
On September 8, 2004, the Company and Langley Park Investments PLC (“Langley”) signed a Stock Purchase Agreement under which the Company agreed to sell 7,000,000 shares of its common stock to Langley. The transaction will close at the time that Langley’s shares are trading on the London Stock Exchange for anticipated consideration to NutraCea (i) immediately following the closing of approximately $1,190,000 in Langley stock, and (ii) additional consideration of that number of Langley shares which, as of the closing, will have a value of approximately $1,190,000.

(aa)
In December 2004, the Company sold an aggregate of 25,000 shares of its common stock to one individual for total proceeds to the Company of $5,000. There were no underwriting discounts or commissions associated with this sale.

(bb)
In December 2004, the Company issued warrants to purchase an aggregate of 2,400,000 shares of the Company’s common stock in connection with a Promissory Note and Warrant Purchase Agreement entered into with three investors for an aggregate purchase amount of $2,400,000. A commission of $242,846 as paid to Sandgrain Securities upon consummation of the financing and a finders fee of $25,000 was paid.

(cc)
During 2004, we issued 3,048,315 shares of our common stock to 15 consultants in lieu of contractual payments in the amount of $2,192,013 pursuant to consulting contracts.

(dd)
During 2004, we issued warrants to purchase 9,598,493 shares of our common stock valued at $7,761,516 to 14 consultants pursuant to consulting agreements. The warrants are exercisable at prices between $.01 and $5.00 per share and expire at varying times between six months and five years from the date of issuance.

II - 3

(ee)
During the quarter ended June 30, 2005, NutraCea issued 29,786 shares of its common stock valued at $15,000 to a web design consultant in respect of unpaid fees.

(ff)
During the quarter ended June 30, 2005, NutraCea issued 1,222,222 shares of its common stock to repurchase technology and marketing rights valued at $550,000.

(gg)
During the quarter ended June 30, 2005, NutraCea issued 448,980 shares of common stock to a consulting company for patent and license analysis. One half of the shares vested upon signing of the agreement while the balance will vest upon certain milestones being achieved. The vested shares are valued at $110,000.

(hh)
During the quarter ended June 30, 2005, NutraCea issued options to purchase 360,000 shares of its common stock to a technology firm for assistance in developing an internet marketing system for NutraCea. The options have an exercise price of $0.60 per share and became exercisable over 21 months. The option was valued at $118,165 and expires in five years. The contract was terminated on August 31, 2005 with 105,000 option shares vested.

(ii)
On August 24, 2005, NutraCea entered into a Private Label Supply Agreement and Strategic Alliance (“Supply Agreement”). In connection with the Supply Agreement and in return for an agreement to purchase a minimum of $500,000 in NutraCea products, NutraCea issued to ITV Global, Inc. an option to acquire up to 250,000 shares of the Company’s common stock.


The following issuances of stock were made without any public solicitation to holders of options, warrants. Each holder of an option or warrant represented to us that the securities were being acquired for investment purposes only and not with an intention to resell or distribute such securities. Each of the individuals or entities had access to information about our business and financial condition and was deemed capable of protecting their own interests. As such, the stock was issued pursuant to the private placement exemption provided by Section 4(2) of the Securities Act of 1933. These are deemed to be “restricted securities” as defined in Rule 144 under the 1933 Act and the stock certificates bear a legend limiting the resale thereof.

(a)
During the 2003, we issued an aggregate of 4,519,373 shares of our common stock upon exercise of outstanding options and warrants.

(b)
During 2004, we issued an aggregate of 6,079,323 shares of our common stock upon exercise of outstanding options and warrants.

(c)
During the first nine months of 2005, we issued 431,000 shares of our common stock upon exercise of outstanding options and warrants.

(d)
From September 30, 2005 to November 9, 2005, we issued 100,000 shares of our common stock upon exercise of outstanding options and warrants.

(e)
On October 4, 2005, NutraCea completed a private placement of its securities to certain investors for aggregate gross proceeds of approximately $7,850,000. NutraCea issued an aggregate of 7,850 shares of Series B Convertible Preferred Stock at a price of $1,000 per share, which may be converted to shares of NutraCea common stock at a conversion rate of 2,000 shares of commons stock for each Preferred Share. Additionally, NutraCea issued warrants to purchase an aggregate of 7,850,000 share of NutraCea common stock at an exercise price of $0.70 per share. The placement agent for the transaction, Halpern Capital, Inc., was paid a commission consisting of $549,500 and warrants to purchases up to an aggregate of 1,099,000 shares of NutraCea common stock at an exercise price of $0.50 per share.

II - 4

The following issuances of stock, warrants, and other equity securities were exchanged by us with our existing security holders exclusively in transactions in which no commission or other remuneration was paid or given directly or indirectly to any person. As such, the issuance of the following securities was exempt from registration under Section 3(a)(9) of the Securities Act of 1933, as amended.

(a)
During 2003, we issued 254,323 shares of our common stock in exchange for 1,674,707 outstanding shares of our Series A Preferred Stock.

(b)
During 2003, we issued an aggregate of 3,431,251 shares of our common stock pursuant to the conversion of outstanding convertible notes.

(c)
During 2004, the Company issued 5,759 shares of common stock in payment of preferred dividends in the amount of $5,986.

(d)
During 2004, we issued an aggregate of 540,000 shares of our common stock pursuant to the conversion provisions of 630,000 shares of our Series A Preferred Stock.

The following issuances of stock and assumption of options and warrants were made pursuant to an exemption provided by Section 3(a)(10) of the Securities Act of 1933 after a fairness hearing before the California Department of Corporations.

(a)
On October 4, 2005, NutraCea completed its merger with The RiceX Company. In connection with the merger, NutraCea issued 28,272,226 shares of its common stock to holders of RiceX common stock. In addition, NutraCea assumed each outstanding option and warrant to purchase RiceX common stock and converted those options and warrants into options and warrants to purchase an aggregate of 11,810,507 shares of NutraCea common stock.

ITEM 27:
EXHIBITS

Exhibit Number
 
Exhibit Description
     
2.01(1)
 
Plan and Agreement of Exchange.
     
2..02(2)
 
Agreement and Plan of Merger and Reorganization, dated as of April 4, 2005, by and among the NutraCea, The RiceX Company and Red Acquisition Corporation.
     
3.01(3)
 
Restated and Amended Articles of Incorporation as filed with the Secretary of State of California on December 13, 2001.
     
3.01.1   Certificate of Amendment of Articles of Incorporation as filed with the Secretary of State of California on August 4, 2003.
     
3.02(4)
 
Certificate of Amendment of Articles of Incorporation as filed with the Secretary of State of California on October 31, 2003.
     
3.03
 
Certificate of Amendment of Articles of Incorporation as filed with the Secretary of State of California on September 29, 2005
     
3.04(5)
 
Certificate of Designation of the Rights, Preferences, and Privileges of the Series A Preferred Stock as filed with the Secretary of State of California on December 13, 2001.
     
3.05(6)
 
Certificate of Determination, Preferences and Rights of Series B Convertible Preferred Stock as filed with the Secretary of State of California on October 4, 2005.
     
3.06
 
Bylaws of NutraCea, as amended effective October 4, 2005.
     
4.01(6)
 
Form of warrant issued to subscribers in connection with NutraCea’s October 2005 private placement.
 
II - 5
 
5.1
 
Opinion of Weintraub Genshlea Chediak Law Corporation.
     
10.01(7)
 
NutraCea 2003 Stock Compensation Plan
     
10.02
 
NutraCea 2005 Equity Incentive Plan
     
10.03(6)
 
Securities Purchase Agreement, dated September 28, 2005, by and among NutraCea and the investors named therein.
     
10.04(6)
 
Registration Rights Agreement, dated September 28, 2005, by and among NutraCea and the investors named therein.
     
     
10.05
 
Employment Agreement between NutraCea and Patricia McPeak.
     
10.06
 
Restricted Stock Agreement between NutraCea and Patricia McPeak
     
10.07(8)
 
Executive Employment Agreement between NutraCea and Bradley D. Edson.
     
10.08(8)
 
Executive Employment Agreement between NutraCea and Margie D. Adelman.
     
10.09
 
Executive Employment Agreement between The RiceX Company and Todd C. Crow.
     
10.10
 
Amendment No. 1 to Employment Agreement between NutraCea, Todd C. Crow and The RiceX Company.
     
10.11
 
Executive Employment Agreement between The RiceX Company and Ike E. Lynch.
     
10.12
 
Amendment No. 1 to Employment Agreement between NutraCea, Ike E. Lynch and The RiceX Company.
     
10.13
 
Reserved
     
10.14(9)
 
Form of Affiliate Agreement between certain affiliates of RiceX and NutraCea dated April 4, 2005
     
10.15(8)±
 
W.F. Young Distribution Agreement.
     
10.16(8)±
 
W.F. Young Technology Agreement.
     
10.17(10)
 
Stock Purchase Agreement between NutraCea and Langley Park Investments PLC
     
10.18+
 
Production Facility Development and Rice Bran Supply and Purchase Agreement dated September 13, 2005 between NutraCea and Food Trading Company Dominicana, S.A.
     
10.19+
 
Assignment dated April 12, 2005 from W.F. Young, Inc. to NutraCea
     
10.20+
 
Distribution Agreement dated April 12, 2005 between W.F. Young, Inc. and NutraCea
     
10.21
 
Manufacturing Agreement dated April 12, 2005 between W.F. Young, Inc. and NutraCea
     
10.22+
 
Supply and Distribution Agreement dated November 4, 2005 between NutraCea and T. Geddes Grant.
     
10.23(11)
 
Commercial Lease and Deposit Receipt between Roebbelen Land Company and The RiceX Company dated December 23, 1991.
     
10.24(11)
 
First Amendment of Lease between Roebbelen Land Company and The RiceX Company dated January 19, 1994.
     
10.25(11)
 
Second Amendment of Lease between Roebbelen Land Company and The RiceX Company dated July 11, 1996.
     
10.26(11)
 
Third Amendment of Lease Agreement between Roebbelen Land Company and The RiceX Company dated February 1, 1998.
 
II - 6
 
10.27(11)
 
Lease Agreement between Roebbelen Land Company and The RiceX Company dated July 11, 1996.
     
10.28(11)
 
First Amendment of Lease between Roebbelen Land Company and The RiceX Company dated September 1996.
     
10.29(11)
 
Second Amendment of Lease Agreement between Roebbelen Land Company and The RiceX Company dated February 1, 1998.
     
10.30(12)
 
Agreement on Exclusive Distribution in Europe between The RiceX Company and KREGLINGER EUROPE N.V. dated October 1, 2002 .
     
10.31(13)±
 
Stabilized Rice Bran Processing, Sales, and Marketing Agreement between Farmers' Rice Cooperative and The RiceX Company dated May 1, 2002.
     
10.32(14)
 
The RiceX Company 1997 Stock Option Plan
     
10.33(11)
 
Form of Directors Stock Option Agreement for The RiceX Company.
     
10.34(11)
 
Form of Non-statutory Stock Option Agreement not issued under The RiceX Company 1997 Stock Option Plan, governing options granted to The RiceX Company employees.
     
10.35(15)
 
Form of non-statutory Stock Option Agreement issued under The RiceX Company 1997 Stock Option Plan between The RiceX Company and The RiceX Company employees dated October 1, 1999.
     
10.36(15)
 
Form of non-statutory Stock Option Agreement issued under The RiceX Company 1997 Stock Option Plan between The RiceX Company and Ike Lynch dated November 1, 1999. Identical Agreements with Daniel McPeak, Jr. and Todd C. Crow.
     
10.37(16)
 
Form of Board Member Non-statutory Stock Option Agreement issued under The RiceX Company 1997 Stock Option Plan between The RiceX Company and the Board Members of the RiceX Company dated February 22, 2001, September 23 and 29, 2001.
     
10.38(13)
 
Form of Non-statutory Stock Option Agreement issued under The RiceX Company 1997 Stock Option Plan between The RiceX Company and employees dated January 2, 2000.
     
10.39(17)
 
Form of Non-statutory Stock Option Agreement issued September 23, 2002 between The RiceX Company and the members of The RiceX Company’s Board of Directors.
     
10.40(17)
 
Form of Non-statutory Stock Option Agreement issued July 1, 2004 between The RiceX Company and Edward McMillan.
     
10.41(18)
 
Form of Warrant agreement between The RiceX Company and The RiceX Company’s Global Advisory Board dated October 4, 2004.  
     
10.42(18)
 
Form of Non-statutory Stock Option Agreement issued October 18, 2004 between The RiceX Company and two members of The RiceX Company Board Directors.  
     
10.43(19)
 
Form of Non-statutory Stock Option Agreement issued under the 1997 Stock Option Plan between The RiceX Company and certain non-employee RiceX Directors dated March 31, 2005.
     
10.44(19)
 
Form of Non-statutory Stock Option Agreement issued under the 1997 Stock Option Plan between The RiceX Company and certain employees of RiceX dated March 31, 2005.
     
10.45
 
Form of Option Assumption Agreement between NutraCea and Option Holders relating to assumed Options granted under The RiceX Company 1997 Stock Option Plan.
     
10.46
 
Form of Option Assumption Agreement between NutraCea and Option Holders relating to assumed non-plan RiceX Options.
     
10.47
 
Form of Option Assumption Agreement between NutraCea and former Directors of The RiceX Company.
 
II - 7
 
10.48
 
Form of Resale Restriction Agreement entered into between NutraCea and each of Todd C. Crow and Ike E. Lynch.
     
10.49
 
Form of Resale Restriction Agreement entered into between NutraCea and each of James Lintzenich, Edward McMillan and Steven Saunders.
     
10.50
 
Form of Resale Restriction Agreement entered into between NutraCea and each of Bradley Edson, Patricia McPeak, Margie Adelman, Eliot Drell and David Bensol.
     
21.01
 
List of subsidiaries.
     
23.1
 
Consent of Malone & Bailey, PC, Independent Registered Public Accounting Firm
     
23.2
 
Consent of Perry-Smith LLP, Independent Auditors.
     
23.3
 
Consent of Moss Adams LLP, LLC, Independent Auditors.
     
24.1
 
Power of Attorney (See signature page.)
  
  
 
±
Confidential treatment granted as to certain portions.
+
Confidential treatment has been requested as to certain portions.

(1)
incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on November 19, 2001.
(2)
incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on April 4, 2005.
(3)
incorporated herein by reference to exhibits previously filed on Registrant’s Annual Report on Form 10-KSB, filed on April 16, 2002.
(4)
incorporated herein by reference to exhibits previously filed on Registrant’s Quarterly Report on Form 10-QSB, filed on November 19, 2003.
(5)
incorporated herein by reference to exhibits previously filed on Registrant’s Registration Statement on Form SB-2, filed on June 4, 2002.
(6)
incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on October 4, 2005.
(7)
incorporated herein by reference to exhibits previously filed on Registrant’s Registration Statement on Form S-8, filed on November 18, 2003.
(8)
incorporated herein by reference to exhibits previously filed on Registrant’s Annual Report on Form 10-KSB, filed on March 31, 2005.
(9)
incorporated herein by reference to exhibits previously filed on The RiceX Company’s Report on Form 8-K, filed on April 4, 2005.
(10)
incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on September 14, 2004.
(11)
incorporated herein by reference to exhibits previously filed on The RiceX Company’s Registration Statement No. 000-24285, filed on May 18, 1998.
(12)
incorporated herein by reference to exhibits previously filed on The RiceX Company’s Report on Form 10-KSB, filed on March 31, 2003.
(13)
incorporated herein by reference to exhibits previously filed on The RiceX Company’s Report on Form 10-QSB, filed on August 12, 2002.
(14)
incorporated herein by reference to exhibits previously filed on The RiceX Company’s Registration Statement Number Statement No. 000-24285, filed on May 18, 1998.
(15)
incorporated herein by reference to exhibits previously filed on The RiceX Company’s Report on Form 10-KSB, filed on March 30, 2000.
(16)
incorporated herein by reference to exhibits previously filed on The RiceX Company’s Report on Form 10-QSB, filed on August 10, 2001.

II - 8

(17)
incorporated herein by reference to exhibits previously filed on The RiceX Company’s Report on Form 10-QSB, filed on November 15, 2003.
(18)
incorporated herein by reference to exhibits previously filed on The RiceX Company’s Report on Form 10-KSB, filed on March 30, 2005.
(19)
incorporated herein by reference to exhibits previously filed on The RiceX Company’s Report on Form 10-QSB, filed on May 16, 2005.

Item 28:
Undertakings .

The undersigned registrant will:

(1)     File, during any period in which it offers or sells securities, a post-effective amendment to this registration statement to:

(i)       include any prospectus required by Section 10(a)(3) of the Securities Act;

(ii)     reflect, in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and

(iii)     include any additional or changed material information on the plan of distribution.

(2)       For determining liability under the Securities Act, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering.

(3)       File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.

In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

II - 9

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and authorized this Registration Statement to be signed on its behalf by the undersigned, in the City of El Dorado Hill, State of California, on this 18 day of November , 2005.

 
NUTRACEA
     
     
 
BY:
/s/ Bradley D. Edson
   
Bradley D. Edson
   
Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL BY THESE PRESENTS that each individual whose signature appears below constitutes and appoints Bradley D. Edson and Todd C. Crow, and each of them, his attorneys-in-fact, and agents, each with the power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments and registration statements filed pursuant to Rule 462 of the Securities Act) to this Registration Statement, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

Signature
 
Title
 
Date
         
Principal Executive Officer:
       
         
  /s/ Bradley D. Edson
 
President, Chief Executive Officer
 
November 18, 2005
Bradley D. Edson
 
and Director
   

Principal Financial Officer
and Principal Accounting Officer:
         
 /s/ Todd C. Crow
 
Chief Financial Officer
 
November 18 , 2005
Todd C. Crow
       
         
Additional Directors:
       
         
  /s/  David Bensol
 
Director
 
November 18 , 2005
David Bensol
       
         
         
  /s/ Eliot Drell
 
Director
 
November 18 , 2005
Eliot Drell
       
 
II - 10
 
/s/  James C. Lintzenich
 
Director
 
November 14, 2005
James C. Lintzenich
       
         
  /s/  Edward L. McMillan
 
Director
 
November 18 , 2005
Edward L. McMillan
       
         
 
 
Director
 
November ___, 2005
Patricia McPeak
       
         
  /s/  Steven W. Saunders
 
Director
 
November 18, 2005
Steven W. Saunders
       
 
II - 11

ITEM 27:
EXHIBITS

Exhibit Number
 
Exhibit Description
     
2.01(1)
 
Plan and Agreement of Exchange.
     
2..02(2)
 
Agreement and Plan of Merger and Reorganization, dated as of April 4, 2005, by and among the NutraCea, The RiceX Company and Red Acquisition Corporation.
     
3.01(3)
 
Restated and Amended Articles of Incorporation as filed with the Secretary of State of California on December 13, 2001 .
     
3.01.1   Certificate of Amendment of Articles of Incorporation as filed with the Secretary of State of California on August 4, 2003.
     
3.02(4)
 
Certificate of Amendment of Articles of Incorporation as filed with the Secretary of State of California on October 31, 2003.
     
3.03
 
Certificate of Amendment of Articles of Incorporation as filed with the Secretary of State of California on September 29, 2005
     
3.04(5)
 
Certificate of Designation of the Rights, Preferences, and Privileges of the Series A Preferred Stock as filed with the Secretary of State of California on December 13, 2001.
     
3.05(6)
 
Certificate of Determination, Preferences and Rights of Series B Convertible Preferred Stock as filed with the Secretary of State of California on October 4, 2005.
     
3.06
 
Bylaws of NutraCea, as amended effective October 4, 2005.
     
4.01(6)
 
Form of warrant issued to subscribers in connection with NutraCea’s October 2005 private placement.
     
5.1
 
Opinion of Weintraub Genshlea Chediak Law Corporation.
     
10.01(7)
 
NutraCea 2003 Stock Compensation Plan
     
10.02
 
NutraCea 2005 Equity Incentive Plan
     
10.03(6)
 
Securities Purchase Agreement, dated September 28, 2005, by and among NutraCea and the investors named therein.
     
10.04(6)
 
Registration Rights Agreement, dated September 28, 2005, by and among NutraCea and the investors named therein.
     
10.05
 
Employment Agreement between NutraCea and Patricia McPeak.
     
10.06
 
Restricted Stock Agreement between NutraCea and Patricia McPeak
     
10.07(8)
 
Executive Employment Agreement between NutraCea and Bradley D. Edson.
     
10.08(8)
 
Executive Employment Agreement between NutraCea and Margie D. Adelman.
     
10.09
 
Executive Employment Agreement between The RiceX Company and Todd C. Crow.
     
10.10
 
Amendment No. 1 to Employment Agreement between NutraCea, Todd C. Crow and The RiceX Company.
     
10.11
 
Executive Employment Agreement between The RiceX Company and Ike E. Lynch.
     
10.12
 
Amendment No. 1 to Employment Agreement between NutraCea, Ike E. Lynch and The RiceX Company.
     
10.13
 
Reserved
 
 
10.14(9)
 
Form of Affiliate Agreement between certain affiliates of RiceX and NutraCea dated April 4, 2005
     
10.15(8)±
 
W.F. Young Distribution Agreement.
     
10.16(8)±
 
W.F. Young Technology Agreement.
     
10.17(10)
 
Stock Purchase Agreement between NutraCea and Langley Park Investments PLC
     
10.18+
 
Production Facility Development and Rice Bran Supply and Purchase Agreement dated September 13, 2005 between NutraCea and Food Trading Company Dominicana, S.A.
     
10.19+
 
Assignment dated April 12, 2005 from W.F. Young, Inc. to NutraCea
     
10.20+
 
Distribution Agreement dated April 12, 2005 between W.F. Young, Inc. and NutraCea
     
10.21
 
Manufacturing Agreement dated April 12, 2005 between W.F. Young, Inc. and NutraCea
     
10.22+
 
Supply and Distribution Agreement dated November 4, 2005 between NutraCea and T. Geddes Grant.
     
10.23(11)
 
Commercial Lease and Deposit Receipt between Roebbelen Land Company and The RiceX Company dated December 23, 1991.
     
10.24(11)
 
First Amendment of Lease between Roebbelen Land Company and The RiceX Company dated January 19, 1994.
     
10.25(11)
 
Second Amendment of Lease between Roebbelen Land Company and The RiceX Company dated July 11, 1996.
     
10.26(11)
 
Third Amendment of Lease Agreement between Roebbelen Land Company and The RiceX Company dated February 1, 1998.
     
10.27(11)
 
Lease Agreement between Roebbelen Land Company and The RiceX Company dated July 11, 1996.
     
10.28(11)
 
First Amendment of Lease between Roebbelen Land Company and The RiceX Company dated September 1996.
     
10.29(11)
 
Second Amendment of Lease Agreement between Roebbelen Land Company and The RiceX Company dated February 1, 1998.
     
10.30(12)
 
Agreement on Exclusive Distribution in Europe between The RiceX Company and KREGLINGER EUROPE N.V. dated October 1, 2002 .
     
10.31(13)±
 
Stabilized Rice Bran Processing, Sales, and Marketing Agreement between Farmers' Rice Cooperative and The RiceX Company dated May 1, 2002.
     
10.32(14)
 
The RiceX Company 1997 Stock Option Plan
     
10.33(11)
 
Form of Directors Stock Option Agreement for The RiceX Company.
     
10.34(11)
 
Form of Non-statutory Stock Option Agreement not issued under The RiceX Company 1997 Stock Option Plan, governing options granted to The RiceX Company employees.
     
10.35(15)
 
Form of non-statutory Stock Option Agreement issued under The RiceX Company 1997 Stock Option Plan between The RiceX Company and The RiceX Company employees dated October 1, 1999.
     
10.36(15)
 
Form of non-statutory Stock Option Agreement issued under The RiceX Company 1997 Stock Option Plan between The RiceX Company and Ike Lynch dated November 1, 1999. Identical Agreements with Daniel McPeak, Jr. and Todd C. Crow.
 
 
10.37(16)
 
Form of Board Member Non-statutory Stock Option Agreement issued under The RiceX Company 1997 Stock Option Plan between The RiceX Company and the Board Members of the RiceX Company dated February 22, 2001, September 23 and 29, 2001.
     
10.38(13)
 
Form of Non-statutory Stock Option Agreement issued under The RiceX Company 1997 Stock Option Plan between The RiceX Company and employees dated January 2, 2000.
     
10.39(17)
 
Form of Non-statutory Stock Option Agreement issued September 23, 2002 between The RiceX Company and the members of The RiceX Company’s Board of Directors.
     
10.40(17)
 
Form of Non-statutory Stock Option Agreement issued July 1, 2004 between The RiceX Company and Edward McMillan.
     
10.41(18)
 
Form of Warrant agreement between The RiceX Company and The RiceX Company’s Global Advisory Board dated October 4, 2004.  
     
10.42(18)
 
Form of Non-statutory Stock Option Agreement issued October 18, 2004 between The RiceX Company and two members of The RiceX Company Board Directors.  
     
10.43(19)
 
Form of Non-statutory Stock Option Agreement issued under the 1997 Stock Option Plan between The RiceX Company and certain non-employee RiceX Directors dated March 31, 2005.
     
10.44(19)
 
Form of Non-statutory Stock Option Agreement issued under the 1997 Stock Option Plan between The RiceX Company and certain employees of RiceX dated March 31, 2005.
     
10.45
 
Form of Option Assumption Agreement between NutraCea and Option Holders relating to assumed Options granted under The RiceX Company 1997 Stock Option Plan.
     
10.46
 
Form of Option Assumption Agreement between NutraCea and Option Holders relating to assumed non-plan RiceX Options.
     
10.47
 
Form of Option Assumption Agreement between NutraCea and former Directors of The RiceX Company.
     
10.48
 
Form of Resale Restriction Agreement entered into between NutraCea and each of Todd C. Crow and Ike E. Lynch.
     
10.49
 
Form of Resale Restriction Agreement entered into between NutraCea and each of James Lintzenich, Edward McMillan and Steven Saunders.
     
10.50
 
Form of Resale Restriction Agreement entered into between NutraCea and each of Bradley Edson, Patricia McPeak, Margie Adelman, Eliot Drell and David Bensol.
     
21.01
 
List of subsidiaries.
     
23.1
 
Consent of Malone & Bailey, PC, Independent Registered Public Accounting Firm
     
23.2
 
Consent of Perry-Smith LLP, Independent Auditors.
     
23.3
 
Consent of Moss Adams LLP, LLC, Independent Auditors.
     
24.1
 
Power of Attorney (See signature page.)
  
  
 
±
Confidential treatment granted as to certain portions.
+
Confidential treatment has been requested as to certain portions.

(1)
incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on November 19, 2001.
 
 
(2)
incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on April 4, 2005.
(3)
incorporated herein by reference to exhibits previously filed on Registrant’s Annual Report on Form 10-KSB, filed on April 16, 2002.
(4)
incorporated herein by reference to exhibits previously filed on Registrant’s Quarterly Report on Form 10-QSB, filed on November 19, 2003.
(5)
incorporated herein by reference to exhibits previously filed on Registrant’s Registration Statement on Form SB-2, filed on June 4, 2002.
(6)
incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on October 4, 2005.
(7)
incorporated herein by reference to exhibits previously filed on Registrant’s Registration Statement on Form S-8, filed on November 18, 2003.
(8)
incorporated herein by reference to exhibits previously filed on Registrant’s Annual Report on Form 10-KSB, filed on March 31, 2005.
(9)
incorporated herein by reference to exhibits previously filed on The RiceX Company’s Report on Form 8-K, filed on April 4, 2005.
(10)
incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on September 14, 2004.
(11)
incorporated herein by reference to exhibits previously filed on The RiceX Company’s Registration Statement No. 000-24285, filed on May 18, 1998.
(12)
incorporated herein by reference to exhibits previously filed on The RiceX Company’s Report on Form 10-KSB, filed on March 31, 2003.
(13)
incorporated herein by reference to exhibits previously filed on The RiceX Company’s Report on Form 10-QSB, filed on August 12, 2002.
(14)
incorporated herein by reference to exhibits previously filed on The RiceX Company’s Registration Statement Number Statement No. 000-24285, filed on May 18, 1998.
(15)
incorporated herein by reference to exhibits previously filed on The RiceX Company’s Report on Form 10-KSB, filed on March 30, 2000.
(16)
incorporated herein by reference to exhibits previously filed on The RiceX Company’s Report on Form 10-QSB, filed on August 10, 2001.
(17)
incorporated herein by reference to exhibits previously filed on The RiceX Company’s Report on Form 10-QSB, filed on November 15, 2003.
(18)
incorporated herein by reference to exhibits previously filed on The RiceX Company’s Report on Form 10-KSB, filed on March 30, 2005.
(19)
incorporated herein by reference to exhibits previously filed on The RiceX Company’s Report on Form 10-QSB, filed on May 16, 2005.
 


EXHIBIT 3.01.1
 
CERTIFICATE OF AMENDMENT
OF ARTICLES OF INCORPORATION
OF
NUTRASTAR INCORPORATED
 
John Howell and Edward Newton certify that:

1.       They are the President and Secretary, respectively, of NutraStar Incorporated, a California corporation.

2.       Article One. of the Articles of Incorporation is hereby amended to read in full as follows:

“The name of this corporation is NutraCea”

3.       The foregoing amendment of the Articles of Incorporation has been duly approved by the Board of Directors.

4.       The foregoing amendment of the Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Section 902, California Corporations Code. The total number of outstanding common shares of the corporation is 25,633,547 and the total number of outstanding Series A Preferred Stock of the corporation is 2,778,828. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was more than fifty percent (50%) of the total outstanding shares voting as a single class.

We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge.


Dated: July 25, 2003
 
 
/s/ John Howell
 
John Howell, President
   
   
 
/s/ Edward Newton
 
Edward Newton, Secretary
 
 
Exhibit 3.03
 
AMENDED ARTICLES OF INCORORATION OF
NUTRACEA
A California Corporation


The undersigned, Brad Edson and Margie Adelman hereby certify that:

ONE:     Mr. Edson is the duly elected President and Ms. Adelman is the duly elected Secretary of NutraCea, a California corporation (“Corporation”).

TWO:    Article Three of the Articles of Incorporation of the Corporation shall be amended to read in full as follows:

ARTICLE THREE

“This Corporation is hereafter authorized to issue two (2) classes of shares of stock designated respectively “Common Stock” and “Preferred Stock.” The total number of shares of Common Stock that this Corporation is authorized to issue is two hundred million (200,000,000) and the total number of shares of Preferred Stock that this Corporation is authorized to issue is twenty million (20,000,000).

The Preferred Stock may be divided into such number of series as the board of directors may determine. The board of directors is authorized to determine and alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock, and to fix the number of shares of any series of Preferred Stock and the designation of any such series of Preferred Stock. The board of directors, within the limits and restrictions stated in any resolution or resolutions of the board of directors originally fixing the number of shares constituting any series, may increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series subsequent to the issue of shares of that series.”

THREE:    The foregoing amendment of the Articles of Incorporation has been approved by the board of directors of the Company.

FOUR:     The foregoing amendment of the Articles of Incorporation has been approved by the holders of the requisite number of shares of the corporation in accordance with Sections 902 and 903 of the California corporations code. The total number of outstanding shares entitled to vote with respect to the foregoing amendment was 38,214,441 shares of Common Stock and the total number of outstanding shares of Preferred Stock was 0. The number of shares voting in favor of the foregoing amendment equaled or exceeded the vote required in each class, such required vote being a majority of the outstanding shares of Common Stock and a majority of the outstanding shares of Preferred Stock.


We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge.

Date: September 29, 2005  

 
     /s/ Brad Edson                  
Brad Edson, President

 
     /s/ Margie Adelman         
Margie Adelman, Secretary


 
[AMENDED ARTICLES OF INCORPORATION SIGNATURE PAGE]
 

Exhibit 3.06
CERTIFICATE OF AMENDMENT
OF BYLAWS OF
NUTRACEA


The following amendment of the Bylaws of NutraCea, a California corporation (the “Company”) has been approved and adopted by the Company’s board of directors and approved by the Company’s shareholders pursuant to Sections 211 and 212 of the California Corporations Code:

Article III Section 2 of the Company’s Bylaws is hereby amended in its entirety to read as follows:
 
“ Number, Term and Election . The authorized number of directors of the Corporation shall be such number, not less than five (5) and not more than nine (9), with the current number of directors set at seven (7). The number of directors shall be provided from time to time in a resolution adopted by the board of directors, provided that no decrease in the number of directors shall have the effect of shortening the term of any incumbent director, and provided further that no action shall be taken to decrease or increase the number of directors from time to time unless at least two-thirds of the directors then in office shall concur in said action and this Section 2 may not be amended except with the approval of the stockholders representing a majority of the voting stock outstanding at any time.”


 
[Remainder of this page intentionally blank.]

 

I, the undersigned, being the Secretary of NutraCea, do hereby certify the foregoing to be the Bylaws of said corporation, as adopted at a meeting of the Board of Directors held on the 28 th day of September, 2005.



 
   /s/ Margie Adelman
 
 
Margie Adelman, Secretary
 



BYLAWS
OF
NUTRACEA

ARTICLE I
Offices

The principal executive office of NutraCea (the "Corporation") shall be at 1261 Hawk's Flight, El Dorado Hills, California. The Corporation may also have offices at such other places within or without the State of California, as the board of directors shall from time to time determine.

ARTICLE II
  Stockholders

SECTION 1. Place of Meetings. All annual and special meetings of stockholders shall be held at the principal executive office of the Corporation or at such other place within or without the State of California as the board of directors may determine and as designated in the notice of such meeting.

SECTION 2. Annual Meetings. A meeting of the stockholders of the Corporation for the election of directors and for the transaction of any other business of the Corporation shall be held annually at such date and time as the board of directors may determine.

SECTION 3. Special Meetings. Special meetings of the stockholders of the Corporation for any purpose or purposes may be called at any time by the board of directors of the Corporation, or by a committee of the board of directors which as been duly designated by the board of directors and whose powers and authorities, as provided in a resolution of the board of directors or in the Bylaws of the Corporation, include the power and authority to call such meetings but such special meetings may not be called by another person or persons.

SECTION 4. Conduct of Meetings. Annual and special meetings shall be conducted in accordance with these Bylaws or as otherwise prescribed by the board of directors. The chairman or the chief executive officer of the Corporation shall preside at such meetings.

SECTION 5. Notice of Meeting. Written notice stating the place, day and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be mailed by the secretary or the officer performing his duties, not less than ten (10) days nor more than sixty (60) days before the meeting to each stockholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the stockholder at his address as it appears on the stock transfer books or records of the Corporation as of the record date prescribed in Section 6 of this Article II, with postagethereon prepaid. If a stockholder be present at a meeting, or in writing waives notice thereof before or after the meeting, notice of the meeting to such stockholder shall be unnecessary.


SECTION 6. Fixing of Record Date. For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders, or any adjournment thereof, or entitled to express consent to a corporate action in writing without a meeting, or entitled to receive payment of any dividend, or in order to make a determination of stockholders for any other proper purpose, the board of directors shall fix in advance a date as the record date for any such determination of stockholders. Such date in any case shall be not more than sixty (60) days, and in case of a meeting of stockholders, not less than ten (10) days prior to the date on which the particular action, requiring such determination of stockholders, is to be taken. If no record date is fixed for the determination of stockholders entitled to notice of or to vote at a meeting of stockholders, or entitled to express consent to a corporate action in writing without a meeting, o r entitled t o receive payment of ad ividend o r other distribution, o r for any other proper purpose, the close of business on the day next preceding the date on which notice of the meeting is mailed or if notice is waived, the close of business on the day next preceding the day on which the meeting is held or the date on which the resolution of the board of directors declaring such dividend or relating to such other proper purpose is adopted, as the case may be, shall be the record date for such determination of stockholders. When a determination of stockholders entitled to vote at any meeting of stockholders has been made as provided in this Section 6, such determination shall apply to any adjournment thereof; provided that the board of directors may fix a new record date for the adjourned meeting.

SECTION 7. Voting Lists. The officer or agent having charge of the stock transfer books for shares of the Corporation shall make, at least ten (10) days before each meeting of stockholders, a complete record of the stockholders entitled to vote at such meeting or any adjournment thereof, with the address of and the number of shares held by each. The record, for a period of ten (10) days before such meeting, shall be kept on file at the principal executive office of the Corporation, whether within or outside the State of   California, and shall be subject to inspection by any stockholder for any purpose germane to the meeting at any time during usual business hours. Such record shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any stockholder for any purpose germane to the meeting during the whole time of the meeting. The original stock transfer books shall be prima facie evidence as to who are the stockholders entitled to examine such record or transfer books or to vote at any meeting of stockholders.

SECTION 8. Quorum. Unless otherwise provided in the Corporation's Articles of Incorporation or applicable law, the holders of a majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of the stockholders. If, however, a quorum shall not be present or represented at any meeting of the stockholders, the stockholders present in person or represented by proxy shall have power to adjourn the meeting from time to time, without notice other than announcementof location, day and hour of the adjourned meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified, unless the adjournment is for more than thirty (30) days or if after the adjournment a new record date is fixed for the adjourned meeting, in which case notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at such meeting. The stockholders present at a duly organized meeting may continue to transact business until adjournment, and the subsequent withdrawal of any stockholder or the refusal of any stockholder to vote shall not affect the presence of quorum at the meeting.


SECTION 9. Proxies. At all meetings of stockholders, a stockholder may vote by proxy executed in writing by the stockholder or by his duly authorized attorney in fact. Proxies solicited on behalf of the management shall be voted as directed by the stockholder or, in the absence of such direction, as determined by a majority of the board of directors. No proxy shall be valid after eleven months from the date of its execution unless otherwise provided in the proxy.

SECTION 10. Voting. Except with respect to the election of directors, the vote of the holders of a majority of the shares entitled to vote and represented in person or by proxy a t a meeting at which a quorum i s present shall b e the act o f the stockholders' meeting, unless the vote of a greater number is required by law or the Corporation's Articles of Incorporation. Directors shall be elected by a plurality of the votes of the shares entitled to vote in the election of directors and represented in person or by proxy at a meeting at which a quorum is present, unless a greater number is required by law or the Corporation's Articles of Incorporation. Where a separate vote by a class or classes is required, a majority of the outstanding shares of such class or classes, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter and the affirmative vote of the majority of shares of such class or classes present in person or represented by proxy at the meeting shall be the act of such class. The board of directors, in its discretion, or the officer of the Corporation presiding at a meeting of stockholders, in his discretion, may require that any votes cast at such meeting shall be cast by written ballot.

Each outstanding share shall be entitled to one (1) vote on each matter submitted to a vote at a meeting of the stockholders, except to the extent that the voting rights of the shares of any class are expanded, limited or denied by the Corporation's Articles of Incorporation or by a resolution of the board of directors designating a series of preferred stock. At each election for directors, every stockholder entitled to vote at such election shall have the right to vote the number of shares owned by him for as many persons as there are directors to be elected and for whose election he has the right to vote. Unless permitted by the Corporation's Articles of Incorporation, no stockholder shall be entitled to cumulate his votes in an election of directors.


SECTION 11. Action by Written Consent Without a Meeting. Any action required or permitted by law, the Corporation's Articles of Incorporation or these Bylawsto be taken at a meeting of the stockholders may be taken without a meeting, without prior otice, and without a vote, if a consent in writing, setting forth the action so taken, is signed by the holders of stock having not less than the minimum number of votes that would be necessary to take such action at a meeting at which the holders of all shares entitled to vote on the action were present and voting. Consent does not have to be unanimous. Every written consent must bear the date of signature of each stockholder who signs the consent. No written consent shall be effective to take the action that is the subject of the consent unless, within sixty (60) days after the date of the earliest dated consent delivered to the Corporation in the manner required by this Section 11, a consent or consents signed by the holder or holders of shares having not less than the minimum number of votes that would be necessary to take the action that is the subject of the consent are delivered to the Corporation by delivery to its registered office, its principal place of business, or an officer or agent of the Corporation having custody of the books in which proceedings of meetings of stockholders are recorded. Delivery shall be by hand or c ertified o r registered mail, return receipt requested. D elivery t o the Corporation's principal place of business shall be addressed to the President or Chief Executive Officer of the Corporation. Unless consents were solicited from all shareholders, at least ten (10) days' notice of any action by stockholders without a meeting by less than unanimous written consent shall be given to those stockholders from whom consents were not solicited.

ARTICLE III
Board of Directors

SECTION 1. General Powers. The business and affairs of the Corporation shall be managed by or under the direction of the board of directors, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Corporation's Articles of Incorporation or by these Bylaws directed or required to be exercised and done by the stockholders.

SECTION 2. Number, Term and Election. The number of directors of the Corporation shall be such number, not less than three (3), as shall be provided from time to time in a resolution adopted by the board of directors, provided that no decrease in the number of directors shall have the effect of shortening the term of any incumbent director, and provided further that no action shall be taken to decrease or increase the number of directors from time to time unless at least two-thirds of the directors then in office shall concur in said action and this Section 2 may not be amended except with the approval of the stockholders representing a majority of the voting stock outstanding at any time.

SECTION 3. Regular Meetings. A regular meeting of the board of directors shall be held at such time and place as shall be determined by resolution of the board of directors without other notice than such resolution.

SECTION 4. Special Meetings. Special meetings of the board of directors may be called by or at the request of the chairman, the chief executive officer or two-thirds ofthe directors. The person calling the special meeting of the board of directors may fix any place as the place for holding any special meeting of the board of directors called by such persons.


Members of the board of the directors may participate in special meetings by means of telephone conference or similar communications equipment by which all persons articipating in the meeting can hear each other. Such participation shall constitute presence in person.

SECTION 5. N otice. W ritten notice of any special meeting shall be given to each director by mail, at least two (2) days previous thereto, by facsimile, telephone or telegraph, one (1) day previous thereto, or on such shorter notice as the person or persons calling such notice may deem necessary or appropriate in the circumstances. Any director may waive notice of any meeting by a writing filed with the secretary. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting of the board of directors need be specified in the notice or waiver of notice of such meeting.

SECTION 6. Quorum. A majority of the total number of directors shall constitute a quorum for the transaction of business at any meeting of the board of directors, but if less than such majority is present at a meeting, a majority of the directors present may adjourn the meeting from time to time. Notice of any adjourned meeting shall be given in the same manner as prescribed by Section 5 of this Article III.

SECTION 7. Manner of Acting. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors, unless a greater number is prescribed by these Bylaws, the Corporation's Articles of Incorporation, or the General Corporation Law of the State of California.

SECTION 8. Action Without a Meeting. Any action required or permitted to be taken at a meeting of the board of directors or any committee thereof may be taken without a meeting if a consent in writing setting forth the action so taken is signed by all members of the board of directors or of the committee, as the case may be, and the writing or writings are filed with the minutes or proceedings of the board or committee.

SECTION 9. Resignation. Any director may resign at any time by sending a written notice of such resignation to the home office of the Corporation addressed to the chairman. Unless otherwise specified therein, such resignation shall take effect upon receipt thereof by the chairman.

SECTION 10. Vacancies. Any vacancy occurring on the board of directors shall be filled in accordance with the provisions of the Corporation's Articles of Incorporation. Any directorship to be filled by reason of an increase in the number of directors may be filled by the affirmative vote of a majority of the directors then in office, though less than a quorum, or by election at an annual meeting or at a special meeting of the stockholders   held for that purpose. The term of such director shall be in accordance with the provisions of the Corporation's Articles of Incorporation.


SECTION 11. Compensation. Directors, as such, may be paid their expenses, if any, of attendance at each meeting, and receive compensation for service on the board of directors. Members of either standing or special committees may be allowed such compensation as the board of directors may determine.

SECTION 12. Interested Directors. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the board of directors or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose if (i) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors or the committee, and the board of directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (ii) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the board of directors, a committee thereof or the stockholders; or (iv) the material facts as to his or their relationship or interest and as to the contract or transaction is not known to the director or officer at the time the transaction is brought before the board o f directors o r c ommittee o f t he C orporation for action. C ommon o   n nterested directors may be counted in determining the presence of a quorum at a meeting of the board of directors or of a committee which authorizes the contract or transaction.

ARTICLE IV
Committees of the Board of Directors

The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, as they may determine to be necessary or appropriate for the c onduct o f t he b usiness o f t he C orporation, and m ay prescribe the duties, constitution and procedures thereof. Each committee shall consist of one or more directors of the Corporation appointed by the chairman. The board of directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee.

Any member of any such committee may resign at any time by giving notice to the Corporation; provided, however, that notice to the board, the chairman of the board, the chief executive officer, the chairman of such committee, or the secretary shall be d eemed to constitute notice to the Corporation. Such resignation shall take effect upon receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, acceptance of such resignation shall not be necessary to make it effective. Any member of any such committee may be removed at any time, either with or without cause, by the affirmative vote of a majority of the authorized number of directors at any meeting of the board.


All committees shall keep regular minutes of its proceedings and report the same to the board of directors when required. To the extent applicable, the provisions of Article III of these Bylaws governing the meetings of the board of directors shall likewise govern the meetings of any committee thereof.

ARTICLE V
Officers

SECTION 1. Positions. The officers of the Corporation shall be a Chairman, a President, a Secretary and a Treasurer, each of whom shall be elected by the board of directors. The board of directors may also elect one or more vice presidents and designate any such vice president as an executive vice president or senior vice president. The board of directors may also elect or authorize the appointment of such other officers as the business of the Corporation may require. The officers shall have such authority and perform such duties as the board of directors may from time to time authorize or determine. In the absence of action by the board of directors, the officers shall have such powers and duties as generally pertain to their respective offices. Any two or more offices may be held by the same person.

SECTION 2. Election   and   Term   of   Office. The officers of the Corporation shall be elected annually by the board of directors at the first meeting of the board of directors held after each annual meeting of the stockholders. If the election of officers is not held at such meeting, such election shall be held as soon thereafter as possible. Each officer shall hold office until his successor shall have been duly elected and qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided.

Election or appointment of an officer, employee or agent shall not of itself create contract rights. The board of directors may authorize the Corporation to enter into an employment contract with any officer in accordance with state law; but no such contract shall impair the right of the board of directors to remove any officer at any time in accordance with Section 3 of this Article V.

SECTION 3. Removal. Any officer may be removed at any time, with or without cause, by the vote of a majority of the board of directors.

SECTION 4. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the board of directors for the unexpired portion of the term.

 
SECTION S. Remuneration. The remuneration of the officers shall be fixed from time to time by the board of directors, and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the Corporation.

ARTICLE VI
Contracts, Loans, Checks and Deposits

SECTION 1. Contracts. To the extent permitted by applicable law, and except as otherwise prescribed by the Corporation's Articles of Incorporation or these Bylaws, the board of directors or a duly authorized committee thereof may authorize any officer, employee, or agent of the Corporation to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation. Such authority may be general or confined to specific instances.

SECTION 2. Loans. No loans shall be contracted on behalf of the Corporation and no evidence of indebtedness shall be issued in its name unless authorized by the board of directors. Such authority may be general or confined to specific instances.

SECTION 3. Checks,   Drafts,   Etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by one or more officers, employees or agents of the Corporation in such manner, including in facsimile form, as shall from time to time be determined by resolution of the board of directors.

SECTION 4.   DD   eposits.   A 11 funds o f t he C orporation n of o therwise e mployed shall be deposited from time to time to the credit of the Corporation in any of its duly authorized depositories as the board of directors may select.

ARTICLE VII
Certificates for Shares and Their Transfer

SECTION 1. Certificates   for   Shares. The shares of the Corporation shall be represented by Certificates signed by the chairman of the board of directors or the president or a vice president and by the treasurer or an assistant treasurer or the secretary or an assistant secretary of the Corporation, and may be sealed with the seal of the Corporation or a facsimile thereof. Any or all of the signatures upon a Certificate may be facsimiles. If any officer who has signed or whose facsimile signature has been placed upon such Certificate shall have ceased to be such officer before the Certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the date of its issue.

SECTION 2. Transfer   of   Shares. Transfer of shares of capital stock of the Corporation shall be made only on its stock transfer books. Authority for such transfer shall be given only to the holder of record thereof or by his legal representative, who shall furnish proper evidence of such authority, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Corporation. Such transfer shall be made only on surrender for cancellation of the Articles for such shares. The person in whose name shares of capital stock stand on the books of the Corporation shall be deemed by the Corporation to be the owner thereof for all purposes.


SECTION 3. Lost Certificates. The board of directors may direct a new Certificate to be issued in place of any Certificate theretofore issued by the Corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the Certificate of stock to be lost, stolen, or destroyed. When authorizing such issue of a new Certificate, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, or destroyed Certificate, or his legal representative, to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the Certificate alleged to have been lost, stolen, or destroyed.

SECTION 4. Nominees. For the purpose of securing the stockholders against fraud and manipulation, no share of the c ommon stock o f the Corporation m ay b e s old, transferred or otherwise registered in the name of The Depository Trust Corporation, The Canadian Depository for Securities Limited, Cede & Co. or any other person as a nominee for the beneficial owner thereof Each share of the Corporation's common stock from time to time outstanding shall be registered on the books of the Corporation by the beneficial owner thereof and no person whose shares are not so registered shall have any right to vote,   receive notice of meetings, or receive dividends or other distributions relating to such shares until they are so registered on the books and records of the Corporation. All certificates representing shares of the Corporation shall bear a restrictive legend restricting the transfer thereof in accordance with this provision. As used herein, the terms "beneficial owner" shall mean the person or group who has the sole or joint right to dispose of the shares or direct the disposal of shares, the sole or joint economic interest in the shares, or the sole or joint right to receive or direct the receipt of dividends or other distributions relating to the shares.

ARTICLE VIII
Fiscal Year

The fiscal year of the Corporation shall be established by the board of directors.

ARTICLE IX
Dividends

Dividends upon the stock of the Corporation, subject to the provisions of the Corporation's Articles of Incorporation, if any, may be declared by the board of directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property or in the Corporation's own stock.


ARTICLE X
indemnification

SECTION 1. Power to Indemnify in Actions, Suits or Proceedings Other Than   Those by or in the Right of the Corporation. Subject to Section 3 of this Article X, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative o r investigative (other than an action by or in the right of the Corporation) by reason of the fact that he or she is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director or officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.

SECTION 2. Power to Indemnify in Actions Suits or Proceedings by or in the   Right of the Corporation. Subject to Section 3 of this Article X, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he or she is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation; except that no indemnification shall be made in respect of any claim, issue or m after as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper.

SECTION 3. Authorization of Indemnification. Any indemnification under this Article X (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because he or she has met the applicable standard of conductset forth in Section 1 or Section 2 of this Article X, as the case may be. Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. To the extent, however, that a director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described above, or in defense of any claim, issue or matter therein, he or she shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection therewith, without the necessity of authorization in the specific case.


SECTION 4. Good Faith Defined. For purposes of any determination under Section 3 of this Article X, a person shall be deemed to have acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe his conduct was unlawful, if his or her action is based on the records or books of account of the Corporation or another enterprise, or on information supplied to him or her by the officers of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise b y an independent c ertified p ublic accountant or b y an appraiser o r other expert selected with reasonable care by the Corporation or another enterprise. The term "another enterprise" as used in this Section 4 shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the Corporation as a director, officer, employee or agent. The provisions of this Section 4 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Sections 1 or 2 of this Article X, as the case may be.

SECTION 5. Indemnification by a Court. Notwithstanding any contrary determination in the specific case under Section 3 of this Article X, and notwithstanding the absence of any determination thereunder, any director or officer may apply to any court of competent jurisdiction in the State of California for indemnification to the extent otherwise permissible under Sections 1 and 2 of this Article X. The basis of such indemnification by a court shall be a determination by such court that indemnification of the director or officer is proper in the circumstances because he or she has met the applicable standards of conduct set forth in Sections 1 or 2 of this Article X, as the case may be. Neither a contrary determination in the specific case under Section 3 of this Article X nor the absence of any determination thereunder shall be a defense to such application or create a presumption that the director or officer seeking indemnification has not met any applicable standard of conduct. Notice of any application for indemnification pursuant to this Section 5 shall be given to the Corporation promptly upon the filing o f s uch application. Ifs uccessful, i n w hole or i n p art, the director o r officer seeking indemnification shall also be entitled to be paid the expense of prosecuting such application.
 

SECTION 6. Expenses Payable in Advance. Expenses incurred by a director or officer in defending or investigating a threatened or pending action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation as authorized in this Article X.

SECTION 7. Nonexclusivity of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by or granted pursuant to this Article X shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any Bylaw, agreement, contract, vote of stockholders or disinterested directors or pursuant to the direction (howsoever embodied) of any court of competent jurisdiction or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such o ffice, i t b eing the p olicy of the C orporation t hat i ndemnification o f t he persons specified in Sections 1 and 2 of this Article X shall be made to the fullest extent permitted by law. The provisions of this Article X shall not be deemed to preclude the indemnification of any person who is not specified in Sections 1 or 2 of this Article X, but whom the Corporation has the power or obligation to indemnify under the provisions of the General Corporation Law of the State of California, or otherwise.

SECTION 8. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power or the obligation to indemnify him or her against such liability under the provisions of this Article X.

SECTION 9. Certain Definitions. For purposes of this Article X, references to "the Corporation" shall include, in addition to the resulting corporation, any constituent corporation ( including any c onstituent o f a constituent) absorbed i n a c onsolidation o r merger which, if its separate existence had continued, would have had power and authority to indemnify its directors or officers, so that any person who is or was a director or officer of such constituent corporation, or is or was a director or officer of such constituent corporation serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, shall stand in the same position under the provisions of this Article X with respect to the resulting or surviving corporation as he or she would have with respect to such constituent corporation if its separate existence had continued. For purposes of this Article X, references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by,such director or officer with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he or she reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article X.


SECTION 10. Survival of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article X shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director or officer and shall inure to the b enefit of the heirs, executors and administrators of such a person.

SECTION 11. Limitation on Indemnification. Notwithstanding anything contained in this Article X to the contrary, except for proceedings to enforce rights to indemnification (which shall be governed by Section 5 of this Article X), the Corporation shall not be obligated to indemnify any director or officer in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Corporation.

SECTION 12. Indemnification of Employees and Agents. The Corporation may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Corporation similar to those conferred in this Article X to directors and officers of the Corporation.

ARTICLE XI
Corporate Seal

The corporate seal shall have inscribed thereon the name of the Corporation and may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.

ARTICLE XII  
Amendments

In accordance with the Corporation's Articles of Incorporation, these Bylaws may be repealed, altered, amended or rescinded by the stockholders of the Corporation or the board of directors; provided that notice of such repeal, alteration, amendment or rescission be contained in the notice of such meeting of stockholders or the board of directors, as the case may be. All such action must be approved by either the holders of not less than a majority of the outstanding shares of capital stock of the Corporation entitled to vote thereon or by two thirds of the entire board of directors, in each case at a legal meeting held in accordance with the provisions of these Bylaws.
 

EXHIBIT 5.1

November 17, 2005



 
NutraCea
1261 Hawk’s Flight Court
El Dorado Hills, CA 95762

Gentlemen/Ladies:

At your request, we have examined the Registration Statement on Form SB-2 (the "Registration Statement" ) filed by NutraCea, a California corporation (the "Company" ), with the Securities and Exchange Commission (the "Commission" ) on or about November 18, 2005, in connection with the registration under the Securities Act of 1933, as amended (the "Securities Act" ), of the resale of up to 29,486,680 shares of the Company's Common Stock (collectively, the “ Shares ”), including 525,000 shares that are outstanding (“ Outstanding Shares ”) that were issued upon exercise of certain warrants (“ Outstanding Shares Warrants ”), up to 15,700,000 shares (the “Conversion Shares” ) that are issuable upon conversion of our outstanding Series B Convertible Preferred Stock (“ Series B Preferred ”), and up to 13,261,680 shares of Common Stock ( “Warrant Shares” ) that are issuable upon exercise of certain other warrants (the “ Warrants ”), all of which were issued to certain of the selling security holders identified in the table appearing in the prospectus under the heading “Selling Security Holders.”  

In rendering this opinion, we have examined such matters of fact as we have deemed necessary in order to render the opinion set forth herein, which included examination of the following documents:

 
(1)
The Registration Statement.

 
(2)
The Securities Purchase Agreement dated as of September 28, 2005 (“Purchase Agreement”) and the Registration Rights Agreement dated as of October 4, 2005 (“Registration Rights Agreement”) that are Exhibits to the Registration Statement.


NutraCea
November 17, 2005
Page 2

 
(3)
The Warrants and the Outstanding Shares Warrants.

 
(3)
Copies of the Company's (i) Restated and Amended Articles of Incorporation filed with the California Secretary of State on December 13, 2001, (ii) Certificate of Amendment of Articles of Incorporation filed with the California Secretary of State on August 4, 2003, (iii) Certificate of Amendment of Articles of Incorporation filed with the California Secretary of State on October 31, 2003, (iv) Certificate of Amendment of Articles of Incorporation filed with the California Secretary of State on September 29, 2005, (v) Certificate of Designation of the Rights, Preferences, and Privileges of the Series A Preferred filed with the California Secretary of State on December 13, 2001, and (vi) Certificate of Determination, Preferences and Rights of Series B Convertible Preferred Stock filed with the California Secretary of State on October 4, 2005, certified by the Company’s Secretary (collectively, “ Articles ”).

 
(4)
A copy of the Company's Bylaws, certified to us by the Company in the Management Certificate as being complete and correct (the "Bylaws" ).

 
(5)
Minutes of meetings and actions by written consent of the Company's Board of Directors (and committees thereof) relating to the Purchase Agreement, the Registration Rights Agreement, the Outstanding Shares Warrants, the Warrants and the adoption and amendment of the Articles, which were certified to us by the Company in the Management Certificate as being complete and correct.

 
(6)
A Management Certificate addressed to us and dated of even date herewith executed by the Company containing certain factual representations (the "Management Certificate" ).


NutraCea
November 17, 2005
Page 3

As to matters of fact relevant to this opinion, we have relied solely upon our examination of the documents referred to above and such additional examination as we consider relevant to this opinion and have assumed the current accuracy and completeness of the information obtained from the documents referred to above and such additional examination. We have made no independent investigation or other attempt to verify the accuracy of any of such information or to determine the existence or non-existence of any other factual matters; however, we are not aware of any facts that would cause us to believe that the opinion expressed herein is not accurate.

In our examination of documents for purposes of this opinion, we have assumed, and express no opinion as to, the authenticity and completeness of all documents submitted to us as originals, the conformity to originals and completeness of all documents submitted to us as copies, the legal competence or capacity of all persons or entities executing the same, the lack of any undisclosed termination, modification, waiver or amendment to any document entered into by the Selling Security Holders and the due authorization, execution and delivery of all documents by the Selling Security Holders where due authorization, execution and delivery are prerequisites to the effectiveness thereof. We have also assumed that the certificates representing the Shares that are issued have been or will be properly signed by authorized officers of the Company or their agents.

We are admitted to practice law in the State of California, and we render this opinion only with respect to, and express no opinion herein concerning the application or effect of the laws of any jurisdiction other than, the existing laws of the United States of America and the State of California.

In connection with our opinion expressed below, we have assumed that, at or before the time of any resale of Shares pursuant to the Registration Statement, the Registration Statement will have been declared effective under the Securities Act, that the registration will apply to such resale of Shares and will not have been modified or rescinded and that there will not have occurred any change in law affecting the validity or issuance of such shares or their status as fully paid and nonassessable.


NutraCea
November 17, 2005
Page 4

The Company has informed us that the Selling Security Holders may resell Shares from time to time on a delayed or continuous basis. This opinion is limited to the laws, including the rules and regulations, as in effect on the date hereof. We are basing this opinion on our understanding that, prior to any Selling Security Holder's resale of Shares pursuant to the Registration Statement, the Company will advise us in writing of the terms thereof and other information material thereto and will afford us an opportunity to review the operative documents pursuant to which such Shares are to be resold (including the Registration Statement, the prospectus and applicable prospectus supplement, if any, as then in effect) and will file such supplement or amendment to this opinion (if any) as we may reasonably consider necessary or appropriate with respect to such resale. However, we undertake no responsibility to monitor the Company's or any Selling Security Holder's future compliance with applicable laws, rules or regulations of the Commission or other governmental body. We also assume the Company will timely file any and all supplements to the Registration Statement and prospectus as are necessary to comply with applicable laws in effect from time to time.

In rendering any opinion that the Shares are "fully paid," we have assumed that such shares were issued or will be issued, as applicable, in accordance with the terms of the Purchase Agreement, the Articles, the Outstanding Shares Warrants and the Warrants, and that the Company has received full consideration for the issuance of such shares provided for in the Purchase Agreement, the Articles, the Outstanding Shares Warrants and the Warrants (as applicable), and we have relied solely, without independent investigation, upon the representation of the Company to that effect in the Management Certificate referred to above.

In rendering any opinion that the Shares are “validly issued,” we have assumed that the Company will not issue Common Stock in the future that would cause the issuance of the Shares upon conversion of the Series B Preferred or upon exercise of the Warrants to exceed the number of shares of Common Stock that are then authorized for issuance under the Articles.


NutraCea
November 17, 2005
Page 5
 
Based upon the foregoing, it is our opinion that the Outstanding Shares that may be sold by the Selling Security Holders pursuant to the Registration Statement are, and the Conversion Shares and the Warrant Shares, when issued upon conversion of the Series B Preferred or exercise of the Warrants and fully paid for as provided in the Purchase Agreement, the Articles and the Warrants will be, validly issued, fully paid and nonassessable.

We consent to the use of this opinion as an exhibit to the Registration Statement and further consent to all references to us, if any, in the Registration Statement, the prospectus constituting a part thereof and any amendments thereto. We assume no obligation to advise you of any fact, circumstance, event or change in the law or the fact that may hereafter be brought to our attention whether or not such occurrence would affect or modify the opinions expressed herein. This opinion is intended solely for use in connection with issuance and sale of shares subject to the Registration Statement and is not to be relied upon for any other purpose.

 
Very truly yours,
   
   
 
/s/ WEINTRAUB GENSHLEA CHEDIAK
 
WEINTRAUB GENSHLEA CHEDIAK
 
A LAW CORPORATION
 
 
Exhibit 10.02
NUTRACEA

2005 EQUITY INCENTIVE PLAN

As Adopted May 26, 2005


1.       PURPOSE . The purpose of this Plan is to provide incentives to attract, retain and motivate eligible persons whose present and potential contributions are important to the success of the Company, its Parent, Subsidiaries and Affiliates, by offering them an opportunity to participate in the Company's future performance through awards of Options, Restricted Stock and Stock Bonuses. Capitalized terms not defined in the text are defined in Section 24.

2.       SHARES SUBJECT TO THE PLAN .

2.1       Number of Shares Available . Subject to Sections 2.2 and 18, the total number of Shares reserved and available for grant and issuance pursuant to this Plan will be 10,000,000. Subject to Sections 2.2 and 18, Shares that: (a) are subject to issuance upon exercise of an Option but cease to be subject to such Option for any reason other than exercise of such Option; (b) are subject to an Award granted hereunder but are forfeited or are repurchased by the Company at the original issue price; or (c) are subject to an Award that otherwise terminates without Shares being issued; will again be available for grant and issuance in connection with future Awards under this Plan. In order that ISO’s may be granted under this Plan, no more than 10,000,000 Shares shall be issued as ISOs. At all times the Company shall reserve and keep available a sufficient number of Shares as shall be required to satisfy the requirements of all outstanding Options granted under this Plan and all other outstanding but unvested Awards granted under this Plan.

2.2       Adjustment of Shares . In the event that the number of outstanding Shares is changed by a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or similar change in the capital structure of the Company without consideration, then (a) the number of Shares reserved for issuance under this Plan, (b) the Exercise Prices of and number of Shares subject to outstanding Options, (c) the maximum number of Shares that may be issued as ISOs set forth in Section 2.1, and (d) the number of Shares subject to other outstanding Awards will be proportionately adjusted, subject to any required action by the Board or the shareholders of the Company and compliance with applicable securities laws; provided , however , that fractions of a Share will not be issued but will either be replaced by a cash payment equal to the Fair Market Value of such fraction of a Share or will be rounded up to the nearest whole Share, as determined by the Committee.

3.       ELIGIBILITY . ISOs (as defined in Section 5 below) may be granted only to employees (including officers and directors who are also employees) of the Company or of a Parent or Subsidiary of the Company. All other Awards may be granted to employees, officers, directors, consultants and advisors of the Company or any Parent, Subsidiary or Affiliate of the Company; provided such consultants and advisors render bona fide services not in connection with the offer and sale of securities in a capital-raising transaction. A person may be granted more than one Award under this Plan.

4.       ADMINISTRATION .

4.1       Committee Authority . This Plan will be administered by the Committee or by the Board acting as the Committee. Subject to the general purposes, terms and conditions of this Plan, and to the direction of the Board, the Committee will have full power to implement and carry out this Plan. Without limitation, the Committee will have the authority to:

 
(a)
construe and interpret this Plan, any Award Agreement and any other agreement or document executed pursuant to this Plan;

 
(b)
prescribe, amend and rescind rules and regulations relating to this Plan;

NutraCea
2005 Equity Incentive Plan

 
(c)
select persons to receive Awards;

 
(d)
determine the form and terms of Awards (which need not be identical), including but not limited to, the time or times at which Options shall be exercisable and the extension or acceleration of any such provisions or limitations, based in each case on such factors as the Committee shall determine, in its sole discretion;

 
(e)
determine the number of Shares or other consideration subject to Awards;

 
(f)
determine whether Awards will be granted singly, in combination with, in tandem with, in replacement of, or as alternatives to, other Awards under this Plan or any other incentive or compensation plan of the Company or any Parent, Subsidiary or Affiliate of the Company;

 
(g)
grant waivers of Plan or Award conditions;

 
(h)
determine the vesting, exercisability and payment of Awards;

 
(i)
correct any defect, supply any omission or reconcile any inconsistency in this Plan, any Award or any Award Agreement;

 
(j)
determine whether an Award has been earned; and

(k)
make all other determinations necessary or advisable for the administration of this Plan.

4.2       Committee Discretion . Any determination made by the Committee with respect to any Award will be made in its sole discretion at the time of grant of the Award or, unless in contravention of any express term of this Plan or Award, at any later time, and such determination will be final and binding on the Company and on all persons having an interest in any Award under this Plan. The Committee may delegate to one or more officers of the Company the authority to grant an Award under this Plan to Participants who are not Insiders of the Company.

4.3       Compliance with Code Section 162(m) . If two or more members of the Board are “outside directors” within the meaning of Section 162(m) of the Code (“ Outside Directors ”), the Committee shall be comprised of at least two members of the Board, all of whom are Outside Directors.

5.       OPTIONS . The Committee may grant Options to eligible persons and will determine whether such Options will be Incentive Stock Options within the meaning of the Code ( "ISOs" ) or Nonqualified Stock Options ( "NQSOs" ), the number of Shares subject to the Option, the Exercise Price of the Option, the period during which the Option may be exercised, and all other terms and conditions of the Option, subject to the following:

5.1       Form of Option Grant . Each Option granted under this Plan will be evidenced by an Award Agreement which will expressly identify the Option as an ISO or an NQSO ( "Stock Option Agreement" ), and will be in such form and contain such provisions (which need not be the same for each Participant) as the Committee may from time to time approve, and which will comply with and be subject to the terms and conditions of this Plan.

5.2       Date of Grant . The date of grant of an Option will be the date on which the Committee makes the determination to grant such Option, unless otherwise specified by the Committee. The Stock Option Agreement and a copy of this Plan will be delivered to the Participant within a reasonable time after the granting of the Option.

5.3       Exercise Period and Expiration Date . An Option will vest and become exercisable within the times or upon the occurrence of events determined by the Committee and set forth in the Award Agreement governing such Options, subject to the provisions of Section 5.6, and subject to Company policies established by the Committee from time to time. The Committee may provide for Options to vest and become exercisable at one time or from time to time, periodically or otherwise, in such number of Shares or percentage of Shares subject to the Option as the Committee determines. However, except in the case of Options granted to Officers, Directors, and Consultants, Options shall become exercisable at a rate of no less than 20% per year over five (5) years from the date the Options are granted.

NutraCea
2005 Equity Incentive Plan

No Option will be exercisable after the expiration of ten (10) years from the date the Option is granted; and provided   further that no ISO granted to a person who directly or by attribution owns more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any Parent or Subsidiary of the Company ( "Ten Percent Shareholder" ) will be exercisable after the expiration of five (5) years from the date the ISO is granted.

5.4       Exercise Price . The Exercise Price of an NQSO will be determined by the Committee when the Option is granted; provided , however , that if expressly required by one or more state securities authorities or laws as a condition of issuing Awards and Shares in compliance with the securities laws of such state, the exercise price of an NQSO shall not be less than 85% of the Fair Market Value of the Shares on the date of grant and the Exercise Price of any NQSO granted to a Ten Percent Shareholder shall not be less than 110% of the Fair Market Value of the Shares on the date of grant. The Exercise Price of an ISO will be not less than 100% of the Fair Market Value of the Shares on the date of grant and the Exercise Price of any ISO granted to a Ten Percent Shareholder will not be less than 110% of the Fair Market Value of the Shares on the date of grant. Payment for the Shares purchased may be made in accordance with Section 8 of this Plan.

5.5       Method of Exercise . Options may be exercised only by delivery to the Company of a written stock option exercise agreement (the "Exercise Agreement" ) in a form approved by the Committee (which need not be the same for each Participant), stating the number of Shares being purchased, the restrictions imposed on the Shares purchased under such Exercise Agreement, if any, and such representations and agreements regarding Participant's investment intent and access to information and other matters, if any, as may be required or desirable by the Company to comply with applicable securities laws, together with payment in full of the Exercise Price for the number of Shares being purchased.

5.6       Termination . Notwithstanding the exercise periods set forth in the Stock Option Agreement, exercise of an Option will always be subject to the following:

 
(a)
If the Participant is Terminated for any reason except death or Disability, then the Participant may exercise such Participant's Options only to the extent that such Options would have been exercisable upon the Termination Date no later than thirty (30) days after the Termination Date (or such longer time period not exceeding five (5) years as may be determined by the Committee, with any exercise beyond three (3) months after the Termination Date deemed to be an NQSO), but in any event, no later than the expiration date of the Options.

 
(b)
If the Participant is Terminated because of Participant's death or Disability (or the Participant dies within three (3) months after a Termination other than because of Participant's Disability), then Participant's Options may be exercised only to the extent that such Options would have been exercisable by Participant on the Termination Date and must be exercised by Participant (or Participant's legal representative or authorized assignee) no later than twelve (12) months after the Termination Date (or such shorter (but not less than six months) or longer time period not exceeding five (5) years as may be determined by the Committee, with any such exercise beyond (a) three (3) months after the Termination Date when the Termination is for any reason other than the Participant's death or “disability,” as defined in Section 22(e)(3) of the Code, or (b) twelve (12) months after the Termination Date when the Termination is for Participant's death or Disability, deemed to be an NQSO), but in any event no later than the expiration date of the Options.

NutraCea
2005 Equity Incentive Plan

 
(c)
Notwithstanding the provisions in paragraphs 5.6(a) and (b) above, Award Agreements and other agreements relating to Awards under this Plan may include a provision that if a Participant is terminated for Cause, neither the Participant, the Participant’s estate nor such other person who may then hold the Option shall be entitled to exercise any Option with respect to any Shares whatsoever, after termination of service, whether or not after termination of service the Participant may receive payment from the Company or a Subsidiary for vacation pay, for services rendered prior to termination, for services rendered for the day on which termination occurs, for salary in lieu of notice, or for any other benefits. For the purpose of this paragraph, termination of service shall be deemed to occur on the date when the Company dispatches notice or advice to the Participant that Participant’s service is terminated.

5.7       Limitations on Exercise . The Committee may specify a reasonable minimum number of Shares that may be purchased on any exercise of an Option, provided that such minimum number will not prevent Participant from exercising the Option for the full number of Shares for which it is then exercisable.

5.8       Limitations on ISOs . The aggregate Fair Market Value (determined as of the date of grant) of Shares with respect to which ISOs are exercisable for the first time by a Participant during any calendar year (under this Plan or under any other incentive stock option plan of the Company or any Affiliate, Parent or Subsidiary of the Company) will not exceed $100,000. If the Fair Market Value of Shares on the date of grant with respect to which ISOs are exercisable for the first time by a Participant during any calendar year exceeds $100,000, then the Options for the first $100,000 worth of Shares to become exercisable in such calendar year will be ISOs and the Options for the amount in excess of $100,000 that become exercisable in that calendar year will be NQSOs. In the event that the Code or the regulations promulgated thereunder are amended after the Effective Date of this Plan to provide for a different limit on the Fair Market Value of Shares permitted to be subject to ISOs, such different limit will be automatically incorporated herein and will apply to any Options granted after the effective date of such amendment.

5.9       Modification, Extension or Renewal . The Committee may modify, extend or renew outstanding Options and authorize the grant of new Options in substitution therefor, provided that any such action may not, without the written consent of a Participant, impair any of such Participant's rights under any Option previously granted. Any outstanding ISO that is modified, extended, renewed or otherwise altered will be treated in accordance with Section 424(h) of the Code. The Committee may reduce the Exercise Price of outstanding Options without the consent of Participants effected by a written notice to them; provided , however , that the Exercise Price may not be reduced below the minimum Exercise Price that would be permitted under Section 5.4 of this Plan for Options granted on the date the action is taken to reduce the Exercise Price.

5.10       No Disqualification . Notwithstanding any other provision in this Plan, no term of this Plan relating to ISOs will be interpreted, amended or altered, nor will any discretion or authority granted under this Plan be exercised, so as to disqualify this Plan under Section 422 of the Code or, without the consent of the Participant affected, to disqualify any ISO under Section 422 of the Code.

6.       RESTRICTED STOCK . A Restricted Stock Award is an offer by the Company to sell to an eligible person Shares that are subject to restrictions. The Committee will determine to whom an offer will be made, the number of Shares the person may purchase, the price to be paid (the "Purchase Price" ), the restrictions to which the Shares will be subject, if any, and all other terms and conditions of the Restricted Stock Award, subject to the following:

6.1       Form of Restricted Stock Award . All purchases under a Restricted Stock Award made pursuant to this Plan will be evidenced by an Award Agreement ( "Restricted Stock Purchase Agreement" ) that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan. The offer of Restricted Stock will be accepted by the Participant's execution and delivery of the Restricted Stock Purchase Agreement and full payment for the Shares to the Company within thirty (30) days from the date the Restricted Stock Purchase Agreement is delivered to the person. If such person does not execute and deliver the Restricted Stock Purchase Agreement along with full payment for the Shares to the Company within thirty (30) days, then the offer will terminate, unless otherwise determined by the Committee.

NutraCea
2005 Equity Incentive Plan

6.2       Purchase Price . The Purchase Price of Shares sold pursuant to a Restricted Stock Award will be determined by the Committee; provided , that if expressly required by any state securities authorities as a condition of the offer and sale of Shares subject to Restricted Stock Awards in compliance with the securities laws of such state, the Purchase Price will be at least 85% of the Fair Market Value of the Shares on the date the Restricted Stock Award is granted, except in the case of a sale to a Ten Percent Shareholder, in which case the Purchase Price will be 100% of the Fair Market Value. Payment of the Purchase Price may be made in accordance with Section 8 of this Plan.

6.3       Restrictions . Restricted Stock Awards will be subject to such restrictions (if any) as the Committee may impose. The Committee may provide for the lapse of such restrictions in installments and may accelerate or waive such restrictions, in whole or part, based on length of service, performance or such other factors or criteria as the Committee may determine.

7.       STOCK BONUSES .

7.1       Awards of Stock Bonuses . A Stock Bonus is an award of Shares (which may consist of Restricted Stock) for services rendered to the Company or any Parent, Subsidiary or Affiliate of the Company. A Stock Bonus may be awarded for past services already rendered to the Company, or any Parent, Subsidiary or Affiliate of the Company (provided that the Participant pays the Company the par value, if any, of the Shares awarded by such Stock Bonus in cash) pursuant to an Award Agreement (the "Stock Bonus Agreement" ) that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan. A Stock Bonus may be awarded upon satisfaction of such performance goals as are set out in advance in the Participant's individual Award Agreement (the "Performance Stock Bonus Agreement" ) that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan. Stock Bonuses may vary from Participant to Participant and between groups of Participants, and may be based upon the achievement of the Company, Parent, Subsidiary or Affiliate and/or individual performance factors or upon such other criteria as the Committee may determine.

7.2       Terms of Stock Bonuses . The Committee will determine the number of Shares to be awarded to the Participant and whether such Shares will be Restricted Stock. If the Stock Bonus is being earned upon the satisfaction of performance goals pursuant to a Performance Stock Bonus Agreement, then the Committee will determine: (a) the nature, length and starting date of any period during which performance is to be measured (the "Performance Period" ) for each Stock Bonus; (b) the performance goals and criteria to be used to measure the performance, if any; (c) the number of Shares that may be awarded to the Participant; and (d) the extent to which such Stock Bonuses have been earned. Performance Periods may overlap and Participants may participate simultaneously with respect to Stock Bonuses that are subject to different Performance Periods and different performance goals and other criteria. The number of Shares may be fixed or may vary in accordance with such performance goals and criteria as may be determined by the Committee. The Committee may adjust the performance goals applicable to the Stock Bonuses to take into account changes in law and accounting or tax rules and to make such adjustments as the Committee deems necessary or appropriate to reflect the impact of extraordinary or unusual items, events or circumstances to avoid windfalls or hardships.

7.3       Form of Payment . The earned portion of a Stock Bonus may be paid currently or on a deferred basis with such interest or dividend equivalent, if any, as the Committee may determine. Payment may be made in the form of cash, whole Shares, including Restricted Stock, or a combination thereof, either in a lump sum payment or in installments, all as the Committee will determine.

7.4       Termination During Performance Period . If a Participant is Terminated during a Performance Period for any reason, then such Participant will be entitled to payment (whether in Shares, cash or otherwise) with respect to the Stock Bonus only to the extent earned as of the date of Termination in accordance with the Performance Stock Bonus Agreement, unless the Committee determines otherwise.

NutraCea
2005 Equity Incentive Plan

8.       PAYMENT FOR SHARE PURCHASES .

8.1       Payment . Payment for Shares purchased pursuant to this Plan may be made in cash (by check) or, where expressly approved for the Participant by the Committee and where permitted by law:

(a)
by cancellation of indebtedness of the Company to the Participant;

(b)
by surrender of shares that either: (1) have been owned by Participant for more than six (6) months and have been paid for within the meaning of SEC Rule 144 (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such shares); or (2) were obtained by Participant in the public market;

(c)
subject to applicable law, by waiver of compensation due or accrued to the Participant for services rendered; provided , that the portion of the Purchase Price equal to the par value of the Shares, if any, must be paid in cash;

(d)
with respect only to purchases upon exercise of an Option, and provided that a public market for the Company’s stock exists:

(1)
through a "same day sale" commitment from the Participant and a broker-dealer that is a member of the National Association of Securities Dealers (an "NASD Dealer" ) whereby the Participant irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased to pay for the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Company; or

(2)
through a "margin" commitment from the Participant and a NASD Dealer whereby the Participant irrevocably elects to exercise the Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Company; or

(e)
by any combination of the foregoing.

9.       WITHHOLDING TAXES .

9.1       Withholding Generally . Whenever Shares are to be issued in satisfaction of Awards granted under this Plan, the Company may require the Participant to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements prior to the delivery of any certificate or certificates for such Shares. Whenever, under this Plan, payments in satisfaction of Awards are to be made in cash, such payment will be net of an amount sufficient to satisfy federal, state, and local withholding tax requirements.
 
9.2       Stock Withholding . When, under applicable tax laws, a Participant incurs tax liability in connection with the exercise or vesting of any Award that is subject to tax withholding and the Participant is obligated to pay the Company the amount required to be withheld, the Committee may in its sole discretion allow the Participant to satisfy the minimum withholding tax obligation by electing to have the Company withhold from the Shares to be issued that number of Shares having a Fair Market Value equal to the minimum amount required to be withheld, determined on the date that the amount of tax to be withheld is to be determined. All elections by a Participant to have Shares withheld for this purpose will be made in accordance with the requirements established by the Committee and be in writing in a form acceptable to the Committee.

NutraCea
2005 Equity Incentive Plan

10.     PRIVILEGES OF STOCK OWNERSHIP .

10.1       Voting and Dividends . No Participant will have any of the rights of a shareholder with respect to any Shares until the Shares are issued to the Participant. After Shares are issued to the Participant, the Participant will be a shareholder and have all the rights of a shareholder with respect to such Shares, including the right to vote and receive all dividends or other distributions made or paid with respect to such Shares; provided , that if such Shares are Restricted Stock, then any new, additional or different securities the Participant may become entitled to receive with respect to such Shares by virtue of a stock dividend, stock split or any other change in the corporate or capital structure of the Company will be subject to the same restrictions as the Restricted Stock; provided , further , that the Participant will have no right to retain such stock dividends or stock distributions with respect to Shares that are repurchased at the Participant's original Purchase Price pursuant to Section 12.

10.2       Financial Statements . If expressly required by any state securities authorities as a condition of the offer and issuance of Awards in compliance with the securities laws of such state, the Company shall provide to each Participant during the period such Participant holds an outstanding Award a copy of the financial statements of the Company as prepared either by the Company or independent certified public accountants of the Company. Such financial statements shall be delivered as soon as practicable following the end of the Company's fiscal year during the period Awards are outstanding; provided , however , the Company will not be required to provide such financial statements to Participants whose services in connection with the Company assure them access to equivalent information.

11.     TRANSFERABILITY . Unless determined otherwise by the Committee, Awards granted under this Plan, and any interest therein, will not be transferable or assignable by Participant, and may not be made subject to execution, attachment or similar process, otherwise than by will or by the laws of descent and distribution. During the lifetime of the Participant, an Award will be exercisable only by the Participant, and any elections with respect to an Award, may be made only by the Participant. If the Committee in its sole discretion makes an Award or any interest therein transferable, such Award may only be transferred (i) by will, (ii) by the laws of descent and distribution, or (iii) as permitted by Rule 701 of the Securities Act.

12.     RESTRICTIONS ON SHARES . At the discretion of the Committee, the Company may reserve to itself and/or its assignee(s) in the Award Agreement a right to repurchase a portion of or all Shares that are not "Vested" (as defined in the Stock Option Agreement) held by a Participant following such Participant's Termination at any time within ninety (90) days after the later of Participant's Termination Date and the date Participant purchases Shares under this Plan, for cash and/or cancellation of purchase money indebtedness, at the Participant's original Purchase Price, provided, that the right to repurchase lapses at the rate of at least 20% per year over five (5) years from the date the Shares were purchased (or from the date of grant of options in the case of Shares obtained pursuant to a Stock Option Agreement and Stock Option Exercise Agreement), and if the right to repurchase is assignable, the assignee must pay the Company, upon assignment of the right to repurchase, cash equal to the excess of the Fair Market Value of the Shares over the original Purchase Price.

13.     CERTIFICATES . All certificates for Shares or other securities delivered under this Plan will be subject to such stock transfer orders, legends and other restrictions as the Committee may deem necessary or advisable, including restrictions under any applicable federal, state or foreign securities law, or any rules, regulations and other requirements of the SEC or any stock exchange or automated quotation system upon which the Shares may be listed or quoted.

14.     ESCROW . To enforce any restrictions on a Participant's Shares, the Committee may require the Participant to deposit all certificates representing Shares, together with stock powers or other instruments of transfer approved by the Committee, appropriately endorsed in blank, with the Company or an agent designated by the Company, to hold in escrow until such restrictions have lapsed or terminated, and the Committee may cause a legend or legends referencing such restrictions to be placed on the certificates.

15.     REPRICING,   EXCHANGE,  BUYOUT OF AWARDS . The repricing of Options is permitted without prior stockholder approval, provided that the terms of the repricing satisfy the requirements of Section 409A of the Code and any regulations or rulings promulgated by the Internal Revenue Service. The Committee may, at any time or from time to time authorize the Company, in the case of an Option exchange without stockholder approval, and with the consent of the respective Participants, to issue new Awards in exchange for the surrender and cancellation of any or all outstanding Awards. The Committee may at any time buy from a Participant an Option previously granted with payment in cash, Shares or other consideration, based on such terms and conditions as the Committee and the Participant may agree.

NutraCea
2005 Equity Incentive Plan

16.     SECURITIES LAW AND OTHER REGULATORY COMPLIANCE . An Award will not be effective unless such Award is in compliance with all applicable federal and state securities laws, rules and regulations of any governmental body, and the requirements of any stock exchange or automated quotation system upon which the Shares may then be listed or quoted, as they are in effect on the date of grant of the Award and also on the date of exercise or other issuance. Notwithstanding any other provision in this Plan, the Company will have no obligation to issue or deliver certificates for Shares under this Plan prior to: (a) obtaining any approvals from governmental agencies that the Company determines are necessary or advisable; and/or (b) completion of any registration or other qualification of such Shares under any state or federal law or ruling of any governmental body that the Company determines to be necessary or advisable. The Company will be under no obligation to register the Shares with the SEC or to effect compliance with the registration, qualification or listing requirements of any state securities laws, stock exchange or automated quotation system, and the Company will have no liability for any inability or failure to do so.

17.     NO OBLIGATION TO EMPLOY . Nothing in this Plan or any Award granted under this Plan will confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Parent, Subsidiary or Affiliate of the Company or limit in any way the right of the Company or any Parent, Subsidiary or Affiliate of the Company to terminate Participant's employment or other relationship at any time, with or without cause.

18.     CORPORATE TRANSACTIONS .

18.1       Assumption or Replacement of Awards by Successor . In the event of (a) a dissolution or liquidation of the Company, (b) a merger or consolidation in which the Company is not the surviving corporation ( other   than a merger or consolidation with a wholly-owned subsidiary, a reincorporation of the Company in a different jurisdiction, or other transaction in which there is no substantial change in the shareholders of the Company or their relative stock holdings and the Awards granted under this Plan are assumed, converted or replaced by the successor corporation, which assumption will be binding on all Participants), (c) a merger in which the Company is the surviving corporation but after which the shareholders of the Company immediately prior to such merger (other than any shareholder which merges (or which owns or controls another corporation which merges) with the Company in such merger) cease to own their shares or other equity interests in the Company, (d) the sale of substantially all of the assets of the Company, or (e) any other transaction which qualifies as a "corporate transaction" under Section 424(a) of the Code wherein the shareholders of the Company give up all of their equity interest in the Company ( except for the acquisition, sale or transfer of all or substantially all of the outstanding shares of the Company from or by the shareholders of the Company), any or all outstanding Awards may be assumed, converted or replaced by the successor corporation (if any), which assumption, conversion or replacement will be binding on all Participants. In the alternative, the successor corporation may substitute equivalent Awards or provide substantially similar consideration to Participants as was provided to shareholders (after taking into account the existing provisions of the Awards). The successor corporation may also issue, in place of outstanding Shares of the Company held by the Participant, substantially similar shares or other property subject to repurchase restrictions no less favorable to the Participant. In the event such successor corporation (if any) refuses to assume or substitute such Awards, as provided above, pursuant to a transaction described in this Subsection 18.1, such Awards shall expire on such transaction at such time and on such conditions as the Board will determine. Notwithstanding anything in this Plan to the contrary, the Board may, in its sole discretion, provide that the vesting of any or all Awards granted pursuant to this Plan will accelerate upon a transaction described in this Section 18.  If the Board exercises such discretion with respect to Options, such Options will become exercisable in full prior to the consummation of such event at such time and on such conditions as the Board determines, and if such Options are not exercised prior to the consummation of the corporate transaction, they shall terminate at such time as determined by the Board.

18.2       Other Treatment of Awards . Subject to any greater rights granted to Participants under the foregoing provisions of this Section 18, in the event of the occurrence of any transaction described in Section 18.1, any outstanding Awards will be treated as provided in the applicable agreement or plan of merger, consolidation, dissolution, liquidation, sale of assets or other "corporate transaction."

NutraCea
2005 Equity Incentive Plan

18.3       Assumption of Awards by the Company . The Company, from time to time, also may substitute or assume outstanding awards granted by another company, whether in connection with an acquisition of such other company or otherwise, by either; (a) granting an Award under this Plan in substitution of such other company's award; or (b) assuming such award as if it had been granted under this Plan if the terms of such assumed award could be applied to an Award granted under this Plan. Such substitution or assumption will be permissible if the holder of the substituted or assumed award would have been eligible to be granted an Award under this Plan if the other company had applied the rules of this Plan to such grant. In the event the Company assumes an award granted by another company, the terms and conditions of such award will remain unchanged ( except that the exercise price and the number and nature of Shares issuable upon exercise of any such option will be adjusted appropriately pursuant to Section 424(a) of the Code). In the event the Company elects to grant a new Option rather than assuming an existing option, such new Option may be granted with a similarly adjusted Exercise Price.

19.     ADOPTION AND SHAREHOLDER APPROVAL . This Plan was adopted by the Board on May 26, 2005 (“ Effective Date ”). This Plan shall be approved by the shareholders of the Company (excluding Shares issued pursuant to this Plan), consistent with applicable laws, within twelve (12) months after the Effective Date. Upon the Effective Date, the Board may grant Awards pursuant to this Plan; provided , however , that: (a) no Option may be exercised prior to initial shareholder approval of this Plan; (b) no Option granted pursuant to an increase in the number of Shares subject to this Plan approved by the Board will be exercised prior to the time such increase has been approved by the shareholders of the Company; and (c) in the event that shareholder approval of such increase is not obtained within the time period provided herein, all Awards granted hereunder will be canceled, any Shares issued pursuant to any Award will be canceled, and any purchase of Shares hereunder will be rescinded.

20.     TERM OF PLAN . Unless earlier terminated as provided herein, this Plan will terminate ten (10) years following the Effective Date.

21.     AMENDMENT OR TERMINATION OF PLAN . The Board may at any time terminate or amend this Plan in any respect, including without limitation amendment of any form of Award Agreement or instrument to be executed pursuant to this Plan. Notwithstanding the foregoing, neither the Board nor the Committee shall, without the approval of the shareholders of the Company, amend this Plan in any manner that requires such shareholder approval pursuant to the Code or the regulations promulgated thereunder as such provisions apply to ISO plans or (if the Company is subject to the Exchange Act) pursuant to the Exchange Act or any rule promulgated thereunder. In addition, no amendment that is detrimental to a Participant may be made to any outstanding Award without the consent of the Participant.

22.     NONEXCLUSIVITY OF THE PLAN . Neither the adoption of this Plan by the Board, the submission of this Plan to the shareholders of the Company for approval, nor any provision of this Plan will be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of stock options and bonuses otherwise than under this Plan, and such arrangements may be either generally applicable or applicable only in specific cases.

23.     LIMITATION . If expressly required by one or more state securities authorities or laws as a condition of issuing Awards and Shares in compliance with the securities laws of such state, the Company will not issue any Awards or Shares under this Plan without first obtaining shareholder approval of this Plan in such manner as required by the applicable state securities authorities or laws.

24.     DEFINITIONS . As used in this Plan, the following terms will have the following meanings:

"Affiliate" means any corporation that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, another corporation, where "control" (including the terms "controlled by" and "under common control with") means the possession, direct or indirect, of the power to cause the direction of the management and policies of the corporation, whether through the ownership of voting securities, by contract or otherwise.

NutraCea
2005 Equity Incentive Plan

"Award" means any award under this Plan, including any Option, Restricted Stock or Stock Bonus.

"Award Agreement" means, with respect to each Award, the signed written agreement between the Company and the Participant setting forth the terms and conditions of the Award.

"Board" means the Board of Directors of the Company.

“ Cause ” means termination of the Participant’s employment on the basis of the Participant’s conviction (or a plea of nolo contendere ) of fraud, misappropriation, embezzlement or any other act or acts of dishonesty constituting a felony and resulting or intended to result directly or indirectly in a substantial gain or personal enrichment to the Participant at the expense of the Company or any Subsidiary.

"Code" means the Internal Revenue Code of 1986, as amended.

"Committee" means the committee appointed by the Board to administer this Plan, or if no such committee is appointed, the Board.

"Company" means NutraCea, a corporation organized under the laws of the State of California, or any successor corporation.

"Disability" means a disability, whether temporary or permanent, partial or total, as determined by the Committee.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Exercise Price" means the price at which a holder of an Option may purchase the Shares issuable upon exercise of the Option.

“Fair Market Value " means, as of any date, the value of a share of the Company's Common Stock determined as follows:

(1)       if such Common Stock is then quoted on the NASDAQ National Market, its closing price on the NASDAQ National Market on such date;

(2)       if such Common Stock is publicly traded and is then listed on a national securities exchange, the last reported sale price on such date or, if no such reported sale takes place on such date, the average of the closing bid and asked prices on the principal national securities exchange on which the Common Stock is listed or admitted to trading;

(3)       if such Common Stock is publicly traded but is not quoted on the NASDAQ National Market nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on such date, as reported by The Wall Street Journal, for the over-the-counter market; or

(4)       if none of the foregoing is applicable, by the Board of Directors in good faith.

"Insider" means an officer or director of the Company or any other person whose transactions in the Company's Common Stock are subject to Section 16 of the Exchange Act.

"Option" means an award of an option to purchase Shares pursuant to Section 5.

NutraCea
2005 Equity Incentive Plan

"Parent" means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if at the time of the granting of an Award under this Plan, each of such corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

"Participant" means a person who receives an Award under this Plan.

"Plan" means this NutraCea 2005 Equity Incentive Plan, as amended from time to time.

"Restricted Stock Award" means an award of Shares pursuant to Section 6.

"SEC" means the Securities and Exchange Commission.

"Securities Act" means the Securities Act of 1933, as amended.

"Shares" means shares of the Company's Common Stock reserved for issuance under this Plan, as adjusted pursuant to Sections 2 and 18, and any successor security.

"Stock Bonus" means an award of Shares, or cash in lieu of Shares, pursuant to Section 7.

"Subsidiary" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, at the time of granting of the Award, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

"Termination" or "Terminated" means, for purposes of this Plan with respect to a Participant, that the Participant has for any reason ceased to provide services as an employee, director, consultant or advisor to the Company or a Parent, Subsidiary or Affiliate of the Company, except in the case of sick leave, military leave, or any other leave of absence approved by the Committee, provided that such leave is for a period of not more than ninety (90) days, or reinstatement upon the expiration of such leave is guaranteed by contract or statute. The Committee will have sole discretion to determine whether a Participant has ceased to provide services and the effective date on which the Participant ceased to provide services (the "Termination Date" ).


Exhibit 10.05
EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “ Agreement ”) is made and entered into as of the 10 th day of December, 2004, by and between NutraCea , a California corporation (“ Employer ”), and Nana Patricia McPeak (“ Employee ”).

W I T N E S S E T H:

WHEREAS , the officers, managers and/or directors of Employer are of the opinion that Employee has education, experience and/or expertise which is of value to Employer and its owners, and

WHEREAS , Employer and Employee desire to enter into this Employment Agreement, pursuant to which Employee shall continue to be employed by Employer, to set forth the respective rights, duties and obligations of the parties hereto.

NOW THEREFORE , in consideration of the promises and covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which the parties hereto acknowledge, Employer and Employee agree as follows:

1.       EMPLOYMENT .    Employer hereby agrees to continue to employ Employee and Employee hereby accepts such continued employment, upon the terms and conditions hereinafter set forth.

2.       TERM .   For purposes of this Agreement, “ Term ” shall mean the original term (as defined in Section 2.1 below) and the renewal term (as defined in Section 2.2 below), if applicable.

2.1    Original Term .    The Term of this Agreement shall commence on December 10, 2004 and expire on December 31, 2007, unless sooner terminated pursuant to the terms and provisions herein stated.

2.2    Renewal Term .    This Agreement shall automatically be extended for two additional one (1) year renewal terms unless either party gives written notice to terminate this Agreement at least one hundred eighty (180) days prior to the end of the preceding term.

 
3.
COMPENSATION.

3.1    Salary .     Employer shall pay Employee a base annual salary of one hundred, fifty thousand dollars ($150,000) for the first and second year of employment, payable $12,500 per month. Effective December 1, 2006, Employee’s salary shall be increased to two hundred and fifty thousand dollars ($250,000), payable at a rate of $20,833 per month for the third year of employment, and adjust upwards 10% annually thereafter.

1
 
3.2    Stock Option Plan/Stock Purchase Plan .    Employee shall be eligible to participate in Company’s Stock Option Plan and Stock Purchase Plan as well as Executive Incentive Bonus Plans during the term of employment.

3.3.    Warrants .   Employer shall issue to Employee Warrant Certificates to purchase 2,000,000 common shares of the Company at an exercise price of $0.30 per share. The certificates shall be valid for ten years from the date of issue. The Certificates shall vest to Employee upon this Agreement being executed by all parties. A copy of the Warrant Agreement is attached as Addendum C.

3.4.    Additional Bonus .    Employer shall pay Employee an additional bonus payable pursuant to Addendum A attached and incorporated herein by this reference.

 
4.
EMPLOYEE BENEFITS .

4.1    General Benefits .    Employee shall be entitled to receive or participate in all benefit plans and programs of Employer currently existing or hereafter made available to executives or senior management of Employer, including but not limited to, eye care, dental and medical insurance, including coverage for dependents of Employee, pension and profit sharing plans, 401(k) plans, incentive savings plans, stock option plans, group life insurance, salary continuation plans, disability coverage and other fringe benefits.

4.2    Business Expense .    Employee shall be provided with American Express and/or Visa/Master Card credit cards issued in the name of Employer, for purposes of paying business expenses, including without limitation, full business class fare for domestic travel of less than 3 hours duration within the United States, and First Class travel for domestic travel 3 hours or longer or all travel outside the Continental United States, entertainment, lodging and similar activities. Additionally, Employee shall be entitled to receive proper reimbursement for all reasonable out-of-pocket expenses incurred directly by Employee in performing Employee’s duties and obligations under this Agreement. Employer shall reimburse Employee for such expenses on a weekly basis, upon submission by Employee of appropriate receipts, vouchers or other documents in accordance with Employer’s policy.

2
 
4.3    Automobile Expenses .   Employer shall provide Employee with a monthly automobile allowance in the amount of $800.00 per month or at Employee’s election, shall provide an automobile of a type and model selected by Employee. Employer shall pay all gasoline, maintenance, registration and insurance costs for the automobile. As a condition of the use of the automobile, Employee is required to provide an enclosed, covered and lockable garage at Employee’s premises for the safe protection of this corporate asset.

4.4    General Benefits .    Employee shall be entitled to receive or participate in all benefit plans and programs of Employer currently existing or hereafter made available to executives or senior management of Employer, including but not limited to, dental and medical insurance, including coverage for dependents of Employee, pension and profit sharing plans, 401(k) plans, incentive savings plans, stock option plans, group life insurance, salary continuation plans, disability coverage and other fringe benefits.

4.5    Cellular Telephone .     Employer shall reimburse employee for the cost and use of Employee’s cellular telephones or shall provide Employee with the use of cellular phones of Employee’s choice.

4.6    Assistance .   Employer shall furnish Employee with an office, and personal assistant, together with a portable laptop computer and office equipment and such other facilities and services as determined by Employee and as are deemed by the Board of Directors of Employer to be suitable for Employee’s position and adequate for the performance of her duties and obligations under this Agreement. Employee to provide a home office similar to that provided at the Company’s headquarters.

4.7    Vacation .    Employee shall be entitled during each twelve (12) month period during the Term of this Agreement to a vacation of four (4) weeks during which time Employee’s compensation will be paid in full. Unused days of vacation will be compensated in accordance with Employer’s policy as established by Employer from time to time. Employee may take the vacation periods at any time during the year as long as Employee schedules time off as to not create hardship on Employer. In addition, Employee shall have such other days off as shall be determined by Employer and shall be entitled to paid sick leave and paid holidays in accordance with Employer’s policy.

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4.8    Laptop/Notebook Computer and Software .   Employer shall provide Employee with a top-quality, name-brand laptop or notebook computer (Sony, IBM, Toshiba, NEC, Compaq, etc.) and such other features, hardware (including a high-quality laser printer) and software as Employee may from time to time request for performance of her duties. Employer shall pay all costs related to the operation and maintenance of the computer and software.

4.9    Private Office; Staff; Equipment; Location of Office and Headquarters; Relocation .   Employer shall provide Employee with a suitable office for her position at the Company, within the context of the space available from time to time. Employer shall provide a minimum of two (2) personal assistants (“Assistants”) to assist Employee in business and personal matters. Employer shall provide all office equipment reasonable required by Employee and Assistants. Employee shall not be required to relocate outside of El Dorado Hills, California. If, however, Employee agrees to a relocation outside of El Dorado Hills, California, then Employer shall pay all reasonable relocation costs of Employee, her spouse and her dependents, including without limitation all professional packing and moving costs, air travel, interim hotel arrangements (Hilton standard or better for up to three (3) months) and reasonable meal per diem, and vehicle shipment costs.

4.10    Professional Association and Social Organizations .    Employer shall pay or reimburse Employee for all dues for continued membership in the AACC, AOCS and IFT organizations and any other professional organizations membership to which Employer and Employee agree would be beneficial to Employer. In the interest of business development and marketing, Employer shall reimburse Employee for the monthly fees of a social membership at a local country club to be mutually selected by Employer and Employee.

 
5.
DUTIES/SERVICE .

5.1    Position .   Employee is employed as Chief Executive Officer and shall perform such services and duties as are defined in Addendum B , Job Description, attached hereto, and as are normally associated with such position, subject to the direction, supervision and rules and regulations of Employer.

5.2    Place of Employment .   The permanent place of Employee’s employment and the performance of Employee’s duties will be at a location in the El Dorado Hills, California area. Employee agrees to make herself available for travel from time to time to other facilities of Employer’s outside of El Dorado Hills.

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5.3    Extent of Services .    Employee shall at all times and to the best of her ability perform her duties and obligations under this Agreement in a reasonable manner consistent with the interests of Employer. Employer shall not alter Employee’s title, duties, obligations or responsibilities or transfer Employee outside of the El Dorado Hills area without Employee’s prior written consent, said consent to be at Employee’s sole discretion.

5.3.1    It is understood and agreed that Employee’s employment is substantially fulltime and of a critical nature to the success of Employer. Employer acknowledges that Employee presently, or may in the future, serve on the Board of Directors of other companies and such action shall not be a breach of this section; provided , however , that such companies do not compete with employer.

5.3.2    Additionally, Employer recognizes that Employee has, or may have in the future, non-passive equity positions in other companies, which do not compete with Employer. Employer recognizes that such equity positions may occasionally require some attention from Employee during normal business hours. However, Employee agrees that if such time is considered excessive by the Board of Directors, Employee shall be so advised and noticed by Employer and Employee shall be required to make appropriate adjustments to ensure her duties and obligations under this Agreement are fulfilled.

6.      TERMINATION . The Term of this Agreement shall end upon its expiration pursuant to Section 2 hereof, provided that this Agreement shall terminate prior to such date: (a) upon the Employee’s resignation, death or permanent disability or incapacity; or (b) by Employer at any time for “ Cause ” (as defined in Section 6.4 below) or without Cause.

6.1       BY RESIGNATION .    If Employee resigns with “ Good Reason ” (as defined below), this Agreement shall terminate but: (a) Employee shall receive the immediate payout of all salary through the end of the term of this agreement, but in no event less than an amount equal to the last twelve months of salary paid to Employee and (b) all   of Employee’s “ Options ” (as such term is defined in this Agreement) shall be deemed vested. For purposes of this Agreement, “ Good Reason ” shall mean: (i) the assignment to Employee of duties inconsistent with the position and nature of Employee’s employment, the reduction of the duties of Employee which is inconsistent with the position and nature of Employee’s employment, or the change of Employee’s title indicating a change in the position and nature of Employee’s employment; (ii) a reduction in compensation and benefits of Employee without Employee’s written consent; (iii) the failure by Employer to obtain from any successor, an agreement to assume and perform this Agreement; (iv) a corporate “ Change In Control ” (as defined below). For purposes of this Agreement, “ Change In Control ” shall mean (1) a merger or consolidation (except those detailed in Addendum A, section 2,) in which securities possessing more than fifty percent (50%) of the total combined voting power of Employer’s outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction in a transaction approved by the stockholders, or the sale, transfer, or other disposition of more than fifty percent (50%) of the total combined voting power of Employer’s outstanding securities to a person or persons different from the persons holding those securities immediately prior to such transaction; or (2) the sale, transfer or other disposition of all or substantially all of the Employer’s assets in complete liquidation or dissolution of Employer other than in connection with a transaction described in Section 6.1(1) above. If Employee resigns without Good Reason, Employee shall be entitled to receive Employee’s Salary and Incentive Compensation only through the date of such resignation and Employee’s Options shall be deemed vested only through the date of such resignation.

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6.2       BY REASON OF INCAPACITY OR DISABILITY .   If Employee becomes so incapacitated by reason of accident, illness, or other disability that Employee is unable to carry on substantially all of the normal duties and obligations of Employee under this Agreement for a continuous period of one-hundred-eighty (180) days (the “ Incapacity Period ”), this Agreement shall terminate but: (a) Employee shall continue to receive, through the end of the fiscal year, Incentive Compensation in accordance with the terms and conditions of this agreement (b) Employee shall receive, during the Incapacity Period and for the six (6) month period thereafter (the “ Extended Period ”), Employee’s Salary payable in periodic installments on Employer’s regular paydays, at the rate then in effect, reduced only by the amount of any payment(s) received by Employee pursuant to any disability insurance policy proceeds; and (c) Employee’s Options shall be deemed vested through the Extended Period.   For purposes of the foregoing, Employee’s permanent disability or incapacity shall be determined in accordance with Employer’s disability insurance policy, if such a policy is then in effect, or if no such policy is then in effect, such permanent disability or incapacity shall be determined by Employer’s Board of Directors in its good faith judgment based upon Employee’s inability to perform normal and reasonable duties and obligations.

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6.3       BY REASON OF DEATH .    If Employee dies during the Term of this Agreement, Employer shall: (a) pay to the estate of Employee, through the end of the fiscal year, Employee’s Incentive Compensation in accordance with the terms and conditions of this agreement, (b) pay to the estate of Employee, for a period of six (6) months beginning on the date of death (the “ Extended Period ”), Employee’s Salary payable in periodic installments on Employer’s regular paydays, at the rate then in effect; and (c) Employee’s Options shall be deemed vested through the date of the Extended Period.   Other death benefits will be determined in accordance with the terms of Employer’s benefit plans and programs.

6.4       FOR CAUSE .    If the Term of this Agreement is terminated by Employer for Cause: (a) Employee shall be entitled to receive Employee’s Salary and Incentive Compensation only through the date of termination; and (b) Any additionally issued Employee’s Options shall be deemed vested only through the date of such termination for Cause. However, if a dispute arises between Employer and Employee that is not resolved within sixty (60) days and neither party initiates arbitration proceedings pursuant to Section 11.8 . For purposes of this Agreement, “ Cause ” shall mean: (i) the conviction by Employee of a felony, a crime involving moral turpitude causing material harm to Employer’s standing and reputation; or for fraud.


6.5       WITHOUT CAUSE .    If, during the Term of this Agreement, Employer terminates the Employee’s employment without Cause: (a) Employee shall be entitled to receive, through the end of the Term of this Agreement, Incentive Compensation in accordance with the terms and conditions of this agreement, (b) An immediate acceleration of all remaining base salary owed to Employee through the end of the contract; but in no case an amount less than the previous 12 month’s of salary paid to Employee, and (c) all   of Employee’s Options shall be deemed vested.


6.6       EFFECT OF TERMINATION ON UNUSED VACATION TIME .    Upon the termination of this Agreement for any reason whatsoever, Employee shall also have the right to receive any accrued but unused vacation time, and any benefits vested under the terms of any applicable benefit plans.

6.7       AUTHORITY TO TERMINATE .    Termination of Employee by Employer, pursuant to the terms hereof, shall only occur by unanimous decision of the Board of Directors at a duly noticed and convened meeting of the Board of Directors of Employer.

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6.8       Consulting Agreement .    Upon termination of this Agreement for any reason, Employer and Employee shall negotiate in good faith the terms of an agreement pursuant to which Employee shall act as a consultant to Employer.

7.       NON-DISCLOSURE AND INVENTION AND COPYRIGHT ASSIGNMENT AGREEMENT .    Employee’s employment is subject to the requirement that Employee sign, observe and agree to be bound, both during and after Employee’s employment, by the provisions of Employer’s Non-Disclosure and Invention and Copyright Assignment Agreement. Employee further agrees to execute, deliver and perform, during the Term of Employee’s employment with Employer, any other reasonable confidentiality and non-disclosure agreements concerning Employer and any of its affiliates and its business and products, which Employer promulgates for other key employees and executives.

It is understood and agreed that Employee is writing a number of books on rice bran and health issues, which Employer would like to see published. It is understood and agreed that Employee has the right to write such books and retain any proceeds therefrom and that the Copyright to any and all books written by Employee shall remain the exclusive property of Employee.

8.       RETURN OF EMPLOYER PROPERTY .    Employee agrees that upon any termination of her employment, Employee shall return to Employer within a reasonable time not to exceed two (2) weeks, any of Employer’s property in her possession or under her control.

9.       RELATIONSHIP OF PARTIES .     The parties intend that this Agreement create an employee-employer relationship between the parties.

10.       NOTICES .    All notices, required and demands and other communications hereunder must be in writing and shall be deemed to have been duly given when personally delivered or when placed in the United States Mail and forwarded by Registered or Certified Mail, Return Receipt Requested, postage prepaid, or when forwarded via reputable overnight carrier, addressed to the party to whom such notices is being given at the following address:  

 
As to Employer:
Chairman, Board of Directors
NutraCea
1261 Hawks Flight Court,
El Dorado Hills, CA 95762

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As to Employee:
Nana Patricia McPeak
100 Rock Lane
El Dorado Hills, CA 95762
 
Address Change: Any party may change the address(es) at which notices to it or her, as the case may be, are to be sent by giving the notice of such change to the other parties in accordance with this Section 10 .

11.    INDEMNIFICATION .   The company shall maintain D&O liability coverage pursuant to which Employee shall be a covered insured. Employee shall receive indemnification in accordance with the Company’s By-laws in effect as of the date of this Agreement. Such indemnification shall be contractual in nature and shall remain in effect notwithstanding any future change to the Company’s Bylaws.

To the extent not otherwise limited by the Company’s By-laws in effect as of the date of this Agreement, in the event that Employee is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding (including those brought by or in the right of the Company) whether civil, criminal, administrative or investigative (“proceeding”), by reason of the fact that she is or was an officer, employee or agent of or is or was serving the Company or any subsidiary or the Company, or is or was serving at the request of the Company or another corporation, or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, Employee shall be indemnified and held harmless by the Company to the fullest extent authorized by law against all expenses, liabilities and losses (including attorneys fee, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by Employee in connection therewith. Such right shall be a contract right and shall include the right to be paid by the Company expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that the payment of such expenses incurred by Employee in her capacity as a director or officer (and not in any other capacity in which service was or is rendered by Employee while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of such proceeding will be made only upon delivery to the Company of an undertaking, by or on behalf of the Employee, to repay all amounts to Company so advanced if it should be determined ultimately that Employee is not entitled to be indemnified under this section or otherwise. However, under no circumstance shall Employee not be entitled to indemnification for any action prior to Employee’s position with the Company.

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Promptly after receipt by Employee if notice of the commencement of any action, suit or proceeding for which Employee may be entitled to be indemnified, Employee shall notify the Company in writing of the commencement thereof (but the failure to notify the Company shall not relieve it from any liability which it may have under Section 11 unless and to the extent that it has been prejudiced in a material respect by such failure or from the forfeiture of substantial rights and defenses). If any such action, suit or proceeding is brought against Employee and he notifies the Company of the commencement thereof, the Company will be entitled to participate therein, and, to the extent it may elect by written notice delivered to Employee promptly after receiving the aforesaid notice from Employee, to assume the defense thereof with counsel reasonably satisfactory to Employee, which may be the same counsel as counsel to the Company. Notwithstanding the foregoing, Employee shall have the right to employ her own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of Employee unless (i) the employment of such counsel shall have been authorized in writing by the Company, (ii) the Company shall not have employed counsel reasonably satisfactory to Employee to take charge of the defense of such action within a reasonable time after notice of commencement of the action or (iii) Employee shall have reasonably concluded, after consultation with counsel to Employee, that a conflict of interest exists which makes representation by counsel chosen by the Company not advisable (in which case the Company shall not have the right to direct the defense of such action on behalf of Employee), in any of which events such fees and expenses of one additional counsel shall be borne by the Company. Anything in the Section 11 to the contrary notwithstanding, the Company shall not be liable for any settlement of any claim or action effected without its written consent.

12.     MISCELLANEOUS .

12.1    Entire Agreement .    This Agreement and the Addendums hereto contain the entire agreement of the parties. This Agreement may not be altered, amended or modified except in writing duly executed by the parties. This Agreement supercedes and replaces the existing employment agreement between Employer and Employee.

12.2    Assignment .    Neither party, without the written consent of the other party, can assign this Agreement.

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12.3      Binding .    This Agreement shall be binding upon and inure to the benefit of the parties, their personal representative, successors and assigns.

12.4      No Waiver .    The waiver of the breach of any covenant or condition herein shall in no way operate as a continuing or permanent waiver of the same or similar covenant or condition.

12.5      Severability .    If any provision of this Agreement is held to be invalid or unenforceable for any reason, the remaining provisions will continue in full force without being impaired or invalidated in any way. The parties hereto agree to replace any invalid provision with at valid provision which most closely approximates the intent of the invalid provision.

12.6      Interpretation .    This Agreement shall not be construed more strongly against any party hereto regardless of which party may have been more responsible for the preparation of Agreement.

12.7        Governing Law .    This Agreement shall be governed by and construed under the laws of the State of California, without reference to the choice of law principles thereof.

 
12.8
Arbitration .

12.8.1    Any controversy, dispute or claim of whatever nature in any way arising out of or relating to Employee’s employment with Employer, including, without limitation (except as expressly excluded below in Section 11.8.2 ) any claims or disputes by Employee against Employer, or by Employer against Employee, concerning, arising out of or relating to the separation of that employment; any other adverse personnel action by Employer; any federal, state or local law, statute or regulation prohibiting employment discrimination or harassment; any public policy; any Employer disciplinary action; any Employer decision regarding a Employer policy or practice, including but not limited to Employee’s compensation or other benefits; and any other claim for personal, emotional, physical or economic injury (individually or collectively, “ Covered Claims ”) shall be resolved, at the request of any party to this Agreement, by final and binding arbitration in El Dorado County, California before Judicial Arbitration Mediation Services (“ JAMS ”) in accordance with JAMS’ then-current policies and procedures for arbitration of employment disputes.

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12.8.2    The only claims or disputes excluded from binding arbitration under this Agreement are the following: any claim by Employee for workers’ compensation benefits or for benefits under a Employer plan that provides its own arbitration procedure; and any claim by either party for equitable relief, including but not limited to, a temporary restraining order, preliminary injunction or permanent injunction against the other party.

12.8.3    This agreement to submit all Covered Claims to binding arbitration in no way alters the exclusivity of Employee’s remedy under Section 6.5 in the event of any termination without Cause or the exclusivity of Employee’s remedy under Section 6.4 in the event of any termination with Cause, and does not require Employer to provide Employee with any type of progressive discipline.

12.9         Legal Fees .    In the event of a dispute between Employee and Employer which results in legal action, the legal fees for both parties shall be assumed and paid by Employer.

12.10    Titles .   Titles to the sections of this Agreement are solely for the convenience of the parties and shall not be used to explain, modify, simplify, or aid in the interpretation of the provisions of this Agreement.

12.11      Counterparts .   This Agreement may be executed in counterparts, each of which shall be deemed an original, but together which shall constitute one and the same instrument.




[SIGNATURE PAGE TO FOLLOW]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first written above.



Employer:
 
NutraCea®,
    a California corporation
       
       
   
By:
   /s/ Edward Newton
     
(signature)
       
      Edward Newton
     
(Type/Print name)
       
      Secretary and Vice President
     
(Office held)
       
Employee:
     
       
       
       
   
By:
    /s/ Nana Patricia McPeak
     
(signature)
       
      Nana Patricia McPeak
     
(Type/Print name)
 

[SIGNATURE PAGE TO EMPLOYMENT AGREEMENT]
 
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ADDENDUM A
EMPLOYEE INCENTIVE COMPENSATION PLAN


This Employee Incentive Compensation Agreement (this “ Agreement ”) is entered into this 10 th day of December, 2004, by and between NutraCea®, a California corporation (the “ Employer ”), and Nana Patricia McPeak (“ Employee ”), as follows:

WHEREAS, it is in the best interest of Employer and Employee to enter into a continuing arrangement to cover annual Employee Incentive bonuses, and

WHEREAS, both parties to this Agreement desire to memorialize various aspects of their relationship:

NOW, THEREFORE, the parties hereby agree as follows:

1.
Addendum .   This Agreement is in an addendum to that certain Employment Agreement effective of even date herewith.
 
2.
Transaction Success Fee .    If a combination occurs between the RiceX Corporation and NutraCea, (including but not limited to a merger, acquisition, asset purchase) concurrent with the closing of that transaction a cash fee to be determined by the Compensation Committee of the Board of Directors shall be paid for the Company to Nana Patricia McPeak as a success bonus.

3.
Employee Incentive Bonus .   Employee Incentive bonuses granted pursuant to this Agreement shall be paid annually, within ten (10) days of the completion of the annual independent audit of Employer. Such bonuses shall be one percent (1%) of Employer’s “Gross Sales over $25,000,000” on an annualized basis, or $6, 375,000 per quarter, and the company reports a positive EBITDA for the period. For the purposes of this section, no non-cash charges will be included in the calculation of EBITDA. The bonus amount in section 3 will be limited to a maximum of $750,000 in any calendar year and shall continue so long as Employee is an employee or consultant for Employer.
 
4.
Termination .   Termination of employment with Employer, whether voluntary or involuntary, shall not affect any bonus earned but not paid. If employment is terminated, a proportionate share of any bonus earned shall be paid to Employee on the next regular bonus payment date.

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first written above.
 
 
Employer:
 
NutraCea®,
    a California corporation
       
       
   
By:
   /s/ Edward Newton
     
(signature)
       
      Edward Newton
     
(Type/Print name)
       
      Secretary and Vice President
     
(Office held)
       
Employee:
     
       
       
       
   
By:
   /s/ Nana Patricia McPeak
     
(signature)
       
      Nana Patricia McPeak
     
(Type/Print name)
 
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ADDENDUM B

Job Description for Nana Patricia McPeak
 

Job Title:  
Chief Executive Officer
Department :
Executive
Reports To :
Board of Directors

SUMMARY
 
As provided in the Corporation’s bylaws, the Chief Executive Officer provides the primary oversight for the President in her effecting the planning, organizing, staffing, and operating the Corporation (“NutraCea”) toward its primary objectives, based on profit and return on capital, of increasing shareholder value and the goodwill and reputation of the Corporation. The Chief Executive Officer is accountable only to the Board of Directors. Employee is solely responsible for the hiring and conduct of the personal assistant, as well as the staffing and personnel involved in the Research, Development, Product Development, Patents and Intellectual Properties Departments.

The Chief Executive Officer’s written approval is required for all corporate legal and fiduciary activities.
 
The Chief Executive Officer in conjunction with the President establishes and communicates the management style, corporate culture, business philosophy and ethical values by which the Corporation will operate.

ESSENTIAL DUTIES AND RESPONSIBILITIES include the following:

Acts as the spokesman for the Corporation and is available for interviews during normal business hours.
 
Plans, manages and oversees the clinical research, patent and intellectual property and product development activities for the Corporation through its managers.
 
Oversees the President in her implementation of current and long range goals, objectives, plans and policies as provided in a Strategic Business Plan, a Strategic Marketing Plan and a Budget, approved by the Board of Directors.
 
Oversees the President in ensuring the adequacy and soundness of the Corporation’s financial structure.

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Reviews operating results of the Corporation, compares them to established objectives, and takes steps to ensure that appropriate measures are taken to correct unsatisfactory results.

Oversees and reviews the planning of all investigations and negotiations pertaining to mergers, joint ventures, the acquisition of businesses, or the sale of major assets.


Fulfills responsibility to the Shareholders and to the Board of Directors to inform or seek approval for significant matters.

Ensures that Corporation business transactions are conducted in accordance with prevailing legal and regulatory requirements.

Reviews and provides final approval for all recommendations for compensation of officers, retaining the right to hire, compensate and manage Employee’s personal assistant.

Responsible for reviewing and evaluating with the President the performance of executives for compliance with established policies and objectives of firm and contributions in attaining objectives.
 
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ADDENDUM C

THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED EXCEPT UPON DELIVERY TO THE CORPORATION OF AN OPINION OF COUNSEL SATISFACTORY IN FORM AND SUBSTANCE TO IT THAT SUCH TRANSFER WILL NOT VIOLATE THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.

THE TRANSFER OF THIS WARRANT IS RESTRICTED AS DESCRIBED HEREIN.


NutraCea, a California corporation

Warrant for the Purchase of Shares of Common Stock,
par value $0.001 per Share


No. WC-[___]
2,000,000   Shares
Issuance Date: December [14], 2004

THIS CERTIFIES that, for value received, Nana Patricia McPeak (the “Holder”), is entitled to subscribe for and purchase from NutraCea, a California corporation (the “Company”), upon the terms and conditions set forth herein, 2,000,000   shares of the Company’s Common Stock, par value $0.001 per share (“Common Stock”), at a price of $0.30 per share (the “Exercise Price”). As used herein the term “this Warrant” shall mean and include this Warrant and any Common Stock or Warrants hereafter issued as a consequence of the exercise or transfer of this Warrant in whole or in part. The number of Warrant Shares may be adjusted from time to time as hereinafter set forth.

1.         Exercise Period .   This Warrant may be exercised at any time or from time to time during the period commencing on the Issuance Date and ending at 5:00 P.M. Central time on December 13, 2014 (the “Exercise Period”).

2.         Procedure for Exercise; Effect of Exercise .
 
   (a)         Cash Exercise .   This Warrant may be exercised, in whole or in part, by the Holder during normal business hours on any business day during the Exercise Period by (i) the presentation and surrender of this Warrant to the Company at its principal office along with a duly executed Notice of Exercise (in the form attached to this Warrant) specifying the number of Warrant Shares to be purchased, and (ii) delivery of payment to the Company of the Exercise Price for the number of Warrant Shares specified in the Notice of Exercise by cash, wire transfer of immediately available funds to a bank account specified by the Company, or by certified or bank cashier’s check.

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  (b)         Cashless Exercise .    This Warrant may also be exercised by the Holder through a cashless exercise, as described in this Section 2(b) . This Warrant may be exercised, in whole or in part, by the Holder during normal business hours on any business day during the Exercise Period by the presentation and surrender of this Warrant to the Company at its principal office along with a duly executed Notice of Exercise specifying the number of Warrant Shares to be applied to such exercise. The number of Warrant Shares to be delivered upon exercise of this Warrant pursuant to this Section 2(b) shall equal the value of this Warrant (or the portion thereof being canceled) computed as of the date of delivery of this Warrant to the Company using the following formula:

X =
 
Y(A-B)
     A

Where:
X =
 
the number of shares of Common Stock to be issued to Holder under this Section 2(b);
Y =
 
the number of Warrant Shares identified in the Notice of Exercise as being applied to the subject exercise;
A =
 
the Current Market Price on such date; and
B =
 
the Exercise Price

For purposes of this Section 2(b) and Section 6, the “ Current Market Price ” per share of Common Stock on any date shall mean the average closing price of the last three trading days with respect to securities listed on the principal national securities exchange on which such security is listed or admitted to trading or, if such security is not listed or admitted to trading on any national securities exchange, the average closing price of such security on the three (3) consecutive trading days immediately preceding such date in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotations System or such other system then in use or, if such security is not quoted by any such organization, the three day average closing price of such security as of the three (3) consecutive trading days immediately preceding such date furnished by a New York Stock Exchange member firm selected by the Company, or if such security is not quoted by any such organization and no such New York Stock Exchange member firm is able to provide such prices, such price as is determined by the Board of Directors in good faith.

The Company acknowledges and agrees that this Warrant was issued on the Issuance Date. Consequently, the Company acknowledges and agrees that, if the Holder conducts a cashless exercise pursuant to this Section 2(b), the period during which the Holder held this Warrant may, for purposes of Rule 144 promulgated under the Securities Act of 1933, as amended (the “ Securities Act ”), be “tacked” to the period during which the Holder holds the Warrant Shares received upon such cashless exercise.

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Notwithstanding the foregoing, except in connection with a transaction described in the proviso in the first sentence of this Section 2(b), the Holder may conduct a cashless exercise pursuant to this Section 2(b) only after the first anniversary of the Issuance Date.

(c)       Effect of Exercise .   Upon receipt by the Company of this Warrant and a Notice of Exercise, together with proper payment of the Exercise Price, as provided in this Section 2, the Company agrees that such Warrant Shares shall be deemed to be issued to the Holder as the record holder of such Warrant Shares as of the close of business on the date on which this Warrant has been surrendered and payment has been made for such Warrant Shares in accordance with this Warrant and the Holder shall be deemed to be the holder of record of the Warrant Shares, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such Warrant Shares shall not then be actually delivered to the Holder. A stock certificate or certificates for the Warrant Shares specified in the Notice of Exercise shall be delivered to the Holder as promptly as practicable, and in any event within seven (7) business days, thereafter. The stock certificate(s) so delivered shall be in any such denominations as may be reasonably specified by the Holder in the Notice of Exercise. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver within seven (7) business days a new Warrant evidencing the right of the Holder to purchase the balance of the Warrant Shares subject to purchase hereunder.

3.       Registration of Warrants; Transfer of Warrants .   Any Warrants issued upon the transfer or exercise in part of this Warrant shall be numbered and shall be registered in a Warrant Register as they are issued. The Company shall be entitled to treat the registered holder of any Warrant on the Warrant Register as the owner in fact thereof for all pur-poses and shall not be bound to recognize any equitable or other claim to or inter-est in such Warrant on the part of any other person, and shall not be liable for any registration or transfer of Warrants which are registered or to be registered in the name of a fiduciary or the nominee of a fiduciary unless made with the actual knowledge that a fiduciary or nominee is committing a breach of trust in requesting such registration or transfer, or with the knowledge of such facts that its participation therein amounts to bad faith. This Warrant shall be transferable only on the books of the Company upon delivery thereof duly endorsed by the Holder or by its duly authorized attorney or representative, or accompanied by proper evidence of succession, assignment, or authority to transfer. In all cases of transfer by an attorney, executor, administrator, guardian, or other legal representative, duly authenticated evidence of his or its author-ity shall be produced. Upon any registration of transfer, the Company shall deliver a new Warrant or Warrants to the person entitled thereto. This Warrant may be exchanged, at the option of the Holder thereof, for another Warrant, or other Warrants of different denominations, of like tenor and representing in the aggregate the right to purchase a like number of Warrant Shares, upon surrender to the Company or its duly authorized agent.

4.       Restrictions on Transfer .    (a) The Holder, as of the date of issuance hereof, represents to the Company that such Holder is acquiring the Warrants for its own account for investment purposes and not with a view to the distribution thereof or of the Warrant Shares. Notwithstanding any provisions contained in this Warrant to the contrary, this Warrant and the related Warrant Shares shall not be transferable except pursuant to the proviso contained in the following sentence or upon the conditions specified in this Section 4, which conditions are intended, among other things, to insure compliance with the provisions of the Securities Act and applicable state law in respect of the transfer of this Warrant or such Warrant Shares. The Holder by acceptance of this Warrant agrees that the Holder will not transfer this Warrant or the related Warrant Shares prior to delivery to the Company of an opinion of the Holder’s counsel or until registration of such Warrant Shares under the Securities Act has become effective or after a sale of such Warrant or Warrant Shares has been consummated pursuant to Rule 144 or Rule 144A under the Securities Act; provided, however , that the Holder may freely transfer this Warrant or such Warrant Shares (without delivery to the Company of an opinion of Counsel) (i) to one of its nominees, affiliates or a nominee thereof, (ii) to a pension or profit-sharing fund established and maintained for its employees or for the employees of any affiliate, (iii) from a nominee to any of the aforementioned persons as beneficial owner of this Warrant or such Warrant Shares, or (iv) to a qualified institutional buyer, or accredited investor, so long as such transfer is effected in compliance with Rule 144A under the Securities Act; provided, in each case, that such transferee agrees to be bound by the transfer restrictions set forth herein.

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Holder shall be entitled to transfer this Warrant and/or such Warrant Shares in accordance with the intended method of disposition specified in the notice to the Company.

(c)       Each stock certificate representing Warrant Shares issued upon exercise or exchange of this Warrant shall bear the following legend unless the opinion of counsel referred to in Section 4(b) states such legend is not required:

“THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED EXCEPT UPON DELIVERY TO THE CORPORATION OF AN OPINION OF COUNSEL SATISFACTORY IN FORM AND SUBSTANCE TO IT THAT SUCH TRANSFER WILL NOT VIOLATE THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.”


5.       Reservation of Shares . The Company shall at all times during the Exercise Period reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of providing for the exercise of the rights to purchase all Warrant Shares granted pursuant to the Warrants, such number of shares of Common Stock as shall, from time to time, be sufficient therefor. The Company covenants that all shares of Common Stock issuable upon exercise of this Warrant, upon receipt by the Company of the full Exercise Price therefor, and all shares of Common Stock issuable upon conversion of this Warrant, shall be validly issued, fully paid, non-assessable, and free of preemptive rights.

6.       Adjustments . The number of shares of Common Stock issuable upon exercise of the Warrants shall be adjusted from time to time as follows:

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(a)       (i)       In the event that the Company shall (A) pay a dividend or make a distribution, in shares of Common Stock, on any class of capital stock of the Company or any subsidiary which is not directly or indirectly wholly owned by the Company, (B) split or subdivide its outstanding Common Stock into a greater number of shares, (C) combine its outstanding Common Stock into a smaller number of shares, then in each such case the number of shares issuable upon exercise of this Warrant shall be adjusted so that the Holder of a Warrant thereafter surrendered for exercise shall be entitled to receive the number of shares of Common Stock that such Holder would have owned or have been entitled to receive after the occurrence of any of the events described above had such Warrant been exercised immediately prior to the occurrence of such event. An adjustment made pursuant to this Section 6(a)(i) shall become effective immediately after the close of business on the record date in the case of a dividend or distribution (except as provided in Section 6(e) below) and shall become effective immediately after the close of business on the effective date in the case of such subdivision, split or combination, as the case may be.

(ii)       No adjustment in the Exercise Price shall be required unless the adjustment would require an increase or decrease of at least 1% in the Exercise Price then in effect; provided, however, that any adjustments that by reason of this Section 6(a) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 6(a) shall be made to the nearest cent or nearest 1/100th of a share.

  (iii)        In the event that, at any time as a result of an adjustment made pursuant to Sections 6(a)(i) and 6(a)(ii) above, the Holder of any Warrant thereafter surrendered for exercise shall become entitled to receive any shares of the Company other than shares of the Common Stock, thereafter the number of such other shares so receivable upon exercise of any such Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in Sections 6(a)(i) and 6(a)(ii) above, and the other provisions of this Section 6(a) with respect to the Common Stock shall apply on like terms to any such other shares.

(b)       In case of any reclassification of the Common Stock (other than in a transaction to which Section 6(a)(i) applies), any consolidation of the Company with, or merger of the Company into, any other entity, any merger of another entity into the Company (other than a merger that does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock of the Company), any sale or transfer of all or substantially all of the assets of the Company or any compulsory share exchange which does not result in the cashless exercise or cancellation of this Warrant pursuant to Section 2(b), pursuant to which share exchange the Common Stock is converted into other securities, cash or other property, then lawful provision shall be made as part of the terms of such transaction whereby the Holder of a Warrant then outstanding shall have the right thereafter, during the period such Warrant shall be exercisable, to exercise such Warrant only for the kind and amount of securities, cash and other property receivable upon the reclassification, consolidation, merger, sale, transfer or share exchange by a holder of the number of shares of Common Stock of the Company into which a Warrant might have been able to exercise for immediately prior to the reclassification, consolidation, merger, sale, transfer or share exchange assuming that such holder of Common Stock failed to exercise rights of election, if any, as to the kind or amount of securities, cash or other property receivable upon consummation of such transaction subject to adjustment as provided in Section 6(a) above following the date of consummation of such transaction. The Company shall not effect any such reclassification, consolidation, merger, sale, transfer, share exchange or other disposition unless prior to or simultaneously with the consummation thereof the successor corporation (if other than the Company) resulting from such consolidation or merger, or the corporation purchasing or otherwise acquiring such assets or other appropriate corporation or entity shall assume, by written instrument executed and delivered to the Holder, the obligation to deliver to the Holder upon its exercise of the Warrant such shares of stock, securities or assets as, in accordance with the foregoing provisions, the Holder may be entitled to purchase and the other obligations under this Warrant. The provisions of this Section 6(b) shall similarly apply to successive reclassifications, consolidations, mergers, sales, transfers or share exchanges.

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(c)       If:

(i)
the Company shall take any action which would require an adjustment pursuant to Section 6(a); or

(ii)
the Company shall authorize the granting to the holders of its Common Stock generally of rights, warrants or options to subscribe for or purchase any shares of any class or any other rights, warrants or options; or

(iii)
there shall be any reclassification or change of the Common Stock (other than a subdivision or combination of its outstanding Common Stock or a change in par value) or any consolidation, merger or statutory share exchange to which the Company is a party and for which approval of any stockholders of the Company is required, or the sale or transfer of all or substantially all of the assets of the Company; or

(iv)
there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company;

then, the Company shall cause to be filed with the transfer agent for the Warrants and shall cause to be mailed to each Holder at such Holder’s address as shown on the books of the transfer agent for the Warrants, as promptly as possible, but at least 30 days prior to the applicable date hereinafter specified, a notice stating (A) the date on which a record is to be taken for the purpose of such dividend, distribution or granting of rights, warrants or options, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution or rights, warrants or options are to be determined, or (B) the date on which such reclassification, change, consolidation, merger, statutory share exchange, sale, transfer, dissolution, liquidation or winding-up is expected to become effective or occur, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reclassification, change, consolidation, merger, statutory share exchange, sale, transfer, dissolution, liquidation or winding up. Failure to give such notice or any defect therein shall not affect the legality or validity of the proceedings described in this Section 6(c).

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(d)       Whenever an adjustment is made as herein provided, the Company shall promptly file with the transfer agent for the Warrants a certificate of an officer of the Company setting forth the adjustment and setting forth a brief statement of the facts requiring such adjustment and a computation thereof. The Company shall promptly cause a notice of such adjustment to be mailed to each Holder.

(e)       In any case in which Section 6(a) provides that an adjustment shall become effective immediately after a record date for an event and the date fixed for such adjustment pursuant to Section 6(a) occurs after such record date but before the occurrence of such event, the Company may defer until the actual occurrence of such event (i) issuing to the Holder of any Warrants exercised after such record date and before the occurrence of such event the additional shares of Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above the Common Stock issuable upon such exercise before giving effect to such adjustment, and (ii) paying to such holder any amount in cash in lieu of any fraction pursuant to Section 6(g).

(f)       Upon each adjustment of the Exercise Price, this Warrant shall thereafter evidence the right to purchase, at the adjusted Exercise Price, that number of shares (calculated to the nearest thousandth) obtained by dividing (i) the product obtained by multiplying the number of shares purchasable upon exercise of this Warrant prior to adjustment of the number of shares by the Exercise Price in effect prior to adjustment of the Exercise Price, by (ii) the Exercise Price in effect after such adjustment of the Exercise Price.

(g)     The Company shall not be required to issue fractions of shares of Common Stock or other capital stock of the Company upon the exercise of this Warrant. If any fraction of a share would be issuable on the exercise of this Warrant (or specified portions thereof), the Company shall purchase such fraction for an amount in cash equal to the same fraction of the Current Market Price of such share of Common Stock on the date of exercise of this Warrant.

(h)     In case the Company shall take any action affecting the Common Stock, other than actions described in this Section 6, which in the opinion of the Board of Directors would materially adversely affect the exercise right of the Holder, the Exercise Price may be adjusted, to the extent permitted by law, in such manner, if any, and at such time, as the Board of Directors may determine to be equitable in the circumstances; provided, however, that in no event shall the Board of Directors be required to take any such action.

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7.     Transfer Taxes .  The issuance of any shares or other securities upon the exercise of this Warrant, and the delivery of certificates or other instruments representing such shares or other securities, shall be made without charge to the Holder for any tax or other charge in respect of such issuance. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of any certificate in a name other than that of the Holder and the Company shall not be required to issue or deliver any such certificate unless and until the person or persons requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.

8.     Loss or Mutilation of Warrant .  Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction, or mutilation of any Warrant (and upon surrender of any Warrant if mutilated), and upon reimbursement of the Company’s reasonable incidental expenses, the Company shall execute and deliver to the Holder thereof a new Warrant of like date, tenor, and denomination.

9.     No Rights as a Stockholder .  The Holder of any Warrant shall not have, solely on account of such status, any rights of a stockholder of the Company, either at law or in equity, or to any notice of meetings of stockholders or of any other proceedings of the Company, except as provided in this Warrant.

10.         Governing Law .   This Warrant shall be con-strued in accordance with the laws of the State of Arizona applicable to contracts made and performed within such State, without regard to principles of conflicts of law.
 
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11.         Beneficial Ownership .  The Company shall not effect the exercise of this Warrant by any Holder, and no person who is a holder of this Warrant shall have the right to exercise this Warrant, to the extent that after giving effect to such exercise, such person (together with such person’s affiliates) would beneficially own in excess of 10% of the shares of the Common Stock outstanding immediately after giving effect to such exercise. For purposes of the foregoing sentence, the aggregate number of shares of Common Stock beneficially owned by such person and its affiliates shall include, without limitation, the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which the determination of such sentence is being made, but shall exclude shares of Common Stock which would be issuable upon (a) exercise of the remaining, unexercised portion of this Warrant beneficially owned by such person and its affiliates, and (b) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company beneficially owned by such person and its affiliates (including, without limitation, any debentures, convertible notes or convertible preferred stock or warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein. Except as set forth in the preceding sentence, for purposes of this Section 11, beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. For purposes of this Warrant, in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (i) the Company’s most recent Form 10-Q, Form 10-K or other public filing with the Securities and Exchange Commission, as the case may be, (ii) a more recent public announcement by the Company, or (iii) any other notice by the Company or its transfer agent setting forth the number of shares of Common Stock outstanding. For any reason at any time, upon the written or oral request of the Holder of this Warrant, the Company shall within two business days confirm orally and in writing to the Holder of this Warrant the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company by the Holder of this Warrant and its affiliates since the date as of which such number of outstanding shares of Common Stock was reported. In effecting the exercise of this Warrant, the Company shall be entitled to rely on a representation by the Holder of this Warrant as to the number of shares that it beneficially owns for purposes of the above 10% limitation calculation.
 
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Dated: December 14, 2004
 
 
NUTRACEA
 
 
a California corporation
 
       
       
 
By:  
  /s/ Edward Newton
 
   
Signature
 
   
Title: Secretary, Vice President
 
       
 
 
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FORM OF ASSIGNMENT


(To be executed by the registered holder if such holder desires to transfer the attached Warrant.)

FOR VALUE RECEIVED,_________________________________________ hereby sells, assigns, and transfers unto __________________ a Warrant to purchase __________ shares of Common Stock, par value $[0.001] per share, of NUTRACEA. (the “Company”), together with all right, title, and interest therein, and does hereby irrevocably constitute and appoint _____________________________ attorney to transfer such Warrant on the books of the Company, with full power of substitution.

 
Dated:
   
       
 
By:  
         
    Signature  

The signature on the foregoing Assignment must correspond to the name as written upon the face of this Warrant in every particular, without alteration or enlarge-ment or any change whatsoever.
 
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To:
NutraCea.
 
1261 Hawks’ Flight Court
 
El Dorado Hills, CA 95762
 
Attention: Chief Executive Officer
 

NOTICE OF EXERCISE

The undersigned hereby exercises his or its rights to purchase _______ Warrant Shares covered by the within Warrant and tenders payment herewith in the amount of $_________ by [tendering cash or delivering a certified check or bank cashier’s check, payable to the order of the Company] [surrendering ______ shares of Common Stock received upon exercise of the attached Warrant, which shares have a Current Market Price equal to such payment] in accordance with the terms thereof, and requests that certificates for such securities be issued in the name of, and delivered to:

_______________________________________
_______________________________________
_______________________________________

(Print Name, Address and Social Security
or Tax Identification Number)

and, if such number of Warrant Shares shall not be all the Warrant Shares covered by the within Warrant, that a new Warrant for the balance of the Warrant Shares covered by the within Warrant be registered in the name of, and delivered to, the under-signed at the address stated below.
 
 
Dated:
   
       
       
 
By:  
      
    Print Name  
       
       
         
 
Signature
 

Address:
   
        
        
        
     
 
29
 
Exhibit 10.06
 
NUTRACEA

RESTRICTED STOCK AGREEMENT


This Restricted Stock Agreement (the “ Agreement ”) is made effective as of March 19, 2004 (“ Effective Date ”) by and between NutraCea, a California corporation with principal address at 1261 Hawk’s Flight Court, El Dorado Hills, CA 95762 (the “ Company ”), and Nana Patricia McPeak, an individual with principal address at 100 Rock Lane, El Dorado Hills, CA 95762 (the “ McPeak ”).

In consideration of the mutual covenants and representations set forth below, the Company and McPeak agree as follows:

1.    Issuance of the Shares . Subject to the terms and conditions of this Agreement, the Company agrees to issue to McPeak and McPeak agrees to acquire from the Company on the Closing (as defined below) and subject to the restrictions set forth herein Five Million Five Hundred Thousand (5,500,000) shares of the Company’s Restricted Common Stock (the “ Shares ”) in exchange for services rendered and the satisfaction of certain indebtedness of Company to McPeak, the sufficiency of which is hereby acknowledged.

2.    Closing . The issuance of the Shares shall occur at a closing (the “ Closing ”) to be held on the date first set forth above, or at any other time mutually agreed upon by the Company and McPeak. The Closing will take place at the principal office of the Company or at such other place as shall be designated by the Company. At the Closing, the Company will issue, as promptly thereafter as practicable, a stock certificate, registered in the name of McPeak, reflecting the Shares, subject to the restrictions set forth herein.

3.    Repurchase Option .

A.    In the event McPeak ceases to be an employee of the Company for any or no reason, other than, by reason of McPeak’s death or disability (as defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the “ Code ”), “ Disability ”), the Company shall upon the date of such termination (as reasonably fixed and determined by the Company) have the right, but not the obligation (the “ Repurchase Option ”), for a period of ninety (90) days from such date, to repurchase any Shares which have not yet been released from the Repurchase Option (the “ Unreleased Shares) at a price equal to Five Thousand Dollars ($5,000) (the “Repurchase Price”). The Repurchase Option shall be exercised by the Company by delivering written notice to McPeak AND, at the Company’s option, by delivering to McPeak a check in the amount of the aggregate Repurchase Price. Upon delivery of such notice and the payment of the aggregate Repurchase Price, the Company shall become the legal and beneficial owner of the Unreleased Shares being repurchased and all rights and interests therein or relating thereto, and the Company shall have the right to retain and transfer to its own name the number of Unreleased Shares being repurchased by the Company.
 

B.    The Company in its sole discretion may designate and assign one or more employees, officers, directors or shareholders of the Company or other persons or organizations to exercise all or a part of the Company’s Repurchase Option to purchase all or a part of the Unreleased Shares.

4.    Release of Shares From Repurchase Option; Vesting .

A.    So long as McPeak’s continuous status as an employee of the Company has not yet terminated in each such instance, Fifty Percent (50%) of the total number of Shares shall be released from the Repurchase Option on January 1, 2006, and the remaining Fifty Percent (50%) of the Shares shall be released from the Repurchase Option on January 1, 2007.

Notwithstanding the foregoing, in the event of either (i) a Change of Control (as defined below); (ii) the death or Disability of McPeak; (iii) McPeak’s retirement as an employee of Company so long as such retirement does not occur prior to the Second (2 nd ) Anniversary of the Effective Date of this Agreement; (iv) Company terminates McPeak’s employment with Company other than for Cause (as defined below); or (v) at the sole discretion of the Company’s Board of Directors, One Hundred Percent (100%) of the total number of Shares that have not been released from the Repurchase Option shall be released from the Repurchase Option immediately; provided that McPeak’s continuous status as an employee of the Company has not been terminated prior to such date.  

B.    For purposes of this Agreement, a “ Change of Control ” means either:

  (1)   the acquisition of the Company by another entity by means of any single transaction (including, without limitation, any reorganization, merger or consolidation or stock transfer, but excluding any such transaction effected primarily for the purpose of changing the domicile of the Company), unless the Company’s shareholders of record immediately prior to such transaction or series of related transactions hold, immediately after such transaction or series of related transactions, at least 50% of the voting power of the surviving or acquiring entity (provided that the sale by the Company of its securities for the purposes of raising additional funds shall not constitute a Change of Control hereunder); or

  (2)   a sale of all or substantially all of the assets of the Company.

C.    For purposes of this Agreement, “ Cause ” means the conviction by McPeak of a felony, a crime involving moral turpitude causing material harm to Company’s standing and reputation; or for fraud.


D.    Subject to the provisions of Section 7, the Shares which have been released from the Company’s Repurchase Option shall be delivered to McPeak at McPeak’s request.

5.     Restrictions on Transfer.


 
A.       McPeak hereby makes the investment representations listed on Exhibit A to the Company as of the date of this Agreement and as of the date of the Closing, and agrees that such representations are incorporated into this Agreement by this reference, such that the Company may rely on them in issuing the Shares. McPeak understands and agrees that the Company shall cause the legends set forth below, or substantially equivalent legends, to be placed upon any certificate(s) evidencing ownership of the Shares, together with any other legends that may be required by the Company or by applicable state or federal securities laws:

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ ACT ”) AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES WITH THE ACT.

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER, AND A REPURCHASE OPTION HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE RESTRICTED STOCK AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND REPURCHASE OPTION ARE BINDING ON TRANSFEREES OF THESE SHARES.

B.        Stop-Transfer Notices . McPeak agrees that to ensure compliance with the restrictions referred to herein, the Company may issue appropriate “stop transfer” instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.

C.        Refusal to Transfer . The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred.

D.        Unreleased Shares . No Unreleased Shares subject to the Repurchase Option contained in Section 3 of this Agreement, nor any beneficial interest in such Shares, shall be sold, gifted, transferred, encumbered or otherwise disposed of in any way (whether by operation of law or otherwise) by McPeak.

6.    Tax Consequences . McPeak has reviewed with McPeak’s own tax advisors the federal, state, local and foreign tax consequences of this acquisition and the transactions contemplated by this Agreement. McPeak is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. McPeak understands that McPeak (and not the Company) shall be responsible for any tax liability that may arise as a result of the transactions contemplated by this Agreement. McPeak understands that Section 83 of the Code, taxes as ordinary income the difference between the acquisition price for the Shares and the Fair Market Value of the Shares as of the date any restrictions on the Shares lapse. In this context, “restriction” includes the right of the Company to buy back the Shares pursuant to the Repurchase Option. McPeak understands that McPeak may elect to be taxed at the time the Shares are acquired rather than when and as the Repurchase Option expires by filing an election under Section 83(b) of the Code with the IRS within 30 days from the date of acquisition. THE FORM FOR MAKING THIS SECTION 83(B) ELECTION IS ATTACHED TO THIS AGREEMENT AS EXHIBIT B AND MCPEAK (AND NOT THE COMPANY OR ANY OF ITS AGENTS) SHALL BE SOLELY RESPONSIBLE FOR APPROPRIATELY FILING SUCH FORM, EVEN IF MCPEAK REQUESTS THE COMPANY OR ITS AGENTS TO MAKE THIS FILING ON MCPEAK’S BEHALF.


7.    General Provisions.

A.    Choice of Law .    This Agreement shall be governed by the internal substantive laws, but not the choice of law rules, of California.

B.    Integration .    This Agreement represents the entire agreement between the parties with respect to the acquisition of the Shares by McPeak and supercedes and replaces any and all prior written or oral agreements regarding the subject matter of this Agreement including, but not limited to, any representations made during any interviews, relocation discussions or negotiations whether written or oral.

C.    Notices .    Any notice, demand, offer, request or other communication required or permitted to be given by either the Company or McPeak pursuant to the terms of this Agreement shall be in writing and shall be deemed effectively given the earlier of (i) when received, (ii) when delivered personally, (iii) 1 business day after being deposited with an overnight courier service or (iv) 4 days after being deposited in the U.S. mail, First Class with postage prepaid, and addressed to the parties at the addresses provided to the Company (which the Company agrees to disclose to the other parties upon request) or such other address as a party may request by notifying the other in writing.

D.    Successors .    Any successor to the Company (whether direct or indirect and whether by purchase, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term “Company” shall include any successor to the Company’s business and/or assets which executes and delivers the assumption agreement described in this Section or which becomes bound by the terms of this Agreement by operation of law. Subject to the restrictions on transfer set forth in this Agreement, this Agreement shall be binding upon McPeak and his heirs, executors, administrators, successors and assigns.

E.    Assignment .   The rights granted to McPeak under this Agreement are not assignable by McPeak under any circumstances.

F.    Waiver .    Either party’s failure to enforce any provision of this Agreement shall not in any way be construed as a waiver of any such provision, nor prevent that party from thereafter enforcing any other provision of this Agreement. The rights granted both parties hereunder are cumulative and shall not constitute a waiver of either party’s right to assert any other legal remedy available to it.

 
G.    McPeak Investment Representations and Further Documents .   McPeak agrees upon request to execute any further documents or instruments necessary or reasonably desirable in the view of the Company to carry out the purposes or intent of this Agreement, including (but not limited to) Exhibits A and B of this Agreement

H.    Severability .   Should any provision of this Agreement be found to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remain enforceable to the greatest extent permitted by law.

I.    Rights as Stockholder . Subject to the terms and conditions of this Agreement, McPeak shall have all of the rights of a shareholder of the Company with respect to the Shares from and after the date that McPeak delivers a fully executed copy of this Agreement (including all exhibits and attachments thereto) and until such time as McPeak disposes of the Shares in accordance with this Agreement. Upon such transfer, McPeak shall have no further rights as a holder of the Shares except (in the case of a transfer to the Company) the right to receive payment for the Shares so purchased in accordance with the provisions of this Agreement, and McPeak shall forthwith cause the certificate(s) evidencing the Shares to be surrendered to the Company for transfer or cancellation.

J.    Adjustment for Stock Split.   All references to the number of Shares in this Agreement shall be adjusted to reflect any stock split, stock dividend or other change in the Shares which may be made after the date of this Agreement.

K.    Counterparts.    This Agreement may be executed in one or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same agreement. Facsimile copies of signed signature pages shall be binding originals.

L.    Prevailing Party’s Fees.    If any party hereto commences an action or arbitration against another party to interpret or enforce any terms of this Agreement, or because of the other party's breach of any provision in this Agreement, the losing party shall pay to the prevailing party reasonable attorneys' fees, costs and expenses, court costs and other costs of action incurred in connection with the prosecution or defense of such action or arbitration, whether or not the action is prosecuted to a final judgment.

[Remainder of page intentionally left blank]
 

The parties represent that they have read this Agreement in its entirety, have had an opportunity to obtain the advice of counsel prior to executing this Agreement and fully understand this Agreement. McPeak agrees to notify the Company of any change in her address below.


MCPEAK
 
NUTRACEA
 
       
       
/s/ Nana Patricia McPeak
 
/s/ Patricia McPeak
 
Nana Patricia McPeak
 
Signature
 
       
Address:
     
100 Rock Lane
     
El Dorado Hills, CA 95762
     



[SIGNATURE PAGE TO RESTRICTED STOCK AGREEMENT ]


EXHIBIT A

INVESTMENT REPRESENTATION STATEMENT


NAME
:
Nana Patricia McPeak
     
COMPANY
:
NutraCea
     
SECURITY
:
Restricted Common Stock
     
AMOUNT
:
5,500,000 shares
     
DATE
:
March 19, 2004
 

In connection with the acquisition of the above-listed shares, I, the undersigned represent to the Company as follows:

1.   The Company May Rely on These Representations . I understand that the Company’s issuance of the shares to me has not been registered under the Securities Act of 1933, as amended, because the Company believes, relying in part on my representations in this document, that an exemption from such registration requirement is available for such sale. I understand that the availability of this exemption depends upon the representations I am making to the Company in this document being true and correct.

2.   I am Acquiring for Investment . I am acquiring the shares solely for investment purposes, and not for further distribution. My entire legal and beneficial ownership interest in the shares is being acquired and shall be held solely for my account, except to the extent I intend to hold the shares jointly with my spouse. I am not a party to, and do not presently intend to enter into, any contract or other arrangement with any other person or entity involving the resale, transfer, grant of participation with respect to or other distribution of any of the shares. My investment intent is not limited to my present intention to hold the shares for the minimum capital gains period specified under any applicable tax law, for a deferred sale, for a specified increase or decrease in the market price of the shares, or for any other fixed period in the future.

3.   I Can Protect My Own Interests . I can properly evaluate the merits and risks of an investment in the shares and can protect my own interests in this regard, whether by reason of my own business and financial expertise, the business and financial expertise of certain professional advisors unaffiliated with the Company with whom I have consulted, or my preexisting business or personal relationship with the Company or any of its officers, directors or controlling persons.

4.   I am Informed About the Company . I am sufficiently aware of the Company’s business affairs and financial condition to reach an informed and knowledgeable decision to acquire the shares. I have had opportunity to discuss the plans, operations and financial condition of the Company with its officers, directors or controlling persons, and have received all information I deem appropriate for assessing the risk of an investment in the shares.



5.   I Recognize My Economic Risk . I realize that the acquisition of the shares involves a high degree of risk, and that the Company’s future prospects are uncertain. I am able to hold the shares indefinitely if required, and am able to bear the loss of my entire investment in the shares.

6.    I Know the Shares are Restricted Securities . I understand that the shares are “restricted securities” in that the Company’s issuance of the shares to me has not been registered under the Securities Act in reliance upon an exemption for non-public offerings. In this regard, I also understand and agree that:

A.   I must hold the shares indefinitely, unless any subsequent proposed resale by me is registered under the Securities Act, or unless an exemption from registration is otherwise available (such as Rule 144);

B.   the Company is under no obligation to register any subsequent proposed resale of the shares by me; and

C.   the certificate evidencing the shares will be imprinted with a legend which prohibits the transfer of the shares unless such transfer is registered or such registration is not required in the opinion of counsel for the Company.

7.   I am Familiar With Rule 144 . I am familiar with Rule 144 adopted under the Securities Act, which in some circumstances permits limited public resales of “restricted securities” like the shares acquired from an issuer in a non-public offering. I understand that my ability to sell the shares under Rule 144 in the future is uncertain, and will depend upon, among other things: (i) the availability of certain current public information about the Company; (ii) the resale occurring more than one year after my acquisition and full payment (within the meaning of Rule 144) for the shares; and (iii) if I am an affiliate of the Company, or a non-affiliate who has held the shares less than two years after my acquisition and full payment: (A) the sale being made through a broker in an unsolicited “broker’s transaction” or in transactions directly with a market maker, as said term is defined under the Securities Exchange Act of 1934, as amended, (B) the amount of shares being sold during any three month period not exceeding the specified limitations stated in Rule 144, and (C) timely filing of a notice of proposed sale on Form 144, if applicable.

8.   I Know I am Subject to Further Restrictions on Resale . I understand that in the event Rule 144 is not available to me, any future proposed sale of any of the shares by me will not be possible without prior registration under the Securities Act, compliance with some other registration exemption (which may or may not be available), or each of the following: (i) my written notice to the Company containing detailed information regarding the proposed sale, (ii) my providing an opinion of my counsel to the effect that such sale will not require registration, and (iii) the Company notifying me in writing that its counsel concurs in such opinion. I understand that neither the Company nor its counsel is obligated to provide me with any such opinion. I understand that although Rule 144 is not exclusive, the Staff of the SEC has stated that persons proposing to sell private placement securities other than in a registered offering or pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk.

9.   I Know I May Have Tax Liability Due to the Uncertain Value of the Shares . I understand that the Board of Directors believes its valuation of the shares represents a fair appraisal of their worth, but that it remains possible that, with the benefit of hindsight, the Internal Revenue Service may successfully assert that the value of the shares on the date of my acquisition is substantially greater than the Board’s appraisal. I understand that any additional value ascribed to the shares by such an IRS determination will constitute ordinary income to me as of the acquisition date, and that any additional taxes and interest due as a result will be my sole responsibility payable only by me, and that the Company need not and will not reimburse me for that tax liability. I understand that if such additional value represents more than 25% of my gross income for the year in which the value of the shares is taxable, the IRS will have 6 years from the due date for filing the return (or the actual filing date of the return if filed thereafter) within which to assess me the additional tax and interest due.

10.   Residence . The address of my principal residence is set forth on the signature page below.

By signing below, I acknowledge my agreement with each of the statements contained in this Investment Representation Statement as of the date first set forth above, and my intent for the Company to rely on such statements in issuing the shares to me.





 
/s/ Nana Patricia McPeak
 
 
Nana Patricia McPeak
 

 
Address of McPeak’s Principal Residence:

100 Rock Lane, El Dorado Hills, CA 95762
 

EXHIBIT B
 
IF YOU WISH TO MAKE A SECTION 83(B) ELECTION, THE FILING OF SUCH ELECTION IS YOUR RESPONSIBILITY.





THE FORM FOR MAKING THIS SECTION 83(B) ELECTION IS ATTACHED TO THIS AGREEMENT AS EXHIBIT B.  

YOU MUST FILE THIS FORM WITHIN 30 DAYS OF PURCHASING THE SHARES.

YOU (AND NOT THE COMPANY OR ANY OF ITS AGENTS) SHALL BE SOLELY RESPONSIBLE FOR FILING SUCH FORM WITH THE IRS, EVEN IF YOU REQUEST THE COMPANY OR ITS AGENTS TO MAKE THIS FILING ON YOUR BEHALF AND EVEN IF THE COMPANY OR ITS AGENTS HAVE PREVIOUSLY MADE THIS FILING ON YOUR BEHALF.



The election should be filed by mailing a signed election form by certified mail, return receipt requested to the IRS Service Center where you file your tax returns. See   www.irs.gov .


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EXHIBIT B

ELECTION UNDER SECTION 83(b) OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED

The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended, to include in his or her gross income for the current taxable year, the amount of any compensation taxable to him or her in connection with his or her receipt of the property described below:

1.    The name, address, taxpayer identification number and taxable year of the undersigned are as follows:

NAME OF TAXPAYER: [Name of Purchaser]
SPOUSE:       
    
       
TAXPAYER’S ADDRESS:
     
_____________________      
_______________     _________________  
TAXPAYER ID #:
   
SPOUSE’S ID #:
 
 
2.    The property with respect to which the election is made is described as follows: [# of Shares] shares (the “ Shares ”) of the Common Stock of [Name of Company] (the “ Company ”).

3.    The date on which the property was transferred is: [DATE].

4.    The property is subject to the following restrictions: The Shares may be repurchased by the Company, or its assignee, upon the occurrence of certain events. This right lapses with regard to a portion of the Shares over time.

5.    The fair market value at the time of transfer, determined without regard to any restriction other than a restriction which by its terms will never lapse, of such property is: $[_____] .

6.    The amount, if any, paid for such property: $[_____] .

The undersigned has submitted a copy of this statement to the person for whom the services were performed in connection with the undersigned’s receipt of the above-described property. The transferee of such property is the person performing the services in connection with the transfer of said property.

The undersigned understand(s) that the foregoing election may not be revoked except with the consent of the Commissioner.

Dated:
   
          
     
[Name of Purchaser], Taxpayer
 

The undersigned spouse of taxpayer joins in this election.

Dated:
   
        
     
Spouse of Taxpayer
 

Exhibit 10.09
 
EMPLOYMENT AGREEMENT

THE RICEX COMPANY, a Delaware corporation ("Employer"), and Todd   C. Crow ("Employee"), agree as follows, effective as of the twentieth of October, 2003 (the “Effective Date”).

1.       Employment . Employer hereby employs Employee and Employee hereby accepts employment with Employer on the terms and conditions set forth below.

2.       Position; Scope of Employment . Employee shall have the position Chief Financial Officer. Employee's duties shall include development, implementation and oversight of the Employer's financial matters, including, without limitation, budget planning and implementation, cost and revenue forecasting, tax planning and compliance, cash management and supervision, and management of accounting, finance and bookkeeping staff, and shall include such other duties and authority as specified by Employer and as may be modified from time to time.

2.1.       Entire Time and Effort. Employee shall devote Employee's full working time, attention, abilities, skill, labor and efforts to the performance of Employee's employment. Employee shall not directly or indirectly (i) be substantially engaged in or concerned with any other duties or pursuits, (ii) render services to any third party for compensation or other benefit, or (iii) engage in any other business activity that will in any way interfere with the performance of Employee's duties under this Agreement, except with the prior written consent of Employer; provided, however, that Employee may engage in charitable, philanthropic, educational, religious, civic and similar such activities to the extent that such activities do not unreasonably interfere with the performance of Employee's duties under this Agreement.

2.2.       Rules and Regulations. Employee agrees to observe and comply with Employer's rules and regulations as provided by Employer and as may be amended from time to time by Employer, and will carry out and faithfully perform such orders, directions and policies of Employer.

3.       Term of Employment . Employee's term of employment under the terms of this Agreement shall commence on May 1, 2004 and shall terminate five years from that date, unless terminated earlier as provided herein. At the end of the initial five-year term, this Agreement shall automatically renew for an additional five-year term unless either party notifies the other party in writing ninety (90) days prior to the expiration of the term of his or its intention not to renew this Agreement.

4.       Compensation. Employer shall pay Employee the base pay (“Base Salary”) of One Hundred Fifty Thousand Dollars ($150,000) per year which is in effect on the date of this agreement. Salary payments will be payable in periodic installments in accordance with Employer's pay schedule, but not less than twice per month. The Base Salary shall be reviewed at least annually, and shall be adjusted to compensate for cost of living adjustments in the Sacramento metropolitan area.


4.1.       Benefits . Employee shall be provided with medical insurance and such other benefits as provided to Employer's other similarly situated employees and in accordance with Employer's policies, as modified from time to time in Employer's sole discretion.

4.2.       Vacation and Sick Leave . Employee shall be entitled to four weeks of vacation each calendar year. Employee's vacation shall accrue at the rate of thirteen and one-thirds (13 1/3) hours per month but in no event shall Employee's total accrued vacation exceed eight (8) weeks. Employee shall be entitled to sick leave in accordance with Employer's sick leave policy.

4.3.       Automobile . Employer shall make lease payments on behalf of the Employee, up to a maximum amount of eight hundred dollars ($800.00) per month. Employer shall also reimburse Employee for his actual expenses incurred in the operation of one automobile for automobile insurance, annual registration, and maintenance.

4.4.       Bonus . Employee shall be eligible to participate in Employer’s bonus program when implemented to the same extent as other executive employees of Employer. Employer intends to adopt such a program prior to the expiration of this Agreement, but makes no further representations as to the terms of such program or the date such program will be enacted.

5.       Termination of Employment

5.1.       Termination Events . Employee's employment shall be terminated prior to the expiration of this Agreement (“Early Termination”) upon the occurrence of any of the following events: (i) the mutual written agreement of Employer and Employee; (ii) Employee's disability, which shall for the purposes of this Agreement mean Employee's inability due to physical or mental impairment to perform Employee's duties and obligations under this Agreement, despite reasonable accommodation by Employer, for a period exceeding three months; (iii) Employee's death; (iv) notice by Employer of termination for cause as defined in Section 5.2 below; (iv) written notice of termination by Employer without cause upon fourteen (14) days’ notice, subject to the Compensation Upon Early Termination provisions of Section 5.3 below.

5.2.       Termination for Cause. Employer reserves the right to terminate this Agreement for cause upon (i) Employee's willful and continued failure substantially to perform his duties and obligations under this Agreement after written demand for substantial performance has been delivered to Employee by Employer which sets forth with reasonable specificity the deficiencies in Employee's performance and giving Employee not less than thirty (30) days to correct such deficiencies; (ii) fraud or intentional material misrepresentation by Employee, (iii) unauthorized disclosure or use of Employer's trade secrets or Confidential Information by Employee; (iv) Employee's conviction of a felony; (v) theft or conversion of Employer's property by Employee; or (vi) Employee's habitual misuse of alcohol, illegal narcotics, or other intoxicant.

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5.3.       Compensation Upon Early Termination . Upon early termination, Employer shall pay Employee compensation as follows.

(A)       If Employee is terminated by Employer for cause, voluntarily resigns, dies, or becomes disabled as such term is used in Section 5.1 of this Agreement, Employer shall pay Employee, or Employee’s representative, all accrued but unpaid salary and vacation pay accrued through the effective date of the termination.

(B)       If Employee is terminated by Employer without cause, Employer shall pay to Employee as liquidated damages and in lieu of any and all other claims which Employee may have against Employer the amount equal to Employee's monthly base salary multiplied by the number of months remaining in the term of this Agreement, or payment amount equal to two years of Employee’s Base Salary, which ever is greater. Employer's payment pursuant to this section shall fully and completely discharge any and all obligations of Employer to Employee arising out of or related to this Agreement and shall constitute liquidated damages in lieu of any and all claims which Employee may have against Employer, not including any obligation under the Worker’s Compensation laws including its Employer's Liability provisions.

(C)       If Employee is terminated as the result of a Change in Control and Employee is not employed in the same capacity or being paid the same Base Salary by the new entity, then Employee shall receive a severance payment equal to two years of Employee’s Base Salary or the balance remaining to be paid under the terms of this Agreement, whichever is greater. In addition, if Employee is terminated as the result of a Change in Control and Employee is not employed in the same capacity by the new entity, Employer agrees to continue Employee’s medical and dental insurance benefits as provided during Employee’s employment with Employer for a period of two years from the effective date of the Change in Control, except as provided below in Section 5.3(C)(1) and Section 5.3(C)(2).
 
(1)       Employee agrees that he shall accept any plan coverage changes that may occur during the two-year period which apply to all employees in the workforce.
 
(2)       Employee agrees that he will notify Employer (or any successor of Employer) if he becomes employed in any capacity with another employer and becomes eligible to receive medical and dental insurance benefits through that employment prior to the expiration date of the two-year period set forth in this section. At such time, Employer shall no longer be obligated to provide Employee with medical and dental insurance benefits.

6.       Unfair Competition . During Employee's employment under this Agreement, Employee shall not directly or indirectly, whether as a partner, employee, creditor, shareholder or otherwise, promote or engage in any activity or other business which is competitive in any way with Employer's business, and shall not take any action or make any agreement to establish, or become employed by, a competing business.

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7.       Proprietary Information; Confidentiality.

7.1.       Confidential Information . Employee agrees not to disclose to any others, or take or use for Employee's own purposes or purposes of any others, during the term of this Agreement, any of Employer's Confidential Information (as defined below). Employee agrees that these restrictions shall also apply to (1) Confidential Information belonging to third parties in Employer's possession and (2) Confidential Information conceived, originated, discovered or developed by Employee during the term of this Agreement. "Confidential Information" means any Employer proprietary information, technical data, trade secrets or know-how, including, but not limited to, research, product plans, products, services, customer lists and customers, markets, software, developments, inventions, processes, formulas, technology, designs, drawings, engineering, marketing, finances or other business information disclosed to Employee by Employer, either directly or indirectly, in writing, orally or by drawings, or by observation of products. Confidential Information does not include any of the foregoing items which has become publicly known and made generally available through no wrongful act of Employee. Employee further agrees not to use improperly or disclose or bring onto the premises of Employer any trade secrets of another person or entity during the term of this Agreement.

7.2.       Return of Property . Employee agrees that upon termination of employment with Employer, Employee will deliver to Employer all devices, records, data, disks, computer files, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, materials, equipment, other documents or property, or reproductions of any aforementioned items developed by Employee pursuant to employment with Employer or otherwise belonging to Employer, its successors or assigns.

7.3.       Noncompetition. Employee shall not use any of the Confidential Information to compete with Employer in connection with a business or enterprise of any kind, foreign or domestic, profit or non-profit, as an investor, partner, shareholder, LLC member, employee, agent, consultant or independent contractor. Nothing in this Section 7.3 shall be construed to limit the more general prohibitions against unauthorized use or disclosure of the Confidential Information contained in other sections of this Agreement.

7.4.       Notification of New Employer . Employer shall have the right to notify any actual or potential future employer of Employee of Employee's rights and obligations under this Section 7 of the Agreement. Employee expressly authorizes such disclosure and waives any claims Employee may have against Employer resulting from the disclosure of Employee's obligations under this Section 7 to an actual or potential future employer of Employee.

7.5.       Other Agreements. Employee represents that the performance of all the terms of this Agreement will not breach any agreement to keep in confidence proprietary information acquired by Employee in confidence or in trust prior to employment with Employer. Employee has not and shall not enter into any oral or written agreement in conflict with this Agreement.

7.6.       Equitable Remedies. Employee agrees that it would be impossible or inadequate to measure and calculate Employer's damages from any breach of the covenants set forth in this Section 7 of the Agreement. Accordingly, Employer shall have available, in addition to any other right or remedy available under law or equity, the right to obtain any injunction from a court of competent jurisdiction restraining such breach or threatened breach and to specific performance of any such provision of this Section 7. Employee further agrees that no bond or other security shall be required in obtaining such equitable relief and consents to the issuance of such injunction and to the ordering of specific performance.

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8.       Miscellaneous.

8.1.       Notices . Any notice under this Agreement shall be in writing, and any written notice or other document shall be deemed to have been duly given (i) on the date of personal service on the parties, (ii) on the third business day after mailing, if the document is mailed by registered or certified mail, (iii) one day after being sent by professional or overnight courier or messenger service guaranteeing one-day delivery, with receipt confirmed by the courier, or (iv) on the date of transmission if sent by telegram, telex, telecopy or other means of electronic transmission resulting in written copies, with receipt confirmed. Any such notice shall be delivered or addressed to the parties at the addresses set forth below or at the most recent address specified by the addressee through written notice under this provision. Failure to give notice in accordance with any of the foregoing methods shall not defeat the effectiveness of notice actually received by the addressee.

8.2.       Enforcement . This Agreement shall be interpreted in accordance with the laws of the State of California and will be adjudicated in the Superior Court of California in and for the County of El Dorado. In the event of any dispute concerning any aspect of the obligations of the Company under this Agreement, the Company or its successor shall reimburse Employee all attorney fees and costs incurred by Employee in connection with adjudication of such matters.

8.3.       Choice of Law, Jurisdiction, Venue . This Agreement is drawn to be effective in the State of California, and shall be construed in accordance with California law. The exclusive jurisdiction and venue of any legal action by either party under this Agreement shall be the County of Sacramento, California.

8.4.       Amendment . The provisions of this Agreement may be modified at any time by agreement of the parties. Any such agreement hereafter made shall be ineffective to modify this Agreement in any respect unless in writing and signed by the parties against whom enforcement of the modification or discharge is sought.

8.5.       Waiver . Any of the terms or conditions of this Agreement may be waived at any time by the party entitled to the benefit thereof, but no such waiver shall affect or impair the right of the waiving party to require observance, performance or satisfaction either of that term or condition as it applies on a subsequent occasion or of any other term or condition.

8.6.       Assignment . The parties agree that Employee's rights and obligations under this Agreement are personal and not assignable. This Agreement contains the entire agreement between the parties to it and shall be binding on and inure to the benefit of the heirs, personal representatives, successors and assigns of Employer.

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8.7.       Independent Covenants. All provisions herein concerning unfair competition and confidentiality shall be deemed independent covenants and shall be enforceable without regard to any breach by Employer unless such breach by Employer is willful and reckless.

8.8.       Entire Agreement . This document constitutes the entire agreement between the parties, all oral agreements being merged herein, and supersedes all prior representations and written agreements. There are no representations, agreements, arrangements, or understandings, oral or written, between or among the parties relating to the subject matter of this Agreement that are not fully expressed herein.

8.9.       Severability . If any provision of this Agreement is held by a court of competent jurisdiction to be invalid or unenforceable, the remainder of the Agreement which can be given effect without the invalid provision shall continue in full force and effect and shall in no way be impaired or invalidated.

8.10.     Captions . All paragraph captions are for reference only and shall not be considered in construing this Agreement.



DATED:   October 20, 2003

THE RICEX COMPANY
 
EMPLOYEE
       
       
By:
/s/ Daniel L. McPeak, Sr.
 
/s/ Todd C. Crow
 
Daniel L. McPeak, Sr.
 
Todd C. Crow
Its:
Chief Executive Officer
 
 
 
 
6
Exhibit 10.10
 
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT

This First Amendment to Employment Agreement (this “ First Amendment ”) is executed as of October 4, 2005 by and among NUTRACEA, a California corporation (“ Employer ”), THE RICEX COMPANY, a Delaware corporation (“ Company ”), and TODD C. CROW, an individual (“ Employee ”).

A.       WHEREAS , Company and Employee are parties to that certain Employment Agreement dated as of October 20, 2003 (the “ Agreement ”).

B.       WHEREAS , Company has entered into that certain Agreement and Plan of Merger and Reorganization, dated April 4, 2005, with Employer and Red Acquisition Corporation (the “ Merger Agreement ”).

C.       WHEREAS , as a condition to the consummation of the transactions contemplated by the Merger Agreement (the “ Merger ”), Company has agreed to amend the Agreement.

D.       WHEREAS , contemporaneous to the effective time of the Merger, which shall be such time as Company files a Certificate of Merger with the Secretary of State of the State of Delaware (the “ Effective Time ”), Company desires to assign to Employer, and Employer desires to assume from Company, the Agreement, as amended by this First Amendment.

E.       WHEREAS , as consideration for (i) entering into this First Amendment and (ii) Employee’s continued employment with Employer following the Merger, Company has agreed to, and Employer has consented to, the payment by Company of a bonus to Employee, which bonus shall be earned and payable immediately following the approval of the Merger by the stockholders of Company.

F.       WHEREAS , Employer, Company and Employee desire to amend the Agreement as set forth in this First Amendment.

G.       WHEREAS , Employer, Company and Employee desire that this First Amendment shall become effective only as of the Effective Time.

NOW, THEREFORE , in consideration of the foregoing and the mutual covenants and agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

AMENDMENT

1.       Amendment . The following paragraphs are amended and restated or added, as applicable, as follows:
 
a.       Section 2., Position; Scope of Employment , is amended by deleting the first sentence thereof and adding the following sentence:


“2.   Position; Scope of Employment . Employee shall have the position of Chief Financial Officer of Employer and Company.

b.       Section 3., Term of Employment , is amended by deleting the entire paragraph thereof and adding the following paragraph:

“3.   Term of Employment . Employee’s term of employment pursuant to this Agreement shall commence on the Effective Time and shall terminate three (3) years from that date, unless terminated earlier as provided herein. At the end of the initial three (3)-year term, this Agreement shall automatically renew for an additional one (1)-year term unless either party notifies the other party in writing ninety (90) days prior to the expiration of the term of his or its intention not to renew this Agreement.”

c.       Section 4.3, Automobile , is amended by adding the following sentence to the end of the existing paragraph:

“Notwithstanding the foregoing, Employer shall not be obligated to make any down payments for the purchase of any automobile by or on behalf of Employee.”

d.       Section 4.5, Accrued Vacation Pay , is hereby added to the Agreement by adding the following paragraph:

“4.5.   Accrued Vacation Pay . Immediately prior to the Effective Time, Company shall pay to Employee all vacation pay due to Employee that has been accrued but unpaid up to and through the Effective Time.”

e.       Section 4.6, Closing Bonus , is hereby added to the Agreement by adding the following paragraph:

“4.6.   Closing Bonus . Immediately following the approval of the merger effected pursuant to that certain Agreement and Plan of Merger and Reorganization, dated as of April 4, 2005, by and between Employer, Red Acquisition Corporation, the wholly-owned subsidiary of Employer and Company by the stockholders of Company, Company shall pay to Employee a bonus of $50,000, net of any federal, state or local withholding or other taxes or charges.”

f.       Section 5.3(B) is amended by deleting the entire paragraph thereof and adding the following paragraph:

“(B)   If Employee is terminated by Employer without cause, Employer shall pay to Employee as liquidated damages, and in lieu of any and all other claims that Employee may have against Employer, an amount equal to the greater of (i) the monthly Base Salary multiplied by the number of months remaining on the term of this Agreement, and (ii) one (1) year of Base Salary, but in no event shall severance pay exceed three (3) years of Base Salary, regardless of the term.”

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g.       Section 5.3(C) is amended by deleting the entire paragraph thereof and adding the following paragraph:

“(C)   If Employee is terminated as the result of a Change in Control (as defined below) and Employee is not employed in the same capacity or being paid the same Base Salary by the new entity as Employee was employed with, or paid by, Employer, then Employee shall receive a severance payment equal to two (2) years of Employee’s Base Salary, or the balance remaining to be paid under the terms of the Agreement, whichever is greater. In addition, if Employee is terminated as the result of a Change in Control and Employee is not employed in the same capacity by the new entity, Employer agrees to continue Employee’s medical and dental insurance benefits as provided during Employee’s employment with Employer for a period of two (2) years from the effective date of the Change in Control, except as provided below in Section 5.3(C)(1) and Section 5.3(C)(2). For the purposes of this Agreement, a “Change in Control” means:

(1)   a merger or acquisition in which Employer is not the surviving entity, except for (a) a transaction the principal purpose of which is to change the state of Employer’s incorporation, or (b) a transaction in which Employer’s stockholders immediately prior to such transaction hold, immediately after such transaction, at least 50% of the voting power of the surviving entity;

(2)   a stockholder approved sale, transfer or other disposition of all or substantially all of the assets of Employer;

(3)   a transfer of all or substantially all of Employer’s assets pursuant to a partnership or joint venture agreement or similar arrangement where Employer’s resulting interest is less than fifty percent (50%);

(4)   any reverse merger in which Employer is the surviving entity but in which fifty percent (50%) or more of Employer’s outstanding voting stock is transferred to holders different from those who held the stock immediately prior to such merger;

(5)   on or after the date hereof, a change in ownership of Employer through an action or series of transactions, such that any person is or becomes the beneficial owner, directly or indirectly, of securities of Employer representing fifty percent (50%) or more of the voting power of Employer’s outstanding securities; or

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(6)   a majority of the members of the Board of Directors are replaced during any twelve (12) month period by directors whose appointment or election is not endorsed by a majority of the members of the Board of the Directors prior to the date of such appointment of election.

Notwithstanding the foregoing, the transactions effected pursuant to, or required by, that certain Agreement and Plan of Merger and Reorganization, dated as of April 4, 2005, by and between Employer, Red Acquisition Corporation, the wholly-owned subsidiary of Employer and Company, shall not constitute a Change in Control.”

h.       Section 7.1., Confidential Information , is amended by deleting the first sentence and replacing it with the following sentence:

“Employee agrees not to disclose to any others, or take or use for Employee’s own purposes or purposes of any others, during the term of this Agreement or at any time thereafter, any of Employer’s Confidential Information (as defined below).”

i.       All restrictions placed upon Employee in Section 7., Proprietary Information; Confidentiality , of the Agreement with respect to “Confidential Information” shall be deemed to apply to Confidential Information of the Employer and Employer’s direct or indirect subsidiaries.

2.       Affirmation . In order to induce each other to enter into this First Amendment, the parties hereby confirm that all terms and provisions of the Agreement have been and continue to be in all respects in full force and effect, and no violation of the terms and conditions of the Agreement has occurred.

3.       Effective Date; Assignment and Assumption . This First Amendment shall become effective only upon the Effective Time. Effective immediately from and after the Effective Time, (i) all of Company’s right, title and interest in and to the Agreement, as amended by this First Amendment, shall be deemed to have been assigned, granted, bargained, transferred, conveyed, set over and delivered unto Employer, and (ii) Employer shall be deemed to have assumed the Agreement, as amended by this First Amendment, and shall faithfully and timely discharge and perform each and every obligation of Company arising under the Agreement, as amended by this First Amendment.

4.       Modification; Interpretation . Except as expressly set forth in this First Amendment, this First Amendment shall not alter, amend, or otherwise modify the terms and provisions of the Agreement. From and after the Effective Time, all references in the Agreement to “the Agreement,” “this Agreement” or any similar reference shall refer to the Agreement as amended by this First Amendment. From and after the Effective Time, all references in the Agreement to “Employer,” or any similar reference shall refer to NutraCea, a California corporation. Capitalized terms not otherwise defined herein shall have the respective meanings ascribed to them in the Agreement or the Merger Agreement.

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5.       Approval by Company’s Board of Directors . Company hereby represents that its Board of Directors has duly approved the terms of this First Amendment.


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IN WITNESS WHEREOF, the parties have executed this First Amendment as of the date first set forth above.

NUTRACEA
     
         
By:
/s/ Brad Edson
     
Name:
Brad Edson
     
Title:
President
 
/s/ Todd C. Crow
 
     
TODD C. CROW
 
         
THE RICEX COMPANY
     
         
By:
/s/ Ike Lynch
     
Name:
Ike Lynch
     
Title:
CEO
     
 
6

Exhibit 10.11
 
EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is effective as of the 1st of May, 2004 (the "Effective Date") by and between THE RICEX COMPANY, a Delaware corporation ("Employer") and Ike E. Lynch ("Employee").

In consideration of the mutual covenants and obligations herein set forth, the parties hereto agree as follows:

1.       Employment . Employer hereby employs Employee and Employee hereby accepts employment with Employer on the terms and conditions set forth below, which supercede in their entirety the terms and conditions of any previous employment agreement between Employer and Employee.

2.       Position; Scope of Employment . Employee shall have the position of Vice President of Operations for The RiceX Company and Chief Operating Officer for the Company’s subsidiary, Food Extrusion Montana. Employee shall manage the operations of Employer by directing and coordinating activities consistent with established goals, objectives and policies. In performing the services hereunder, Employee shall follow the direction set by the Chief Executive Officer and Board of Directors, and shall implement such programs as he deems necessary to ensure attainment of Employer’s business plan for growth and profit. Employee also shall provide direction and structure for all operating units, shall participate in developing policy and strategic plans, and shall manage all activities associated with Employer’s production, engineering, construction, quality assurance, logistics and research and development.

2.1.       Time and Effort . At Employer’s direction, Employee shall devote a minimum of thirty (30) hours per month to a maximum of one hundred (100) hours per calendar month to the performance of Employee's duties under this Agreement. Any work assignments requiring more than one hundred (100) hours per calendar month shall be accommodated by Employee, so long as any such assignment does not exceed six (6) months duration in any calendar year. Employee will have the right to work from his home office and Employer will have the right to make reasonable travel requests from time to time of Employee.

2.2       Other Employment . Employee may render services to third parties for compensation or other benefit, so long as such other business activities in no way interfere with the performance of Employee's duties under this Agreement.

2.3.       Rules and Regulations. Employee agrees to observe and comply with Employer's rules and regulations as provided by Employer and as may be amended from time to time by Employer, and will carry out and faithfully perform such orders, directions and policies of Employer.

3.       Term of Employment . Employee's term of employment pursuant to this Agreement shall commence on the Effective Date and shall automatically terminate on the fifth anniversary of the Effective Date, unless (i) terminated earlier as provided herein, or (ii) extended pursuant to written notice from Employer to Employee, which notice shall be given not less than six (6) months prior to the expiration of the initial term, and operate to extended the term hereof for an additional term of five (5) years.


4.       Compensation . During the term of this Agreement, Employer shall compensate Employee for his services to Employer at a rate of $3000/month for up to thirty (30) hours of work per month. If more than thirty (30) hours of work per month is required by Employer, Employee shall be compensated at a rate of $100/hour for all additional hours worked. Employee’s compensation shall be subject to an annual adjustment of five percent (5%) upon each anniversary date of the Effective Date.

4.1.       Benefits . Employee shall be provided with medical insurance and such other benefits as provided to Employer's other similarly situated employees and in accordance with Employer's policies, as modified from time to time in Employer's sole and absolute discretion.

4.2.       Reimbursement of Expenses. During the term of this agreement, Employee shall be reimbursed for all standard travel expenses as outlined in the Company Employee Manual. Office expenses including rent and utilities will be paid by the Employer.

4.3.       Vacation and Sick Leave . Employee shall be entitled to four weeks of vacation each calendar year. Employee's vacation shall accrue at the rate of thirteen and one-thirds (13 1/3) hours per month but in no event shall Employee's total accrued vacation exceed eight (8) weeks. In lieu of vacation time off, the employee may elect to be paid accrued vacation time at the Employee’s existing prevailing hourly rate. Employee shall be entitled to sick leave in accordance with Employer's sick leave policy.

4.4.       Automobile . Employer shall make lease/purchase payments on behalf of Employee, up to a maximum amount of eight hundred dollars ($800) per month. Employer shall also reimburse Employee for his actual expenses incurred in the operation of one automobile for automobile insurance, and annual registration and maintenance, subject to receipt of documentation therefor reasonably satisfactory to Employer.

4.5.       Bonus . Employee shall be eligible to participate in Employer’s bonus program if and when implemented to the same extent as other similarly situated employees of Employer. Employer intends to adopt such a program prior to the expiration of this Agreement, but makes no further representations as to the terms of such program or the date on which such program may be enacted. An international business development bonus will be paid to the employee for any international deal structured by the employee. The bonus will be determined by the Compensation Committee of the Board and will be consistent with similar bonuses paid for similar activities in commercial deals.

4.6.       Stock or Stock Option Plan . If Employer grants stock or other equity incentives to its other similarly situated employees during the term of this Agreement, Employer shall consider granting stock or other equity incentives to Employee, in the amounts and upon such terms and conditions as Employer shall, in its sole and absolute discretion, determine.

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4.7.       Relocation Expenses. The Employer will provide a one-time relocation allowance of $6,000 during the term of this agreement.

5.       Termination of Employment

5.1.       Termination Events . Employee's employment shall be terminated prior to the expiration of this Agreement (“Early Termination”) upon the occurrence of any of the following events: (i) the mutual written agreement of Employer and Employee; (ii) Employee's disability which shall, for the purposes of this Agreement, mean Employee's inability due to physical or mental impairment to perform Employee's duties and obligations under this Agreement, despite reasonable accommodation by Employer, for a period exceeding in the aggregate three (3) months in any twelve (12) consecutive month period; (iii) Employee's death; (iv) notice by Employer of termination for cause as defined in Section 5.2 below; (iv) written notice of termination by Employer without cause upon fourteen (14) days’ notice, subject to the Compensation Upon Early Termination provisions of Section 5.3 below.

5.2.       Termination for Cause . Employer reserves the right to terminate this Agreement for cause upon (i) Employee's willful and continued failure substantially to perform his duties and obligations under this Agreement after written demand for substantial performance has been delivered to Employee by Employer, which demand sets forth with reasonable specificity the deficiencies in Employee's performance and gives Employee not less than thirty (30) days to correct such deficiencies; (ii) fraud or intentional material misrepresentation by Employee, (iii) unauthorized disclosure or use of Employer's trade secrets or Confidential Information by Employee; (iv) Employee's conviction of a felony; (v) theft or conversion of Employer's property by Employee; or (vi) Employee's habitual misuse of alcohol, illegal narcotics or other intoxicant.

5.3.       Compensation Upon Early Termination . Upon early termination, Employer shall pay Employee compensation as follows.

(A)       If Employee is terminated by Employer for cause, voluntarily resigns, dies, or becomes disabled as such term is used in Section 5.1 of this Agreement, Employer shall pay Employee, or Employee’s representative, all accrued but unpaid salary and vacation pay accrued through the effective date of the termination.

(B)       If Employee is terminated by Employer without cause, Employer shall pay to Employee as liquidated damages, and in lieu of any and all other claims that Employee may have against Employer, the remaining term of the agreement times the average annual Employee compensation of the previous twenty-four months (or actual number of months worked if fewer than twenty-four), with a maximum payment of two hundred and fifty thousand dollars. Employer's payment pursuant to this section shall fully and completely discharge any and all obligations of Employer to Employee arising out of or related to this Agreement and shall constitute liquidated damages in lieu of any and all claims that Employee may have against Employer, not including any obligation under the Worker’s Compensation laws including its Employer's Liability provisions.

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(C)       If Employee is terminated as the result of a Change in Control and Employee is not employed in the same capacity or being paid the same salary by the new entity, then Employee shall receive a severance payment of one hundred and eighty thousand dollars ($180,000). In addition, if Employee is terminated as the result of a Change in Control and Employee is not employed in the same capacity by the new entity, Employer agrees to continue Employee’s medical and dental insurance benefits as provided during Employee’s employment with Employer for a period of two (2) years from the effective date of the Change in Control, except as provided below in Section 5.3(C)(1) and Section 5.3(C)(2).

(1)       Employee agrees that he shall accept any plan coverage changes that may occur during the two (2)-year period, which apply to all employees in the workforce.

(2)       Employee agrees that he will notify Employer (or any successor of Employer) if he becomes employed in any capacity with another employer and becomes eligible to receive medical and dental insurance benefits through that employment prior to the expiration date of the two (2) year period set forth in this section. At such time, Employer shall no longer be obligated to provide Employee with medical and dental insurance benefits.

6.       Proprietary Information; Confidentiality .

6.1.       Confidential Information . Employee agrees not to disclose to any others, or take or use for Employee's own purposes or purposes of any others, during the term of this Agreement, any of Employer's Confidential Information (as defined below). Employee agrees that these restrictions shall also apply to (1) Confidential Information belonging to third parties in Employer's possession and (2) Confidential Information conceived, originated, discovered or developed by Employee during the term of this Agreement. "Confidential Information" means any Employer proprietary information, technical data, trade secrets or know-how, including, but not limited to, research, product plans, products, services, customer lists and customers, markets, software, developments, inventions, processes, formulas, technology, designs, drawings, engineering, marketing, finances or other business information disclosed to Employee by Employer, either directly or indirectly, in writing, orally or by drawings, or by observation of products. Confidential Information does not include any of the foregoing items that has become publicly known and made generally available through no wrongful act of Employee. Employee further agrees not to use improperly or disclose or bring onto the premises of Employer any trade secrets of another person or entity during the term of this Agreement.

6.2.       Return of Property . Employee agrees that upon termination of employment with Employer, Employee will deliver to Employer all devices, records, data, disks, computer files, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, materials, equipment, other documents or property, or reproductions of any aforementioned items developed by Employee pursuant to employment with Employer or otherwise belonging to Employer, its successors or assigns.

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6.3.       Notification of New Employer . Employer shall have the right to notify any actual or potential future employer of Employee of Employee's rights and obligations under this Section 6 of the Agreement. Employee expressly authorizes such disclosure and waives any claims Employee may have against Employer resulting from the disclosure of Employee's obligations under this Section 6 to an actual or potential future employer of Employee.

6.4.       Other Agreements . Employee represents that the performance of all the terms of this Agreement will not breach any agreement to keep in confidence proprietary information acquired by Employee in confidence or in trust prior to employment with Employer. Employee has not and shall not enter into any oral or written agreement in conflict with this Agreement.

6.5.       Equitable Remedies . Employee agrees that it would be impossible or inadequate to measure and calculate Employer's damages from any breach of the covenants set forth in this Section 7 of the Agreement. Accordingly, Employer shall have available, in addition to any other right or remedy available under law or equity, the right to obtain any injunction from a court of competent jurisdiction restraining such breach or threatened breach and to specific performance of any such provision of this Section 7. Employee further agrees that no bond or other security shall be required in obtaining such equitable relief and consents to the issuance of such injunction and to the ordering of specific performance.

7.       Miscellaneous .

7.1.       Notices . Any notice under this Agreement shall be in writing, and any written notice or other document shall be deemed to have been duly given (i) on the date of personal service on the parties, (ii) on the third business day after mailing, if the document is mailed by registered or certified mail, (iii) one day after being sent by professional or overnight courier or messenger service guaranteeing one-day delivery, with receipt confirmed by the courier, or (iv) on the date of transmission if sent by telegram, telex, telecopy or other means of electronic transmission resulting in written copies, with receipt confirmed. Any such notice shall be delivered or addressed to the parties at the addresses set forth below or at the most recent address specified by the addressee through written notice under this provision. Failure to give notice in accordance with any of the foregoing methods shall not defeat the effectiveness of notice actually received by the addressee.

7.2.       Enforcement.   In the event of any dispute concerning any aspect of the obligations of the Company under this Agreement, the Company or its successor shall reimburse Employee all attorney fees and costs incurred by Employee in connection with adjudication of such matters.

7.3.       Choice of Law, Jurisdiction, Venue . This Agreement shall be interpreted in accordance with the laws of the State of California. The exclusive jurisdiction and venue of any legal action by either party under this Agreement shall be the Superior Court of California in and for the County of El Dorado..

7.4.       Amendment . The provisions of this Agreement may be modified at any time by agreement of the parties. Any such agreement hereafter made shall be ineffective to modify this Agreement in any respect unless in writing and signed by the parties against whom enforcement of the modification or discharge is sought.

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7.5.       Waiver . Any of the terms or conditions of this Agreement may be waived at any time by the party entitled to the benefit thereof, but no such waiver shall affect or impair the right of the waiving party to require observance, performance or satisfaction either of that term or condition as it applies on a subsequent occasion or of any other term or condition.

7.6.       Assignment . The parties agree that Employee's rights and obligations under this Agreement are personal and not assignable. This Agreement contains the entire agreement between the parties to it and shall be binding on and inure to the benefit of the heirs, personal representatives, successors and assigns of Employer.

7.7.       Independent Covenants . All provisions herein concerning unfair competition and confidentiality shall be deemed independent covenants and shall be enforceable without regard to any breach by Employer unless such breach by Employer is willful and reckless.

7.8.       Entire Agreement . This document constitutes the entire agreement between the parties, all oral agreements being merged herein, and supersedes all prior representations and written agreements. There are no representations, agreements, arrangements, or understandings, oral or written, between or among the parties relating to the subject matter of this Agreement that are not fully expressed herein.

7.9.       Severability . If any provision of this Agreement is held by a court of competent jurisdiction to be invalid or unenforceable, the remainder of the Agreement which can be given effect without the invalid provision shall continue in full force and effect and shall in no way be impaired or invalidated.

7.10.       Captions . All paragraph captions are for reference only and shall not be considered in construing this Agreement.


DATED:   March 30, 2004

THE RICEX COMPANY
 
EMPLOYEE
       
       
By:
/s/ Daniel L. McPeak, Sr.
 
/s/ Ike E. Lynch
 
Daniel L. McPeak, Sr.
 
Ike E. Lynch
Its:
Chief Executive Officer
 
 
 
6
Exhibit 10.12
 
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT

This First Amendment to Employment Agreement (this “ First Amendment ”) is executed as of October 4, 2005 by and among NUTRACEA, a California corporation (“ Employer ”), THE RICEX COMPANY, a Delaware corporation (“ Company ”), and IKE E. LYNCH, an individual (“ Employee ”).

A.       WHEREAS , Company and Employee are parties to that certain Employment Agreement dated as of May 1, 2004 (the “ Agreement ”).

B.       WHEREAS , Company has entered into that certain Agreement and Plan of Merger and Reorganization, dated April 4, 2005, with Employer and Red Acquisition Corporation (the “ Merger Agreement ”).

C.       WHEREAS , as a condition to the consummation of the transactions contemplated by the Merger Agreement (the “ Merger ”), Company has agreed to amend the Agreement.

D.       WHEREAS , contemporaneous to the effective time of the Merger, which shall be such time as Company files a Certificate of Merger with the Secretary of State of the State of Delaware (the “ Effective Time ”), Company desires to assign to Employer, and Employer desires to assume from Company, the Agreement, as amended by this First Amendment.

E.       WHEREAS , as consideration for (i) entering into this First Amendment and (ii) Employee’s continued employment with Employer following the Merger, Company has agreed to, and Employer has consented to, the payment by Company of a bonus to Employee, which bonus shall be earned and payable immediately following the approval of the Merger by the stockholders of Company.

F.       WHEREAS , Employer, Company and Employee desire to amend the Agreement as set forth in this First Amendment.

G.       WHEREAS , Employer, Company and Employee desire that this First Amendment shall become effective only as of the Effective Time.

NOW, THEREFORE , in consideration of the foregoing and the mutual covenants and agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

AMENDMENT

1.       Amendment . The following paragraphs are amended and restated or added, as applicable, as follows:

a.       Section 2., Position; Scope of Employment , is amended by deleting the entire paragraph thereof and adding the following paragraph:


“2. Position; Scope of Employment . Employee shall have the position of Chief Operating Officer for Employer and for the Company and its subsidiary, Food Extrusion Montana. Employee shall manage the operations of Employer by directing and coordinating activities consistent with established goals, objectives and policies. In performing the services hereunder, Employee shall follow the direction set by the Chief Executive Officer and Board of Directors of Employer, and shall implement such programs as he deems necessary to ensure attainment of Employer’s business plan for growth and profit. Employee also shall provide direction and structure for all operating units, shall participate in developing policy and strategic plans, and shall manage all activities associated with Employer’s production, engineering, construction, quality assurance, logistics and research and development.

b.       Section 2.1., Time and Effort , is amended by deleting the entire paragraph thereof and adding the following paragraph:

“2.1. Entire Time and Effort . Employee shall devote Employee’s full working time, attention, abilities, skill, labor and efforts to the performance of Employee’s employment. Employee shall not directly or indirectly (i) be substantially engaged in or concerned with any other duties or pursuits, (ii) render services to any third party for compensation or other benefit, or (iii) engage in any other business activity that will in any way interfere with the performance of Employee’s duties under this Agreement, except with the prior written consent of Employer; provided, however, that Employee may engage in charitable, philanthropic, educational, religious, civic and similar such activities to the extent that such activities do not unreasonably interfere with the performance of Employee’s duties under this Agreement.”

c.       Section 2.2, Other Employment , is amended by deleting the entire paragraph thereof and adding the following paragraph:

“2.2. [Intentionally Omitted.]”

d.       Section 3., Term of Employment , is amended by deleting the entire paragraph thereof and adding the following paragraph:

“3. Term of Employment . Employee’s term of employment pursuant to this Agreement shall commence on the Effective Time and shall terminate three (3) years from that date, unless terminated earlier as provided herein. At the end of the initial three (3)-year term, this Agreement shall automatically renew for an additional one (1)-year term unless either party notifies the other party in writing ninety (90) days prior to the expiration of the term of his or its intention not to renew this Agreement.”

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e.       Section 4., Compensation , is amended by deleting the entire paragraph thereof and adding the following paragraph:

“4. Compensation . Employer shall pay employee the base pay (“ Base Salary ”) of One Hundred Fifty Thousand Dollars ($150,000) per year, which shall take effect as of the Effective Time. Salary payments will be payable in periodic installments in accordance with Employer’s pay schedule, but not less than twice per month. The Base Salary shall be reviewed at least annually, and shall be adjusted to compensate for cost of living adjustments in the Sacramento metropolitan area.”

f.       Section 4.4, Automobile , is amended by adding the following sentence to the end of the existing paragraph:

“Notwithstanding the foregoing, Employer shall not be obligated to make any down payments for the purchase of any automobile by or on behalf of Employee.”

g.       Section 4.8, Accrued Vacation Pay , is hereby added to the Agreement by adding the following paragraph:

“4.8. Accrued Vacation Pay . Immediately prior to the Effective Time, Company shall pay to Employee all vacation pay due to Employee that has been accrued but unpaid up to and through the Effective Time.”

h.       Section 4.9, Closing Bonus , is hereby added to the Agreement by adding the following paragraph:

“4.9. Closing Bonus . Immediately following the approval of the merger effected pursuant to that certain Agreement and Plan of Merger and Reorganization, dated as of April 4, 2005, by and between Employer, Red Acquisition Corporation, the wholly-owned subsidiary of Employer and Company by the stockholders of Company, Company shall pay to Employee a bonus of $50,000, net of any federal, state or local withholding or other taxes or charges.”

i.       Section 5.3(B) is amended by deleting the entire paragraph thereof and adding the following paragraph:

“(B)   If Employee is terminated by Employer without cause, Employer shall pay to Employee as liquidated damages, and in lieu of any and all other claims that Employee may have against Employer, an amount equal to the greater of (i) the monthly Base Salary multiplied by the number of months remaining on the term of this Agreement, and (ii) one (1) year of Base Salary, but in no event shall severance pay exceed three (3) years of Base Salary, regardless of the term.”

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j.       Section 5.3(C) is amended by deleting the entire paragraph thereof and adding the following paragraph:

“(C)   If Employee is terminated as the result of a Change in Control (as defined below) and Employee is not employed in the same capacity or being paid the same salary by the new entity as Employee was employed with, or paid by, Employer, then Employee shall receive a severance payment of one hundred eighty thousand dollars ($180,000). In addition, if Employee is terminated as the result of a Change in Control and Employee is not employed in the same capacity by the new entity, Employer agrees to continue Employee’s medical and dental insurance benefits as provided during Employee’s employment with Employer for a period of two (2) years from the effective date of the Change in Control, except as provided below in Section 5.3(C)(1) and Section 5.3(C)(2). For the purposes of this Agreement, a “Change in Control” means:

(1)       a merger or acquisition in which Employer is not the surviving entity, except for (a) a transaction the principal purpose of which is to change the state of Employer’s incorporation, or (b) a transaction in which Employer’s stockholders immediately prior to such transaction hold, immediately after such transaction, at least 50% of the voting power of the surviving entity;

(2)       a stockholder approved sale, transfer or other disposition of all or substantially all of the assets of Employer;

(3)       a transfer of all or substantially all of Employer’s assets pursuant to a partnership or joint venture agreement or similar arrangement where Employer’s resulting interest is less than fifty percent (50%);

(4)       any reverse merger in which Employer is the surviving entity but in which fifty percent (50%) or more of Employer’s outstanding voting stock is transferred to holders different from those who held the stock immediately prior to such merger;

(5)       on or after the date hereof, a change in ownership of Employer through an action or series of transactions, such that any person is or becomes the beneficial owner, directly or indirectly, of securities of Employer representing fifty percent (50%) or more of the voting power of Employer’s outstanding securities; or

(6)       a majority of the members of the Board of Directors are replaced during any twelve (12) month period by directors whose appointment or election is not endorsed by a majority of the members of the Board of the Directors prior to the date of such appointment of election.

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Notwithstanding the foregoing, the transactions effected pursuant to, or required by, that certain Agreement and Plan of Merger and Reorganization, dated as of April 4, 2005, by and between Employer, Red Acquisition Corporation, the wholly-owned subsidiary of Employer and Company, shall not constitute a Change in Control.”

k.       Section 6.1., Confidential Information , is amended by deleting the first sentence and replacing it with the following sentence:

“Employee agrees not to disclose to any others, or take or use for Employee’s own purposes or purposes of any others, during the term of this Agreement or at any time thereafter, any of Employer’s Confidential Information (as defined below).”

l.       All restrictions placed upon Employee in Section 6., Proprietary Information; Confidentiality , of the Agreement with respect to “Confidential Information” shall be deemed to apply to Confidential Information of the Employer and Employer’s direct or indirect subsidiaries.

2.       Affirmation . In order to induce each other to enter into this First Amendment, the parties hereby confirm that all terms and provisions of the Agreement have been and continue to be in all respects in full force and effect, and no violation of the terms and conditions of the Agreement has occurred.

3.       Effective Date; Assignment and Assumption . This First Amendment shall become effective only upon the Effective Time. Effective immediately from and after the Effective Time, (i) all of Company’s right, title and interest in and to the Agreement, as amended by this First Amendment, shall be deemed to have been assigned, granted, bargained, transferred, conveyed, set over and delivered unto Employer, and (ii) Employer shall be deemed to have assumed the Agreement, as amended by this First Amendment, and shall faithfully and timely discharge and perform each and every obligation of Company arising under the Agreement, as amended by this First Amendment.

4.       Modification; Interpretation . Except as expressly set forth in this First Amendment, this First Amendment shall not alter, amend, or otherwise modify the terms and provisions of the Agreement. From and after the Effective Time, all references in the Agreement to “the Agreement,” “this Agreement” or any similar reference shall refer to the Agreement as amended by this First Amendment. From and after the Effective Time, all references in the Agreement to “Employer,” or any similar reference shall refer to NutraCea, a California corporation. Capitalized terms not otherwise defined herein shall have the respective meanings ascribed to them in the Agreement or the Merger Agreement.

5.       Approval by Company’s Board of Directors . Company hereby represents that its Board of Directors has duly approved the terms of this First Amendment.


[ The Remainder of this Page is Intentionally Left Blank -- Signature Page Follows ]

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IN WITNESS WHEREOF, the parties have executed this First Amendment as of the date first set forth above.

NUTRACEA
     
         
By:
/s/ Brad Edson
     
Name:
Brad Edson
     
Title:
President
 
/s/Ike E. Lynch
 
     
IKE E. LYNCH
 
         
THE RICEX COMPANY
     
         
By:
/s/ Todd Crow
     
Name:
Todd Crow
     
Title:
CFO
     
 
6
 
[*] designates portions of this document that have been omitted pursuant to a request
for confidential treatment filed seperately with the Commission
 
Exhibit 10.18
PRODUCTION FACILITY
DEVELOPMENT AND RICE BRAN
SUPPLY AND PURCHASE AGREEMENT

This Production Facility Development and Rice Bran Supply Agreement (" Agreement ") is entered into effective as of September 13, 2005 (“ Effective Date ”) by and between NutraCea, a California corporation with a principal mailing address at 1261 Hawk’s Flight Court, El Dorado Hills, California 95762 (" NutraCea "), Food Trading Company Dominicana, S.A., a Dominican corporation with principal mailing address at Calle Manuel de Jesus Troncoso No. 18, Ensanche Paraiso, Santo Domingo, Dominican Republic (“ FTCD ”). The parties, as of the Effective Date, agree as follows:

1.
Background and Purpose .

1.1.         NutraCea . NutraCea is a nutritional foods company that develops proprietary and patented nutraceutical products for human and animal consumption. NutraCea recently entered into an agreement to combine with The RiceX Corporation (“ RiceX ”). The combined companies posses proprietary technology to stabilize rice bran and an additional process that converts and enhances stabilized rice bran into proprietary value-added products. This proprietary technology and other proprietary processes owned by NutraCea and RiceX allow for Stabilized Rice Bran (as defined in Section 2.1) to be processed into fiber and predigested fiber (“ Solubles ”).

1.2.         Food Trading Company Dominicana . FTCD owns and operates a substantial rice milling operation located in the Dominican Republic currently producing approximately 20,000 metric tons of rice annually (“ FTCD Mill ”). FTCD is in the process of acquiring another substantial rice mill that operates in the Dominican Republic. Upon completion of the acquisition FTCD has represented to NutraCea that FTCD will have combined milling facilities processing approximately twenty percent (20%) of the country’s production, equating to approximately 50,000-60,000 metric tons per year. FTCD currently purchases 20,000 metric tons of rice from the United States. FTCD has existing retail distribution through various retail outlets in the marketplace and a history of successfully producing and distributing rice-based products in the Dominican Republic.

1.3.         The Company . In order to conduct their joint business operations hereunder, the parties have agreed to form one or more entities in accordance with requirements of Section 3. The type of entity or entities to be formed will be mutually determined by the parties in a manner reasonably anticipated to minimize the tax liabilities of the parties and to allow for effective business operations in the Dominican Republic and Haiti as contemplated hereunder. The entity or entities will be owned fifty percent (50%) by NutraCea and fifty percent (50%) by FTCD, as specified in Section 3, and are collectively referred to herein as the “ Company ”).
 
1.4.         Production Facility . Both NutraCea and FTCD has agreed that NutraCea will either install stabilization equipment at the FTCD Mill and construct one or more proprietary two stage stabilization, conversion and enhancement facilities within the Dominican Republic, or construct an additional production facility or improve an existing production facility in the United States of America sufficient to fulfill its Solubles supply obligations hereunder (“ Production Facility ”). If the Production Facility is constructed in the Dominican Republic and stabilization equipment is placed at the FTCD Mill, FTCD will supply all of the required raw rice bran requested by NutraCea for the purpose of stabilization of the rice bran, all on the terms and conditions set forth herein. The parties intend that the Stabilized Rice Bran, Solubles and all value-added products produced hereunder (“ Products ”) will be sold and commercialized by the Company, through retail outlets and distributed through government sponsored feeding programs within the Dominican Republic and Haiti (“ Business ”). Initially, the Products will comprise individual servings of 15 grams of NutraCea’s Solubles mixture, with such added vitamins as the parties may mutually agree upon, mixed with water and packaged for individual consumption (“Servings”). The parties may add additional products in the future by mutual agreement and shall specify any such additional Products by executing a written amendment to this Agreement.

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2.
Stabilization Equipment and Production Facility .

2.1.         Installation of Stabilization Equipment . Unless either party, at its option and as provided in Section 2.6 below, elects to proceed with the Alternate Production Arrangement (as defined in Section 2.6) and for NutraCea to create sufficient production facilities in the United States of America to fulfill its supply obligations hereunder, NutraCea will, at its own expense, provide and install in the FTCD Mill all components and hardware (“ Equipment ”) necessary for and required in connection with stabilizing, cooling, handling, grinding, sifting and packaging of full fat stabilized rice bran and/or enhanced full fat stabilized rice bran (“ Stabilized Rice Bran ”) in a capacity to produce at least 5,000 metric tons of Stabilized Rice Bran per year. NutraCea agrees that the proper design of the Equipment requires that certain devices and systems, such as metal detectors, magnets and sifters are an integral and necessary part of the process to ensure, among other things, the purity and wholesomeness of the product, and NutraCea agrees to incorporate such components into the design of the Equipment. The parties acknowledge that NutraCea will retain all rights title and interest in the Equipment installed at the FTCD Mill and that FTCD will have no right, title or interest in or to the Equipment.   The parties acknowledge that FTCD will retain all rights, title and interest in the Land (as defined in Section 2.2 below) subject only to the lease that may be granted under Section 2.2. Upon any termination of any lease granted under Section 2.2, FTCD will own all rights, title and interest in the Land.

2.1.1.         FTCD Mill . Unless either party elects to proceed with the Alternate Production Arrangement pursuant to Section 2.6, FTCD will provide physically segregated facilities for the Equipment at the FTCD Mill of at least 5,000 square feet, and NutraCea agrees that the space occupied by the Equipment and warehouse will not exceed 5,000 square feet. FTCD will take all action necessary to make certain that the Equipment has reasonable access to sufficient electricity (including a central distribution panel near the Equipment), water, sewer and other utilities to operate and maintain the Equipment, and the Equipment will be located conveniently near existing rice bran storage and processing areas. FTCD agrees that and will ensure that NutraCea and Company employees and agents will have unrestricted access to the Equipment during all business hours and the Equipment will not be accessible by any other persons without the express prior consent of NutraCea.

2.1.2.         FTCD Assistance and Support . In connection with the installation of the Equipment, if applicable, FTCD, at no cost to NutraCea, will provide NutraCea with such reasonable engineering, labor and professional assistance in selecting and purchasing components for the Equipment and contractors to install the Equipment, as well as planning and supervising the installation and moving of the Equipment within the Dominican Republic, as NutraCea reasonably requests. FTCD will provide to NutraCea, at no cost to NutraCea, training and technical support (including, without limitation, reasonable on-site consultation) to enable NutraCea and Company to start and tune, and thereafter to efficiently and safely clean, maintain and operate the Equipment. NutraCea or its agents or the Company will from time to time make reasonable modifications and/or improvements to the Equipment in order to improve the efficiency or cost-effectiveness of cleaning, sanitizing, operating, maintaining or repairing the Equipment. The Company will pay all approved fees, costs and expenses (including, without limitation all material, labor, transportation and professional fees, costs and expenses) incurred in connection with any such modifications and/or improvements unless otherwise agreed in writing by the parties.

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2.2.         Production Facility . NutraCea and FTCD agree to construct or improve a Production Facility for processing the Stabilized Rice Bran into bulk Stabilized Rice Bran Solubles dry mixture, which the Company will combine with water and package into the Solubles Servings, and into such other Products as the parties may hereafter mutually agree upon, from time to time. Unless the Production Facility is constructed or improved under the Alternate Production Arrangement, the facility shall be constructed to comply with the requirements and specifications agreed upon by the parties and which, once agreed upon, shall be attached as Exhibit A hereto (“ Specifications ”). If NutraCea and FTCD decide to proceed with the construction of the Dominican Republic Production Facility, FTCD shall grant to NutraCea a ground lease for one United States dollar ($1.00 U.S.D.) per year for land of location and quality reasonably acceptable to NutraCea and in conformity with the development criteria established by NutraCea pursuant hereto (“ Land ”), on which the initial Production Facility shall be constructed. The ground lease shall be a ten year lease with two ten year extensions, exercisable at the election of NutraCea and FTCD, and shall be in the form and of content reasonably acceptable to the parties. FTCD shall take all action and make all arrangements necessary or useful such that the Land has all governmental approvals, zoning, and entitlements necessary or appropriate for construction of the Production Facility and its operation as contemplated hereunder. In the alternative, NutraCea and FTCD may mutually agree to assign the Lease to the Company; with a contribution value of one United States dollar ($1.00 U.S.D.) and FTCD will have the right to terminate the Lease on any dissolution of the Company.

2.2.1.         Construction . NutraCea will engage an architect to prepare plans and design concepts for the Production Facility building in the Dominican Republic (unless the parties do not proceed with a facility in the Dominican Republic). At such time as the parties decide to proceed with a Production Facility in the Dominican Republic, NutraCea agrees to commence preparation of plans and specifications for the Production Facility (“ Production Facility Plans ”) within forty-five days after the date of entering into the Lease for the Land and to complete such plans and specifications and provide a copy thereof to FTCD for submission to the appropriate governmental agencies for approval, within ninety days after such commencement. FTCD shall diligently pursue issuance of all necessary building permits and governmental approvals. Construction shall commence following delivery to NutraCea by FTCD of possession of the leasehold rights in the Land accepted by NutraCea pursuant to the Lease with all necessary governmental approvals, zoning, and entitlements for the Land and Production facility plans and pursuant to such development criteria that NutraCea or the Company will provide to FTCD, including without limitation, utilities, access and other requirements. NutraCea agrees to accept the Land, subject to NutraCea’s verification, to its reasonable satisfaction, that the Land complies with NutraCea’s development criteria, satisfaction of the other requirements set forth in Section 2.1 and compliance with all governmental requirements therefor and in accordance with all requirements set forth in the Lease.

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Within thirty days after FTCD provides the Land, then in accordance with the Production Facility Plans and applicable governmental permits and approvals, NutraCea will sublease the Lease to the Company, and agrees to commence construction of the Production Facility (subject to the right to revise the plans) and to complete the construction of the Production Facility within twenty-four months of commencement of the construction. Any prevention, delay or stoppage due to strikes, lockouts, labor disputes, acts of God, inability to obtain labor or materials or reasonable substitutes therefore, governmental restrictions, governmental regulations, governmental controls, enemy or hostile governmental action, civil commotion, fire or reasonable casualty, and other causes beyond the reasonable control of NutraCea and shall exclude the performance by NutraCea for a period equal to any such prevention, delay or stoppage.

If at any time during the term of this Agreement FTCD is not able to timely provide the Land for, or bring the utilities to, or obtain all necessary governmental permits and approvals for the Production Facility, or timely complete any necessary Off-Site Improvements (as defined below), then at the election of either NutraCea or FTCD, the parties shall proceed with the Alternate Production Arrangement or terminate this Agreement and the Lease and FTCD shall repay NutraCea for all amounts expended by NutraCea to so complete such work, plus interest (at a rate equal to the Bank of America’s reference rate, plus six percent, but not to exceed the maximum legal rate and NutraCea may deduct such amounts (as well as the amount of any other damages suffered by NutraCea) from any payments due to FTCD under this Agreement, until such amounts, plus interest, are fully reimbursed to NutraCea.

2.2.2.         Offsite Improvements . Any improvements to any adjacent property to the Leased property are required in connection with the construction of the Production Facility are referred to herein as " Off-Site Improvements ." No later than thirty days after entering into the Lease for the Land, FTCD shall provide specifications for construction and installation of all Off-Site Improvements, including, by way of example rather than limitation, widening of streets, sewer lines (including trunk sewers), gutters, curbs, storm drains, wells, and installation of necessary utilities to the Production Facility, and all other Off-Site Improvements required for compliance with applicable governmental requirements. All Off-Site Improvement plans shall be subject to the prior written approval of both FTCD and NutraCea, which approvals shall not be unreasonably withheld.

2.2.3.         Construction Contracts . FTCD shall engage, and supervise the performance of, one or more contractor for the purpose of constructing any Off-Site Improvements, so that all such improvements shall be substantially completed as necessary for the operation of the Production Facility. FTCD shall pay the development costs incurred in the construction of the Off-Site Improvements, which shall include all charges related to the Off-Site Improvements.

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2.3.         Cost Limitation . If the costs of construction of the Production Facility, including HVAC, exceed fifty United States dollars ($50 U.S.D.) per square foot (“ Upset Cost ”), then NutraCea or FTCD may elect to proceed with the Alternate Production Arrangement and to terminate the Lease. Any such election to terminate the Lease and proceed with the Altermate Production Arrangement as a result of an Upset Cost shall be null and void; however, if FTCD or NUtraCea agrees to pay the Upset Cost. NutraCea shall have the right to elect to initially construct a building of smaller square footage in connection with redesigning the building in order to attempt to reduce the cost of construction below the Upset Cost, provided however, that such building shall be reasonably sufficient for the intended operations as set forth in this agreement the production requirements hereunder.

2.4.         Operation, Maintenance and Repair . The Company will have responsibility for providing personnel to properly clean, operate and maintain the Equipment (if NutraCea elects to proceed with the construction of a Dominican Republic Production Facility) during the term of this Agreement; provided, however, that NutraCea will be responsible for promptly providing replacement parts normally used during normal operations for the Equipment. Any parts destroyed or rendered unusable by the Company’s personnel will be replaced at the expense of the Company.     The Company, with assistance from FTCD, will ensure that the maintenance, cleaning and operation of the Equipment complies with all applicable health, safety, labor, building and other codes and regulations and that the Equipment is kept in a sanitary and food grade quality condition. If either party elects to proceed with the Alternate Production Arrangement, the Company will be responsible to operate, maintain and repair the facilities necessary to convert the bulk Solubles mixture into Product Servings, including the addition of water and packaging of individual Servings.

2.5.         Approval and Consents . Unless otherwise specifically provided for herein, if any party is requested to give its approval or consent to any matter, it shall not unreasonably withhold such consent and it shall respond in writing within ten days after receipt of written request therefor from the other party, provided such request includes all information necessary to make a determination regarding such approval or consent.

2.6.         Alternate Production Arrangement . Notwithstanding any contrary provisions in the Section 2 or in any other provisions of this Agreement, either party has the right to require the production of the Solubles Mixture to occur in the United States and not to construct or to delay the construction of a Production Facility in the Dominican Republic. Both NutraCea and FTCD must agree to construct the Production Facility in the Dominican Republic. In such event NutraCea will create sufficient production facilities in the United States of America to fulfill its supply requirements to provide the bulk Product Solubles mixture to be added with water and packaged into the Product Servings by the Company, as necessary to satisfy its obligations under this Agreement, and all other terms and conditions under this Agreement will remain in effect for both parties (the “ Alternate Production Arrangement ”). Under the Alternate Production Arrangement, NutraCea will ship bulk Solubles mixture to the Company, and the Company will produce the individual Servings. FTCD will take all action necessary to comply with applicable law in the production of the Servings from the Solubles mixture. The Company will pay for all costs of shipping the Solubles mixture to the Dominican Republic. If either party elects this Alternate Production Arrangement, then the provisions of Sections 2.1 through 2.4 that are only applicable for the Dominican Republic Production Facility shall not apply. NutraCea will complete the improvements and construction necessary for the Alternate Production Arrangement Production Facility within twenty-four months of the date of this Agreement. Any prevention, delay or stoppage due to strikes, lockouts, labor disputes, acts of God, inability to obtain labor or materials or reasonable substitutes therefore, governmental restrictions, governmental regulations, governmental controls, enemy or hostile governmental action, civil commotion, fire or reasonable casualty, and other causes beyond the reasonable control of NutraCea and shall exclude the performance by NutraCea for a period equal to any such prevention, delay or stoppage.

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3.
Company Formation and Purpose .

3.1.         Company Formation and Purpose . By no later than 14 days following the Effective Date, NutraCea and FTCD agree to form the Company as one or more entities, owned equally by each of the parties. The type of entity or entities will be mutually determined by the parties in a manner reasonably anticipated to minimize the tax liabilities of the parties and to allow for effective business operations in the Dominican Republic and Haiti as contemplated hereunder. The Company will be owned initially by NutraCea and FTCD. The Company will have (a) as its registered name “Food for Life, LLC”, (b) as its purpose the distribution and marketing of the Products in the Dominican Republic and Haiti; (c) charter documents and one or more shareholder or operating agreements of form and content reasonably approved by the parties, in good faith, within 14 days after the Effective Date (“ Charter Agreements ”); and (d) the authority, in addition to such other authority granted in the Charter Agreements, to cause to be filed under the laws of any jurisdiction in which the Company intends to conduct its business any documents necessary for the Company to form any subsidiaries necessary in order to transact its business in such jurisdiction. The parties will share equally in the management and profits of the Company, except as to those items designated below. Any disbursement of funds or expenditures from the Company will require written approval of at least one authorized representative from each of NutraCea and FTCD. The Company may not operate or sell or distribute any Products outside of the Dominican Republic or Haiti without the express pior written approval of NutraCea. NutraCea shall appoint the chief financial officer of the Company, shall select the accountants to be retained by the Company, and shall control its accounting and reporting issues. The parties acknowledge that NutraCea is a public company under laws of the United States, and agree that the Company will take the appropriate actions necessary to comply with any United States reporting obligations of NutraCea. NutraCea shall have no obligation to contribute any NutraCea intellectual property to the Company and neither the Company nor FTCD will obtain any rights or interest in any intellectual property, trademarks, trade names, patents, or trade secrets of NutraCea as a result of the transactions contemplated in this Agreement unless expressly agreed to in advance and in writing by NutraCea.

3.2.         Costs and Expenses . All costs and expenses (including without limitation legal, accounting fees and expenses), and all sales, use, transfer, excise, conveyance, business, occupation, franchise and other taxes, duties, assessments, charges and fees (other than taxes on or measured by the individual net income of a party) imposed on the Company or a party by a taxing authority related to the formation of the Company shall be borne by the Company, provided however, that each party shall bear all taxes on or measured by its net income and all legal fees and expenses incurred by it in connection with the preparation of this Agreement and related agreements.

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[*] designates portions of this document that have been omitted pursuant to a request
for confidential treatment filed seperately with the Commission
 
         3.3.         Principal Address . The Company’s principal offices and place of business shall be at such location as is designated by both parties, with the reasonable approval of FTCD. The principal place of business may be changed from time to time with the written consent of NutraCea and FTCD.

4.
Initial Contributions to the Company .

4.1.         NutraCea Contributions . Unless either party elects to proceed with the Alternate Production Arrangement, NutraCea’s initial contribution to the Company shall be securing funding for the construction of the Production Facility, subject to the contributions of FTCD being met by the dates set forth herein and the construction and completion of the Production Facility as required herein. If either party elects to proceed with the Alternate Production Arrangement, NutraCea will agree to provide to the Company the Solubles mixture, including solubles, and Stabilized Rice Bran to be packaged by the Company into the Products, as required pursuant to Section 6. The first distribution of funds from the Company will be to repay any equity contributions made by either party, para-parsu. Any advances made by either party to or on behalf the Company must be approved by both parties and will be repaid before any distributions of funds from the Company.

4.2.         FTCD Contributions . FTCD’s initial contribution to the Company shall be:

(a)         The Lease for the Land to construct the Production Facility, if applicable.

(b)         One or more signed purchase agreements for sales to governmental and/or private organizations within the Dominican Republic or Haiti for the purchase of the Products packaged by the Company for a period of at least one year after the Effective Date of this Agreement in the amounts specified in Section 4.2 (c). FTCD will secure the purchase agreements no later than November 30, 2005 and represents and warrants to NutraCea, as a material term to the Agreement, that FTCD is able to obtain such purchase agreements.

(c)         during the initial two year period(years one and two) from the Effective Date, FTCD shall secure signed purchase agreements in the aggregate annual amount of at least [*] for Products Servings in the Dominican Republic, representing approximately 200,000 Servings per day, based on a price of approximately [*] per serving, but in no case less than [*] per serving. All such dollar amounts will be determined based upon the currency exchange rate for Dominican Republic pesos into United States dollars in effect as of the Effective Date and will be subject to currency exchange fluctuations occurring thereafter. FTCD will secure the initial written purchase orders no later than 45 days from the Effective Date. Until and unless the Production Facility in the Dominican Republic is completed and operational, the bulk Solubles Product mixture requirements under this Agreement shall be met by NutraCea’s United States facilities (this will occur during the entire term that either party elects to proceed with the Alternate Production Arrangement) and package the bulk Solubles in accordance with the terms of this Agreement.

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[*] designates portions of this document that have been omitted pursuant to a request
for confidential treatment filed seperately with the Commission
 
(d)          during the next two year period (years three and four), the purchase agreements in the aggregate will increase to at least [*] per month for Product, representing at least 800,000 Servings per day for approximately seventeen days per month (based on a price of approximately [*] per Serving, but in no event less than [*] per Serving).

4.4.         License Grant to Company . Upon the formation of the Company, NutraCea shall grant to the Company an exclusive license, solely in and as to the Dominican Republic and Haiti, to manufacture, if applicable, and/or package and distribute the Products. The Company shall have the right to sublicense certain of the rights granted hereunder to FTCD, as necessary to allow FTCD solely to assist the Company in the performance of its duties hereunder. The parties intend to create one or more private label brand names for the Products, which shall be owned by the Company. With the exception of these private label trade names all rights not specifically granted hereunder shall remain the property of NutraCea, and neither the Company nor FTCD shall have a license therein except as specifically granted herein.

5.
Regulatory Approvals .
 
5.1.         Regulatory Compliance . FTCD shall obtain all appropriate governmental and legal permits and consents required for: (i) the importation by NutraCea of Solubles, and Stabilized Rice Bran and the processing of the Solubles and Stabilized Rice Bran into Products by the Company during the period prior to the completion of the Production Facility, or the entire term if NutraCea or FTCD elects to proceed with the Alternate Production Arrangement; (ii) the construction of the Production Facility, if applicable; (iii) the initiation and ongoing operation of the Production Facility, if applicable and (iv) all other activities contemplated by the business of the Company. FTCD is required to obtain government wavers of import duties, taxes and fees associated with any product or equipment imported to the Dominican Republic.

5.2.         Assistance with Compliance . NutraCea shall provide FTCD with samples of the Products and Product descriptions required for the registration process. NutraCea shall provide FTCD with all reasonable assistance in obtaining the required permits and consents.

6.
Supply of Materials .
 
6.1.         Sale and Delivery of Materials . Unless NutraCea or FTCD elects to proceed with the Alternate Production Arrangement, subject to the terms and conditions hereof, FTCD hereby agrees to   sell to the Company, and the Company shall have the option to purchase from FTCD, quantities of raw rice bran that FTCD is reasonably able to deliver and required to fill orders by the Company to FTCD for Product. FTCD shall establish a credit limit for the Company’s purchases comparable to the limit established by FTCD for customers of similar creditworthiness. The purchase price of all raw rice bran so purchased by the Company, at the Company’s option, shall be established by the parties, in advance, on an annualized basis, but in no event shall it exceed the market price per quantity and term ordered for such material in the Dominican Republic. This pricing shall apply to all orders processed by FTCD during each calendar year. The weight of raw bran sold to the Company will be computed based upon the actual weight of accepted finished bran. Prior to the completion of a Production Facility in the Dominican Republic, and during the entire term that either party elects to proceed with the Alternate Production Arrangement, and subject to the terms and conditions hereof, NutraCea hereby agrees to   sell to the Company, and the Company agrees to purchase from NutraCea the Company’s requirements for Stabilized Rice Bran Isolates, including Solubles, and Stabilized Rice Bran to be processed into Products by the Company for resale as permitted herein and as required to fill orders for Product sales, which will only be permitted in the Dominican Republic and Haiti. The purchase price of all such materials purchased by the Company shall be the total cost to manufacture, assemble, and prepare such materials, including all direct and actual costs and overhead costs, with overhead costs not to exceed [*] of the raw ingredient costs.

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[*] designates portions of this document that have been omitted pursuant to a request
for confidential treatment filed seperately with the Commission
 
(a)         Taxes . The prices for the materials shall include any excise, sales, use, value added or other taxes, tariffs or duties that may be applicable to the sale of the materials.

(b)         No Withholding . Except for the withholding of taxes required by the applicable laws of the Dominican Republic, all payments by the Company shall be made free and clear of, and without reduction for, any withholding taxes. Any such taxes which are otherwise imposed on payments to FTCD and/or NutraCea shall be the responsibility of FTCD and NutraCea, as applicable. The Company shall provide FTCD and NutraCea with official receipts issued by the appropriate taxing authority or such other evidence as is reasonably requested by FTCD or NutraCea, as applicable, to evidence all withheld taxes paid over to the government.

(c)         Transportation . Transportation costs are the responsibility of the Company. All shipments will be freight collect unless other arrangements have been previously agreed upon. Responsibility for specifying the method of shipment rests with the Company at the time an order is placed. If the Company does not specify a method, FTCD or NutraCea, as applicable, will select an appropriate carrier, subject to the approval of NutraCea.

7.         Operation of Business after Completion of Production Facility . Upon completion of the Production Facility, the Company shall retain a sufficient number of employees to operate the Production Facility, if applicable, pursuant to the license granted to the Company by NutraCea, and to mix, package, distribute and market the Products in the Dominican Republic and Haiti.

8.         Conditions to Obligations of Parties . In addition to the following requirements, this Agreement is expressly conditioned on the prior approval of the Board of Directors of NutraCea, FTCD and The RiceX Company, as required pursuant to the pending combination of NutraCea and The RiceX Company. The following conditions must be satisfied or waived by NutraCea (in its sole discretion) as conditions to the obligations of NutraCea under this Agreement:

 
8.1.
Conditions to the Obligations of NutraCea .   
 
(a)         FTCD shall have obtained executed, binding Product purchase agreements as required pursuant to Section 4.2 (b) and (c) above; and

(b)         FTCD shall have obtained all necessary or appropriate regulatory approval required pursuant to Section 5.1 above.

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9.          Competition . During the term of this Agreement, the parties agree that neither party may engage in other enterprises that compete with the business of the Company and/or compete with the current businesses conducted by each other, in the Dominican Republic or Haiti.

10.
Term; Termination .
 
10.1.     Term . The term of this Agreement shall be ten years from the Effective Date (“ Term ”), unless earlier terminated pursuant to the terms of this Agreement.
 
10.2.         Termination .   This Agreement may be terminated prior to expiration thereof without liability of the terminating party:

(i)         By either Party, at any time after the failure of the other party to make any payment due under this Agreement within ten days after notice that such payment is due, subject, however, to the force majeure provisions of Section 19, if applicable; and

(ii)         By either party, at any time after the ninetieth day after written notice to the other party of the breach by the other party of any provision contained in this Agreement, specifying the nature and extent of the breach, if within such thirty day period the specified breach has not been cured to the reasonable satisfaction of the aggrieved party.

 
11.3.
Effect of Expiration or Termination .

(a)         General .   The   expiration or termination of this Agreement shall discharge each party from the further performance of its respective obligations hereunder, but shall not release either party from liability arising before or as a result.

(b)         Confidential Information .   In addition to the foregoing, upon expiration or termination of this Agreement for any reason, each party will return to the other, and/or will provide evidence satisfactory to the other party of the destruction of' all information or records provided to such party and all copies, extracts, summaries and abstracts thereof, and thereafter will not use or disclose any such information or records for its own benefit or to the detriment of the other party.

(c)         Removal of Equipment .   Upon termination or expiration of this Agreement, NutraCea may, at its own expense, promptly remove the Equipment from the FTCD Mill, if applicable, without causing any damage to the FTCD Mill. All designs, blueprints, and components relating to the Equipment remain the sole property of NutraCea.

(d)         Survival of Covenants .   The obligations of the parties under this Section 11 and Sections 12 and 13 shall survive any expiration or termination of the Agreement.
 
12.
Allocation of Liability; Indemnification; Insurance .

12.1.     Allocation of Liability . NutraCea shall bear sole responsibility for the payment, defense of and resolution of all claims, demands or causes of action (“ Claims ”) brought by any third party relating to or arising during or as a result of the design, installation or removal of the Equipment, if the parties proceed with Dominican Republic Production Facility hereunder. FTCD shall bear sole responsibility for the payment, defense of and resolution of all Claims brought by any third party to the extent proximately resulting from the negligent operation, maintenance or repair of the Equipment by FTCD employees or contractors.

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12.2.     Indemnification .   Each party hereby agrees to indemnify, defend and hold the other party and the other's directors, officers, shareholders, members, employees and agents harmless from and against (i) any and all Claims for which the indemnifying party bears sole responsibility under Section 12.1, (ii) any breach by the indemnifying party of its warranties or obligations hereunder, or (ii) any and all Claims made by any customer of the indemnifying party, whether for breach of any sales transaction or otherwise (but excluding any Claims resulting from a breach by the other party of any matter covered by Section 12.1 above).

12.3.     Insurance .   The parties will cause the Company to carry at all times during the term of this Agreement (i) general liability insurance sufficient in scope of coverage to cover its respective liabilities under this Section 13 in the amount of at least one million United States dollars ($1,000,000 U.S.D.) per claim and in the aggregate and (ii) product liability insurance covering the Product in the amount of at least one million United States dollars ($1,000,000 U.S.D.) per claim and in the aggregate, in each case naming the both NutraCea and FTCD as an additional insured, and from time to time upon request of the other party to furnish reasonable evidence of such coverage. If the Company fails to satisfy its obligations under this Section 13.3, either party may purchase and maintain such insurance on the Company’s behalf and may add any premiums so paid to the amounts otherwise payable by the Company to that party pursuant to this Agreement.

13.
Confidentiality .

13.1.       General .   Each party agrees that during the course of performance of this Agreement, such party may receive or learn information relating to the other party, including without limitation the customers, suppliers, capacities, processes, patents, products, procedures, know-how, costs, business plans, assets or business of the other party (and which also includes all information delivered by FTCD to NutraCea under Section 4.3), and that much of such information comprises trade secrets. Each party agrees to treat all such information as confidential, and (i) to use at least the same measures and procedures to protect such information from non-permitted use or disclosure as it uses to protect its own confidential information, and (ii) not to disclose such information to anyone other than those employees involved in the administration of this Agreement that have a need to know such information. Each party further agrees not to use any such information (or permit the use thereof by any of its employees) except as expressly permitted by this Agreement, whether for its own benefit or to the detriment of the other, and not to disclose or to permit the disclosure of any such information by any person or entity under its control or influence, except to the extent that any such disclosure is required by law or by legal process, and then only after giving the other party reasonable advance notice of and an opportunity to contest the proposed disclosure.

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13.2.       FTCD Mill . All rules and regulations of FTCD regarding the FTCD Mill, including without limitation access to the FTCD Mill by anyone not employed by FTCD, visitors at the FTCD Mill or photographs taken at the FTCD Mill, as such rules and regulations may be amended from time to time during the term of this Agreement, are hereby fully incorporated by reference into this Agreement and the Company and NutraCea agree to comply with all such rules and regulations. FTCD, however, shall not unreasonably deny the Company and NutraCea personnel and their guests’ reasonable access to the facility. Access to FTCD facilities for NutraCea personnel and guests shall be limited solely to Bran Stabilization Facility and the nearest restrooms, unless previously approved and/or accompanied by FTCD management.

13.3.     Specific Enforcement . The parties agree that any breach of the provisions of this Section 13 may result in damage to the aggrieved party which is irreparable, speculative or otherwise difficult to prove, and that each party accordingly shall be entitled to injunctive relief in the event of any breach or threatened breach hereof by the other.

14.
General Provisions .
 
14.1.     Governing Law . The validity, interpretation, performance and enforcement of this Agreement shall be governed by the laws of the Dominican Republic.

14.2.       Amendment . This Agreement may be amended at any time and from time to time, but any amendment must be in writing and signed by NutraCea and FTCD.

14.3.         Notices . Any written notice to any party under this Agreement shall be deemed to have been duly given on the date of service if served personally on the party to whom notice is to be given, or on the seventh day after mailing if mailed to the party to whom notice is to be given, first class postage prepaid, return receipt requested, and addressed to the addressee at the address stated opposite his or its name below, or at the most recent address specified by written notice given to the sender by the addressee under this provision so long as at the time of mailing, the correspondence is also faxed to the recipient at the fax number also listed below:

 
NutraCea
Food Trading Company Dominicana, S.A.
 
1261 Hawk’s Flight Court
Calle Manuel de Jesus Troncoso No. 18
 
El Dorado Hills, CA 95762
Ensanche Paraiso
 
United States
Santo Domingo, Dominican Republic
 
Fax: (916) 933-7001
Attention: Juan Jose Agramonte
Attention: Bradley Edson

14.4.     Entire Agreement . This Agreement, including referenced exhibits and attachments, contains the entire agreement of the parties relating to the rights granted and obligations assumed in this Agreement. Any oral representations or modifications concerning this instrument shall be of no force or effect unless contained in a subsequent written modification entered into in accordance with the terms of this Agreement.

14.5.     Benefit; Assignment . This Agreement shall be binding upon the parties and their respective successors and assigns and shall inure to the benefit of the parties and their respective successors and permitted assigns. No party may assign nay of its rights or delegate any of its duties under this Agreement without the prior written consent of the other party and any assignment or delegation of this Agreement by either party without the prior written consent of the other party shall be void. In no event shall either party assign any of its rights or delegate any of its duties under this Agreement to any person other than a transferee of its interests pursuant to the Operating Agreement.

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14.6.       No Third Party Beneficiaries . This provisions of this Agreement are intended to bind each party to the other party and, except for the Company, are not intended to create and do not create any rights in any other person, including without limitation , any employee of the Company. No person or entity, other than the Company, shall be deemed to be a third party beneficiary of this Agreement.

14.7.       Severability . If a court of competent jurisdiction determines that any provision of this Agreement is invalid, unenforceable or illegal for any reason, such determination shall not affect or impair the validity, legality and enforceability of the other provisions of this Agreement which shall remain in full force and effect in the same manner and to the same extent as if the invalid, unenforceable or illegal provision had not been contained in this Agreement.

14.8.       Headings . The headings set forth in this Agreement have been inserted for convenience of reference only, shall not be considered a part of this Agreement and shall not limit, modify or affect in any way the meaning or interpretation of this Agreement.

14.9.       Waiver . No waiver of any provision of this Agreement shall be binding upon a party unless such waiver is expressly set forth in a written instrument which is executed and delivered on behalf of such party by an authorized representative of such party. Such waiver shall be effective only to the extent specifically set froth in such written instrument. Neither the exercise (from time to time and at any time) by a party of, noir the delay or failure (at any time or for any period of time) to exercise, any right, power or remedy shall constitute a waiver of the right to exercise, or impair, limit or restrict the exercise of, such right, power or remedy or any other right, power or remedy at any time and from time to time thereafter. No waiver of any right, power or remedy of a party shall be deemed to be a waiver of any other right, power or remedy of such party or shall, except to the extent so waived, impair, limit or restrict the exercise of such right, power or remedy.

14.10.     Counterparts . This Agreement may be signed in any number of counterparts, each of which (when executed and delivered) shall constitute an original instrument, but all of which together shall constitute one and the same instrument.

14.11.     Language . This Agreement shall be written and construed in the English language.

15.
Disputes; Arbitration; Waiver of Bond .

15.1.         Arbitration . Any and all claims, disputes or controversies arising under, out of, or in connection with this Agreement or with operation of the Company, which have not been resolved by good faith negotiations between NutraCea and FTCD, shall be resolved by timely final and binding arbitration under the Rules of Arbitration of the International Chamber of Commerce. Any arbitration proceedings initiated by FTCD shall be held and take place in Sacramento, California. Any arbitration proceedings initiated by NutraCea shall be held and take place in Santo Domingo, Dominican Republic.

- 13 -

15.2.       Arbitrators . The arbitrators shall include one nominee to be selected by NutraCea and one selected by FTCD, and a third nominee to be jointly selected by the two nominees. In the event the respective nominees are unable to jointly select such third nominee within thirty days after they each make their own nomination, then the parties shall request the International Chamber of Commerce to designate the third arbitrator.

15.3         Judicatum Solvi Bond . In the event that there should arise any dispute between the parties regarding the terms of the present Agreement and other Agreements related to the present transaction, FTCD formally and expressly waives requesting NutraCea or any assignee of the latter, from the requirement of providing a bond as a transient foreign plaintiff, as established by Article 16 of the Civil Code and articles 166 and 167 of the Code of Civil Procedure, both of the Dominican Republic.

16.         No Joint Venture or Partnership; No Reference to Agreement or Relationship . Nothing in this Agreement shall be construed to create a partnership or joint venture of any kind or for any purpose between the parties hereto, or to constitute either party a special or general agent of the other, and neither party will act or represent otherwise to any third party. Neither party shall refer to this Agreement, to the other party or the relationship between the parties in any communication with any third party without the prior written consent of the other party.

17.         Disclaimer of Warranties . NOTWITHSTANDING ANYTHING CONTAINED IN THIS AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND TO THE OTHER, WHETHER EXPRESS OR IMPLIED (INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS OF PRODUCTS FOR A PARTICULAR PURPOSE), WITH RESPECT TO ANY RAW RICE BRAN OR PRODUCTS SOLD UNDER THIS AGREEMENT, except as expressly provided herein and that all raw rice bran will be pre-cleaned and freshly milled and sold in accordance with applicable law. The terms of any purchase order used or submitted in purchasing raw rice bran or the Products shall, except for the amount thereof purchased, be inapplicable and the provisions of this Agreement shall govern all such transactions.

18.         Limitation of Liability . Not withstanding anything contained in Section 12 or elsewhere in this Agreement, neither party shall be liable to the other, whether in tort, in contract or otherwise, and whether directly or by way of indemnification, contribution or otherwise, for any incidental, consequential, punitive or exemplary damages, (including without limitation lost profits or revenues or injury to business or business reputation), whether of the other party or of any third party, relating to or arising out of Products delivered under this Agreement or the sale of any Products.

19.         Force Majeure . Neither party shall be responsible for any delays in processing of any Product ordered on account of strikes, blackouts, floods, droughts, riots, epidemics, fire, governmental regulation, acts of God or other causes beyond its control.

20.       Severability . In case any provision of this Agreement shall be declared invalid, illegal or unenforceable in any jurisdiction, such provision shall be deemed stricken from this Agreement as to that jurisdiction only, and the validity, legality and enforceability of this Agreement or of any of its provisions in such jurisdiction or in any other jurisdiction shall not otherwise be affected

- 14 -

NUTRACEA
 
FOOD TRADING COMPANY DOMINICANA, S.A.
 
       
       
/s/ Bradley D. Edson
 
/s/ Juan Jose Agramonte Rincon
 
By: Bradley D. Edson
 
By: Juan Jose Agramonte Rincon
 
Title:President
 
Title: Chief Executive Officer
 
       

- 15 -
 
EXHIBIT A
Specifications



[No specifications attached.]
  -16 -
 
[*] designates portions of this document that have been omitted pursuant to a request
for confidential treatment filed seperately with the Commission
ASSIGNMENT OF INTERESTS
Exhibit 10.19
 
This Assignment of Interests (“ Assignment ”) is entered into by and between NutraCea, a California corporation with principal offices at 1261 Hawk’s Flight Court, El Dorado Hills, CA 95762 (“ NutraCea ”), NutraGlo Incorporated, a Nevada corporation with principal address at _________________ (“ NutraGlo ”), NaturalGlo Specialty Products, LLC, a Delaware limited liability company with principal address at 2711 Centerville Road, Suite 400, Wilmington, DE 19808 (“ LLC ”) and W.F. Young, Inc., a Massachusetts corporation with principal address at 302 Benton Drive, East Longmeadow, MA 01028-5990 (“ W.F. Young ”). The parties agree as of April 12, 2005 (“ Effective Date ”) as follows:


1.         Background and Purpose . Pursuant to a “ Distribution Agreement ” entered into on May 1, 2001 by and between NutraCea, W.F. Young and Wolcott Farms, Inc.(“ Wolcott ”) and subsequently modified pursuant to the Technology Agreement, as defined below, W.F. Young obtained exclusive worldwide marketing rights to Flex+ and Flx+ products for the equine markets on such terms as defined in the Distribution Agreement (“ Equine Flex+ ”). W.F. Young formed the LLC with the intent that it later would be jointly owned by W.F. Young and Wolcott. However, a limited liability company agreement between W.F. Young and Wolcott was neither entered nor adopted for the LLC. W.F. Young’s capital contribution to the LLC is in the amount of [*] . W.F. Young wishes to transfer to NutraGlo all rights obtained by W.F. Young pursuant to Sections 3.1 and 3.2 of the Technology Agreement entered into by and between NutraCea, W.F. Young and Wolcott dated September 18, 2003 (“ Technology Agreement ”). To the fullest extent permissible by law, the LLC wishes to transfer to NutraGlo its right, title and interest to certain patent/technology rights that (i) are currently held by the LLC, and/or (ii) may be obtained by the LLC pursuant to the Technology Agreement upon the occurrence of a specified merger transaction and upon the patent issuance.

2.         Transfer of Technology Agreement Rights . To the fullest extent permitted by applicable law, W.F. Young hereby transfers to NutraCea all rights, powers and authority granted to or obtained by W.F. Young pursuant to Sections 3.1 and 3.2 of the Technology Agreement.

3.
Transfer of Technology Rights Held by LLC; Indemnification .

3.1         Transfer of Technology . To the fullest extent permissible, the LLC shall transfer to NutraGlo all of its right, title and interest in any and all rights, including without limitation, future or contingent rights to technology specified in the Technology Agreement obtained or that may be obtained by the LLC pursuant to Sections 2.3, 3.1 and 3.2 and any other provision of the Technology Agreement (“ Technology ”).

1
 
[*] designates portions of this document that have been omitted pursuant to a request
for confidential treatment filed seperately with the Commission
 
3.2         Failure to Transfer Technology; Indemnification . In the event that the LLC is unable to complete the transfer of the Technology, W.F. Young agrees to use its best efforts to resolve the matter as soon as reasonably practical and will not take any actions inconsistent with the requests or wishes of NutraGlo with respect to such Technology. In reliance on the representations and warranties by W.F. Young contained herein, NutraGlo agrees to indemnify and hold W.F. Young and its respective officers, directors, employees, affiliates, shareholders and agents, and each of their respective heirs, personal representatives, successors and assigns (" Indemnified Parties "), harmless from, against and in respect of any and all losses, costs, expenses (including without limitation, reasonable attorneys' fees and disbursements of counsel), liabilities, damages (excluding incidental, consequential or punitive damages), fines, penalties, charges, assessments, judgments, settlements, claims, causes of action and other obligations of any nature whatsoever (individually, a " Loss " and collectively, " Losses ") that any of them may at any time, directly or indirectly, suffer, sustain, incur or become subject to, to the extent arising out of, based upon or resulting from or on account of W.F. Young’s compliance with Section 3.1. Notwithstanding the foregoing, any Loss or aggregate Losses to be indemnified shall not exceed [*] (“ Maximum NutraGlo Indemnity ”). In the event that the Maximum NutraGlo Indemnity is exceeded, NutraGlo and W.F. Young shall equally share all costs that exceed the Maximum NutraGlo Indemnity and NutraGlo and W.F. Young shall each be entitled to exercise joint and equal control over the defense, settlement and expenditure of costs for any such matter for which indemnity under this section is required. In the event the parties are unable to agree on how to proceed in any claim or proceeding, the dispute shall be settled by arbitration conducted by one (1) arbitrator pursuant to the rules of the American Arbitration Association.
 
3.3         Decline to Exercise Option . Without in any manner limiting any other provision herein, W.F. Young agrees not to exercise the options set forth in Sections 3.1 and/or 3.2 of the Technology Agreement with respect to the Technology and, to the fullest extent permissible by law, waives any rights to exercise such options.

4.
Payments .

4.1         Payments to W.F. Young . In consideration for the transfer of rights set forth in Section 2, NutraCea shall issue to W.F. Young and W.F. Young shall receive the number of shares of NutraCea restricted common stock determined by [*] (“ W.F. Young Consideration Shares ”). NutraCea shall deliver the W.F. Young Consideration Shares to W.F. Young within fourteen (14) days of the Effective Date.

4.2         Payment to LLC . In consideration for the transfer of rights set forth in Section 3, NutraGlo shall cause NutraCea to issue to the LLC and the LLC shall receive the number of shares of NutraCea restricted common stock determined by [*] (“ LLC Consideration Shares ”). NutraCea shall deliver the LLC Consideration Shares to the LLC within fourteen (14) business days of the Effective Date.

5.
Representations and Warranties .

5.1         Representations and Warranties of W.F. Young . W.F. Young represents and warrants to NutraCea as follows:

(a)         Organization and Standing . It is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts;

(b)         Power and Authority . It has the power and authority to execute, deliver and perform this Assignment and any agreement executed in connection herewith;

2

(c)         Binding Agreement . This Assignment has been duly executed and delivered by W.F. Young and is the legal, valid and binding obligation of W.F. Young, enforceable against W.F. Young in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, moratorium, reorganization, or other similar laws relating to or affecting the enforcement of creditor’s rights generally, and except of the availability of specific performance, injunctive relief or other equitable remedies as subject to the discretion of the court before which any such proceeding therefore may be brought; and

(d)         LLC . Win Wolcott, Wolcott Farms and NaturalGlo Specialty Products, a Delaware limited liability company have relinquished any and all right, title and interest, including any ownership interest, which they might have, or have had, as a member of the LLC, and any claims related thereto.

5.2         Representations and Warranties of NutraCea . NutraCea represents and warrants to W.F. Young as follows:

(a)         Organization and Standing . NutraCea is a corporation duly organized, validly existing and in good standing under the laws of the State of California. It has the power and authority to own and lease the properties now owned or leased by it and to conduct its business;

(b)         Power and Authority . It has the power and authority to execute, deliver and perform this Assignment and any agreement executed in connection herewith; and

(c)         Binding Agreement . This Assignment has been duly executed and delivered by NutraCea and is the legal, valid and binding obligation of it and enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, moratorium, reorganization or other similar laws relating to or affecting the enforcement of creditor’s rights generally and except of the availability of specific performance, injunctive relived or other equitable remedies as subject to the discretion of the court before which any such proceeding therefore may be brought.

6.
Miscellaneous Provisions .

6.1         Governing Law . This Assignment shall be governed by the laws of the State of New York, notwithstanding its conflict of law principles. The parties agree that any dispute hereunder shall be settled by arbitration in New York, New York, pursuant to the rules of the American Arbitration Association. Any arbitration ruling issued pursuant to this section may be enforced in any court of competent jurisdiction.

6.2         Entire Agreement . This Assignment, along with any and all documents expressly referred to and incorporated herein constitutes the entire agreement between the parties regarding the assignment of the rights from W.F. Young and the LLC to NutraCea and NutraGlo as set forth herein, all oral agreements regarding such assignment being merged herein, and supersedes all prior representations made by any of the parties hereto with regard to such assignment. There are no representations, agreements, arrangements, or understandings, oral or written, between or among the parties relating to the subject matter of this Assignment that are not fully expressed in this Assignment or the other agreements referenced herein.

3

6.3         Modification . The provisions of this Assignment may not be modified at any time unless agreed to in writing by all parties.

6.4         Waiver . Any of the terms or conditions of this Assignment may be waived at any time by the party entitled to the benefit thereof, but no such waiver shall affect or impair the right of the waiving party to require observance, performance or satisfaction either of that term or condition as it applies on a subsequent occasion or of any other term or condition.

6.5         Assignment . This Assignment shall not be assigned by any party without the prior written consent of the other parties. Any assignment contrary to the provisions of this Assignment shall be deemed a default under this Assignment, allowing the nondefaulting parties to exercise all remedies available under law.

6.6         Successors . Subject to the provisions otherwise contained in this Assignment, this Assignment shall inure to the benefit of and be binding on the successors and assigns of the respective parties.

6.7       No Third Party Beneficiaries . Nothing in this Assignment, whether express or implied, is intended to confer any rights or remedies under or by reason of this Assignment on any persons other than the parties to it and their respective successors and assigns, nor is anything in this Assignment intended to relieve or discharge the obligation or liability of any third persons to any party to this Assignment, nor shall any provision give any third persons any right of subrogation or action against any party to this Assignment.

6.8         Notices . Any notice under this Assignment shall be in writing, and any written notice or other document shall be deemed to have been duly given (a) on the date of personal service on the other party, (b) on the third business day after mailing, if the document is mailed by registered or certified mail, or (c) one day after being sent by professional or overnight courier or messenger service guaranteeing one-day delivery, with receipt confirmed by the courier. Any such notice shall be delivered or addressed to the other party at the addresses set forth above or at the most recent address specified by the addressee through written notice under this provision. Failure to give notice in accordance with any of the foregoing methods shall not defeat the effectiveness of notice actually received by the addressee.

6.9         Attorneys’ Fees . If the services of an attorney are required by any party to secure the performance of this Assignment or otherwise upon the breach or default of one or more parties to this Assignment, or if any judicial remedy or arbitration is necessary to enforce or interpret any provision of this Assignment or the rights and duties of any person in relation thereto, the prevailing party shall be entitled to reasonable attorneys' fees, costs and other expenses, in addition to any other relief to which such party may be entitled.

4

6.10         Counterparts . This Assignment may be executed in any number of counterparts with the same effect as if the parties had all signed the same document. All counterparts shall be construed together and shall constitute one agreement.

6.11         Captions . All paragraph captions are for reference only and shall not be considered in construing this Assignment.

6.12         Severability . If any provision of this Assignment is held by a court of competent jurisdiction to be invalid or unenforceable, the remainder of the Assignment which can be given effect without the invalid provision shall continue in full force and effect and shall in no way be impaired or invalidated.

 
 
[SIGNATURE PAGE TO FOLLOW]
 
5

IN WITNESS WHEREOF, the parties have executed this Assignment as of the Effective Date.
 
 
NUTRACEA
 
W.F. YOUNG, INC.
 
a California corporation
 
a Massachusetts corporation
 
       
       
/s/ Bradley D. Edson
 
/s/ Adam D. Raczkowski
 
By: Bradley D. Edson
 
By: Adam D. Raczkowski
 
Title: President
 
Title: Executive VP and COO
 
       
       
NUTRAGLO INCORPORATED
 
NATURALGLO SPECIALTY PRODUCTS
 
a Nevada corporation
 
a Delaware limited liability company
 
       
       
/s/ Bradley D. Edson
 
/s/ Adam D. Raczkowski
 
By: Bradley D. Edson
 
By: Adam D. Raczkowski
 
Title: Authorized Agent
 
Title: Authorized Agent/Treasurer
 


 


[SIGNATURE PAGE TO ASSIGNMENT OF INTEREST]
6
 
[*] designates portions of this document that have been omitted pursuant to a request
for confidential treatment filed seperately with the Commission
 
DISTRIBUTION AGREEMENT
Exhibit 10.20
 
[*]
 
This Distribution Agreement (Right of First Offer and Right of First Refusal) (“ Agreement ”) is entered into by and between NutraCea, a California corporation with principal offices at 1261 Hawk’s Flight Court, El Dorado Hills, CA 95762 and W.F. Young, Inc., a Massachusetts corporation with principal address at 302 Benton Drive, East Longmeadow, MA 01028-5990 (“ W.F. Young ”). The parties agree as of April 12, 2005 (“ Effective Date ”) as follows:


1.         Background and Purpose . Pursuant to the letter of intent signed by the parties February 10, 2005, and in conjunction with the Assignment of Interests entered into by and between NutraCea, Nutraglo Incorporated, a Nevada corporation, NaturalGlo Specialty Products, LLC, a Delaware limited liability company, and W.F. Young, executed on the Effective Date of this Agreement (“ Assignment ”) and the Manufacturing Agreement entered into by and between NutraCea and W.F. Young on the Effective Date of this Agreement (“ Manufacturing Agreement ”, the parties wish to enter into an agreement to establish the rights and obligations of the parties as such rights relate to the manufacturing rights and the exclusive marketing and distribution rights for certain non-human supplement products, as more specifically defined herein.

2.
Definitions .

2.1         “ Cost-Plus ” means (i) [*] of NutraCea’s total costs of raw materials and manufacturing, plus (ii) [*] of NutraCea’s packaging, labeling and shipping and transportation costs to manufacture the Products.

2.2         “ Equine Flex+ ” means the equine, anti-inflammatory, stabilized rice bran food supplements/nutraceutical products known as Flex+ and Flx+, as specified on the attached Exhibit A.

2.3         “ Excluded Products ” means the products listed on the attached Exhibit B.
 
2.4         “ New Product” or “New Products ” means (i) any equine stabilized rice bran food supplements/neutraceutical product, other than Equine Flex+, and (ii) any Equine Flex+ product for the non-equine, non-human market. “New Products” expressly excludes the Equine Flex + and Excluded Products.

2.5         “ Technology ” means: (i) U.S. Patent Application No. 20030118672 entitled “Method for Treating Joint Inflammation, Pain and Loss of Mobility,” published on June 26, 2003, and assigned to NutraCea, any patents that may arise from the foregoing application, all continuations, continuations-in-part, reexamination, divisionals, reissues, and improvements thereto, and any foreign counterparts to any of the foregoing, together with the associated (ii) trade secrets, know-how, documentation and other technical information proprietary to NutraCea and related to the development of nutraceutical products containing stabilized rice bran and stabilized rice bran derivatives for use in non-human applications of such patent.

 
[*] designates portions of this document that have been omitted pursuant to a request
for confidential treatment filed seperately with the Commission
 
3.
[*]

4.
[*]

5.         Retention of Other Rights . NutraCea shall retain all rights to the human market and all other rights not specifically granted or acknowledged herein. The parties agree that the 2001 agreement (as defined in Section 11.2) shall be deemed to permit W.F. Young to utilize a “human label” (as required under applicable provisions of the Dietary Supplement Health and Education Act of 1994, as amended) in conjunction with the distribution of the Equine Flex+ product for classes of trade that service the equine industry (e.g., farm, feed, tack stores, chain pet stores and printed or online catalogs).

6.
Manufacturing Rights .

6.1.         Manufacturing Rights . NutraCea shall retain and W.F. Young hereby grants to NutraCea the exclusive rights to manufacture all New Products. The payment terms for all New Products shall be as provided in Sections 6.2 through 6.4, unless otherwise agreed in writing by the parties. In the event that NutraCea is unable to supply W.F. Young’s purchase requirements for any of the Products except in the event of Force Majeure (as defined below), NutraCea shall be responsible, within Sixty (60) days written notice from W.F. Young for obtaining replacement supply of the applicable New Products of substantially similar quality and specifications. For purposes of this Agreement, Force Majeure shall mean circumstances beyond the reasonable control of NutraCea, which prevents NutraCea from performing hereunder and shall include, but not be limited to, fires, floods, strikes, lockouts or other industrial disturbances, accidents, shipping difficulties, embargoes, inadequate supply of labor or material, war, civil commotion, riots, acts of God or of the public enemy, orders requests, regulations, recommendations or instructions of any foreign or domestic government authority. In the event that NutraCea is unable to obtain replacement New Products within such Sixty (60) day period, NutraCea shall grant to W.F. Young the non-exclusive limited license to manufacture or have manufactured the New Products that NutraCea is not able to provide to satisfy W.F. Young’s requirements only until such time as NutraCea is able to meet W.F. Young’s requirements.
 
6.2.         Product Price for New Products . NutraCea shall manufacture the New Products and upon receipt of purchase orders from W.F. Young for the Products, NutraCea shall supply the Products to W.F. Young at a Cost-Plus price, as defined above.

6.2.         Royalty for New Products . NutraCea shall be entitled to receive royalty payments from W.F. Young for each New Product equal to [*] .

2
 
[*] designates portions of this document that have been omitted pursuant to a request
for confidential treatment filed seperately with the Commission
 
 
6.3
Payment .

6.3.1        Payment for Products . Unless otherwise agreed to by the parties in writing, payment by W.F. Young to NutraCea shall be made as follows: [*] .

6.3.2        Royalty Payments . On a quarterly basis, W.F. Young shall pay to NutraCea any royalties earned hereunder within the relevant calendar quarter ending on March 31, June 30, September 30 or December 31. W.F. Young shall make such payments to NutraCea within thirty (30) days of the end of each quarter. W.F. Young shall include a royalty report with any such payment setting forth the calculation of such royalty.

6.4.      Books; Records; Review . During the term of this Agreement and for six (6) years after it terminates or expires, W.F. Young shall keep books and records sufficient for NutraCea to verify the accuracy of any royalties hereunder. No more frequent than three (3) times per year and upon at least thirty (30) days prior notice to W.F. Young, NutraCea   (or an independent certified public accountant designated by NutraCea (the “Auditors”), may audit all books and records pertaining to this Agreement, at W.F. Young’s facility during normal business hours, for the purpose of verifying the accuracy of any royalty hereunder. In the event any such audit reveals a shortfall of royalties owed to NutraCea, W.F. Young shall pay to NutraCea the amount of such shortfall within ten (10) days of the conclusion of such audit and in the event such shortfall is in excess of 15 percent (15%), W.F. Young shall reimburse NutraCea for the costs of the audit by the Auditors at the time W.F. Young pays to NutraCea the amount of any royalty shortfall. In the event the audit determines there is a decrease in the royalties owed, then NutraCea shall pay to W.F. Young the amount of the decrease within ten (10) days of the conclusion of the audit. Prior to its engagement, the Auditors shall execute and deliver a confidentiality and non-disclosure agreement containing the usual and customary provisions protecting W.F. Young.
 
7.       Representations and Warranties of W.F. Young . W.F. Young represents and warrants to NutraCea as follows:

(a)         Organization and Standing . It is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts;

(b)         Power and Authority . It has the power and authority to execute, deliver and perform this Agreement and any Agreement executed in connection herewith; and

(c)         Binding Agreement . This Agreement has been duly executed and delivered by W.F. Young and is the legal, valid and binding obligation of W.F. Young, enforceable against W.F. Young in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, moratorium, reorganization, or other similar laws relating to or affecting the enforcement of creditor’s rights generally, and except of the availability of specific performance, injunctive relief or other equitable remedies as subject to the discretion of the court before which any such proceeding therefore may be brought.

3
 
[*] designates portions of this document that have been omitted pursuant to a request
for confidential treatment filed seperately with the Commission
 
8.         Representations and Warranties of NutraCea . NutraCea represents and warrants to W.F. Young as follows:

(a)         Organization and Standing . NutraCea is a corporation duly organized, validly existing and in good standing under the laws of the State of California. It has the power and authority to own and lease the properties now owned or leased by it and to conduct its business;

(b)         Power and Authority . It has the power and authority to execute, deliver and perform this Agreement and any Agreement executed in connection herewith; and

(c)         Binding Agreement . This Agreement has been duly executed and delivered by NutraCea and is the legal, valid and binding obligation of it and enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, moratorium, reorganization or other similar laws relating to or affecting the enforcement of creditor’s rights generally and except of the availability of specific performance, injunctive relived or other equitable remedies as subject to the discretion of the court before which any such proceeding therefore may be brought.

(d)         Warranty of Products . NutraCea MAKES NO OTHER WARRANTIES OTHER THAN THOSE EXPRESSLY PROVIDED FOR HEREIN. NUTRACEA MAKES NO EXPRESS OR IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AS TO ANY PRODUCT.

9.         Non-competition . To the fullest extent permitted by law, NutraCea shall take reasonable actions reasonably acceptable to W.F. Young to prevent its customers from modifying, altering and offering for resale the Excluded Products in a manner that would have a material adverse effect on the exclusive marketing rights of W.F. Young granted hereunder or under the 2001 Agreement (as defined in Section 11.2). In addition, NutraCea shall, in a manner reasonably acceptable to W.F. Young, use its best efforts to cause its subsidiaries and affiliates to take reasonable action to prevent its customers from modifying, altering and offering for resale the Excluded Products in a manner that would have a material adverse effect on the exclusive marketing rights of W.F. Young granted hereunder or under the 2001 Agreement.

10.
Indemnification .

Each party agrees to defend, indemnify and hold harmless the other and the agents and representatives of the other party under the same terms and conditions and subject to [*] and other limitations as is provided for under section (7) of the 2001 Agreement (as defined in Section 11.2) from all claims, demands, causes of action, losses, costs, expenses (including, without limitation, reasonable attorney’s fees and costs) that the other may incur or become subject to, to the extent arising out of or based upon: (i) the breach of falsity of any representation or warranty made in this Agreement; or (ii) the breach of any covenant or agreement made by the Indemnifying Party in this Agreement.

4

11.
Term and Termination .

11.1         Term . The initial term of this Agreement shall commence on the Effective Date and continue until the later to occur of (i) three (3) years, (ii) the expiration of the 2001 Agreement as defined in Section 11.2 below and all of the New Product agreements entered into pursuant hereto (“ Initial Term ”). After the expiration of the Initial Term, this Agreement shall automatically renew for additional one (1) year terms unless earlier terminated pursuant to the terms of this Agreement.

11.2         Termination for Breach; Termination of Other Agreements . In the event of a material breach of this Agreement, the non-breaching party shall have the right to terminate this Agreement if breaching party fails to cure such breach within thirty (30) days of receipt of written notice from the non-breaching party specifying the nature of the alleged breach. This Agreement shall terminate, except to the extent provided in Section 11.1, upon any termination of the Agreement dated May 1, 2001 by and between W.F. Young, NutraGlo, Inc., Wolcott Farms, Inc. and NutraCea, formerly known as NutraStar, and as subsequently amended (“2001 Agreement”).

11.3       Mutual Termination . The parties may mutually terminate this Agreement at any time.

11.4       Effect of Termination . Upon any termination of this Agreement by either party, the Right of First Offer and Right of First Refusal shall terminate effective upon the date of termination of this Agreement. Any accrued but unpaid amounts owed to NutraCea under this Agreement by W.F. Young shall be paid to NutraCea within Thirty (30) days of the termination date of this Agreement.

12.
Confidentiality .

12.1         Confidential Information . W.F. Young and NutraCea each acknowledges that in the course of performing its duties hereunder, it shall receive Confidential Information which is valuable and proprietary to the other. Confidential Information includes without limitation written or oral information, sales figures, business plans, marketing plans, customer support materials, software or other customer support programs, customer support training or procedures and other customer support information, product plans, upgrade information, product sell-rate, illustrations, prototypes, models, whether patentable or unpatentable, trade secrets, know-how, concepts and other data, trademarks, copyrights, design features, or configuration of any kind, procedures, demonstrations, methods, processes, uses, manufacturing information, techniques, formulas, improvements, research and development data, pamphlets, books, reports or other documents, testing or inspection procedures, apparatuses, compounds, compositions, combinations, programs, software and works of authorship, whether discovered, conceived, developed, made or produced, and whether obtained directly or through inspection of any sample. The Confidential Information of each party is regarded as highly valuable and is now known publicly. Its continued value depends, in part, on retaining its confidential nature.

5

12.2         Limited Use. Each party agrees that, continuing for a period of five (5) years after disclosure of the Confidential Information, each party shall not use or disclose any Confidential Information of the other party except in the authorized performance of this Agreement, without the prior written consent of the other party. At all times each party shall treat such information as it would its own confidential or proprietary information. Each party shall limit dissemination of and access to the Confidential Information of the other the personnel to whom disclosure is necessary for the performance of such parties duties hereunder. Each party agrees that no disclosure shall be made to any of its personnel without first obtaining such person’s agreement to the terms of this Agreement.

12.3         Return of Tangible Information. Each party agrees that all tangible information and property concerning the Confidential Information shall remain the exclusive property of the other party. No documents or other data relating to such Confidential Information shall be copied or reproduced without the prior written consent of an authorized employee of the other party unless required for the performance of the first party’s duties under this Agreement. At the request of either party, and upon the expiration of the terms of this Agreement, the other party shall immediately return to the requesting party all documents and other materials containing or evidencing the Confidential Information of the requesting party, including all copies, whether electronic or hard copy and permanently erase all of such records contained on electronic or other media not so delivered.

13.
Miscellaneous Provisions .

13.1       Governing Law . This Agreement shall be governed by the laws of the State of New York, notwithstanding its conflict of law principles. The parties agree that any dispute hereunder shall be settled by arbitration in New York, New York, pursuant to the rules of the American Arbitration Association. Any arbitration ruling issued pursuant to this section may be enforced in any court of competent jurisdiction.
 
13.2       Entire Agreement . This Agreement, along with the Assignment, the Manufacturing Agreement any and all documents expressly referred to and incorporated herein constitutes the entire agreement between the parties regarding the matters contained herein, all oral agreements regarding such Agreement being merged herein, and supersedes all prior representations made by any of the parties hereto with regard to such Agreement. There are no representations, agreements, arrangements, or understandings, oral or written, between or among the parties relating to the subject matter of this Agreement that are not fully expressed in this Agreement or the other agreements referenced herein.

13.3         Modification . The provisions of this Agreement may not be modified at any time unless agreed to in writing by all parties.

13.4         Waiver . Any of the terms or conditions of this Agreement may be waived at any time by the party entitled to the benefit thereof, but no such waiver shall affect or impair the right of the waiving party to require observance, performance or satisfaction either of that term or condition as it applies on a subsequent occasion or of any other term or condition.

6

13.5         Assignment . This Agreement shall not be assigned by any party without the prior written consent of the other parties. Any assignment contrary to the provisions of this Agreement shall be deemed a default under this Agreement, allowing the nondefaulting parties to exercise all remedies available under law.

13.6       Successors . Subject to the provisions otherwise contained in this Agreement, this Agreement shall inure to the benefit of and be binding on the successors and assigns of the respective parties.

13.7         No Third Party Beneficiaries . Nothing in this Agreement, whether express or implied, is intended to confer any rights or remedies under or by reason of this Agreement on any persons other than the parties to it and their respective successors and assigns, nor is anything in this Agreement intended to relieve or discharge the obligation or liability of any third persons to any party to this Agreement, nor shall any provision give any third persons any right of subrogation or action against any party to this Agreement.

13.8       Notices . Any notice under this Agreement shall be in writing, and any written notice or other document shall be deemed to have been duly given (a) on the date of personal service on the other party, (b) on the third business day after mailing, if the document is mailed by registered or certified mail, or (c) one day after being sent by professional or overnight courier or messenger service guaranteeing one-day delivery, with receipt confirmed by the courier. Any such notice shall be delivered or addressed to the other party at the addresses set forth above or at the most recent address specified by the addressee through written notice under this provision. Failure to give notice in accordance with any of the foregoing methods shall not defeat the effectiveness of notice actually received by the addressee.

13.9         Attorneys’ Fees . If the services of an attorney are required by any party to secure the performance of this Agreement or otherwise upon the breach or default of one or more parties to this Agreement, or if any judicial remedy or arbitration is necessary to enforce or interpret any provision of this Agreement or the rights and duties of any person in relation thereto, the prevailing party shall be entitled to reasonable attorneys' fees, costs and other expenses, in addition to any other relief to which such party may be entitled.

13.10         Counterparts . This Agreement may be executed in any number of counterparts with the same effect as if the parties had all signed the same document. All counterparts shall be construed together and shall constitute one agreement.

13.11       Captions . All paragraph captions are for reference only and shall not be considered in construing this Agreement.

13.12         Severability . If any provision of this Agreement is held by a court of competent jurisdiction to be invalid or unenforceable, the remainder of the Agreement which can be given effect without the invalid provision shall continue in full force and effect and shall in no way be impaired or invalidated.

7

13.13         Publicity . Except as otherwise provided herein or required by law, no party shall originate any publication, news release or other public announcement, written or oral, whether in the public press, stockholders' reports, or otherwise, relating to this Agreement or to any related agreement hereunder, or to the performance hereunder or any such agreements, without the prior written approval of the other party, which approval shall not be unreasonably withheld.


[SIGNATURE PAGE TO FOLLOW]

8

NUTRACEA
 
a California Corporation
 
   
   
   
/s/ Bradley D. Edson
 
By: Bradley D. Edson
 
Title: President
 
   
   
W.F. YOUNG, INC.
 
a Massachusetts corporation
 
   
   
   
/s/ Adam D. Raczkowski
 
By: Adam D. Raczkowski
 
Title: Executive VP and COO
 
   
   
NUTRAGLO INCORPORATED
 
a Nevada corporation
 
   
   
   
 /s/ Bradley D. Edson
 
By: Bradley D. Edson
 
Title: Authorized Agent
 
   

[SIGNATURE PAGE TO DISTRIBUTION AGREEMENT]

9

Exhibit A
Equine Flex+

Equine Flex+ products for the equine market consist of the following, and include any other equine Flex+ product in other forms or containers, under any brand owned or licensed to W.F. Young now or in the future. Such term includes, but is not limited to, the contemplated liquid form of Equine Flex+.


Product
 
 
FLEX+ and FLX+ Powder - Equine
30 day container
60 day container
150 lbs. bulk container
 
FLEX+ and FLX+ Pellets - Equine
30 day container
60 day container
120 day container
150 lbs. bulk container
 
 
 

10
 
[*] designates portions of this document that have been omitted pursuant to a request
for confidential treatment filed seperately with the Commission
 

Exhibit B
Excluded Products
________________________________________________________________________

[*]
 
 
11

Exhibit 10.21
MANUFACTURING AGREEMENT
 
This Manufacturing Agreement (“ Agreement ”) is entered into by and between NutraCea, a California corporation with principal offices at 1261 Hawk’s Flight Court, El Dorado Hills, CA 95762 and W.F. Young, Inc., a Massachusetts corporation with principal address at 302 Benton Drive, East Longmeadow, MA 01028-5990 (“ W.F. Young ”). The parties agree as of April 13, 2005 (“ Effective Date ”) as follows:

1.         Background and Purpose . Pursuant to the letter of intent signed by the parties February 10, 2005, and in conjunction with the Assignment of Interests entered into by and between NutraCea, Nutraglo Incorporated, a Nevada corporation, NaturalGlo Specialty Products, LLC, a Delaware limited liability company, and W.F. Young, executed on the Effective Date of this Agreement and the Distribution Agreement entered into by and between NutraCea and W.F. Young on the Effective Date of this Agreement (“ Distribution Agreement ”), the parties wish to enter into an agreement to establish the rights and obligations of the parties as such rights relate to the exclusive manufacturing rights for certain non-human supplement products, as more specifically defined herein.

2.
Definitions .

2.1.         “ Equine Flex+ ” means the equine, anti-inflammatory, stabilized rice bran food supplements/nutraceutical products known as Flex+ and Flx+, as specified on the attached Exhibit A.

2.2.       ” 2001 Agreement ” means the Agreement dated May 1, 2001 by and between W.F. Young, NutraGlo, Inc., Wolcott Farms, Inc. and NutraCea, formerly known as NutraStar.

3.
Manufacturing Rights .

3.1.         Manufacturing Rights . W.F. Young hereby grants to NutraCea the exclusive worldwide rights to manufacture all of W.F. Young’s requirements for Equine Flex+ products for which NutraCea does not hold exclusive, worldwide manufacturing rights under the 2001 Agreement. The payment , term s, and price , for all such products   shall be as provided in the 2001 Agreement, unless otherwise agreed in writing by the parties. In the event that NutraCea is unable to supply W.F. Young’s purchase requirements for any of these products except in the event of Force Majeure (as defined below), NutraCea shall be responsible, within Sixty (60) days written notice from W.F. Young for obtaining replacement supply of the applicable products of substantially similar quality and specifications. For purposes of this Agreement, Force Majeure shall mean circumstances beyond the reasonable control of NutraCea, which prevents NutraCea from performing hereunder and shall include, but not be limited to, fires, floods, strikes, lockouts or other industrial disturbances, accidents, shipping difficulties, embargoes, inadequate supply of labor or material, war, civil commotion, riots, acts of God or of the public enemy, orders requests, regulations, recommendations or instructions of any foreign or domestic government authority. In the event that NutraCea is unable to obtain replacement products within such Sixty (60) day period, NutraCea shall grant to W.F. Young the non-exclusive limited license to manufacture or have manufactured such Equine Flex+ products that NutraCea is not able to provide to satisfy W.F. Young’s requirements only until such time as NutraCea is able to meet W.F. Young’s requirements. The foregoing manufacturing rights are supplemental to and in addition to NutraCea’s rights to manufacture Equine Flex+ products under the 2001 Agreement.
 
 
4.         Representations and Warranties of W.F. Young . W.F. Young represents and warrants to NutraCea as follows:

(a)       Organization and Standing . It is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts;

(b)         Power and Authority . It has the power and authority to execute, deliver and perform this Agreement and any Agreement executed in connection herewith; and

(c)         Binding Agreement . This Agreement has been duly executed and delivered by W.F. Young and is the legal, valid and binding obligation of W.F. Young, enforceable against W.F. Young in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, moratorium, reorganization, or other similar laws relating to or affecting the enforcement of creditor’s rights generally, and except of the availability of specific performance, injunctive relief or other equitable remedies as subject to the discretion of the court before which any such proceeding therefore may be brought.

5.         Representations and Warranties of NutraCea . NutraCea represents and warrants to W.F. Young as follows:

(a)         Organization and Standing . NutraCea is a corporation duly organized, validly existing and in good standing under the laws of the State of California. It has the power and authority to own and lease the properties now owned or leased by it and to conduct its business;

(b)         Power and Authority . It has the power and authority to execute, deliver and perform this Agreement and any Agreement executed in connection herewith; and

(c)       Binding Agreement . This Agreement has been duly executed and delivered by NutraCea and is the legal, valid and binding obligation of it and enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, moratorium, reorganization or other similar laws relating to or affecting the enforcement of creditor’s rights generally and except of the availability of specific performance, injunctive relived or other equitable remedies as subject to the discretion of the court before which any such proceeding therefore may be brought.

(d)         Warranty of Products . Except as provided in the 2001 Agreement, NutraCea MAKES NO OTHER WARRANTIES OTHER THAN THOSE EXPRESSLY PROVIDED FOR HEREIN. NUTRACEA MAKES NO EXPRESS OR IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AS TO ANY PRODUCT.
 
 
6.
Term and Termination .

6.1.         Term . The term of this Agreement shall commence on the Effective Date and shall expire on the expiration of the 2001 Agreement.

6.2.       Termination for Breach . Termination of Other Agreements. In the event of a material breach of this Agreement, the breaching party shall have the right to cure such breach within thirty (30) days of receipt of written notice from the non-breaching party specifying the nature of the alleged breach.
 
6.3.         Effect of Termination . Upon any termination of this Agreement, any accrued but unpaid amounts owed to NutraCea under this Agreement by W.F. Young shall be paid to NutraCea within Thirty (30) days of the termination date of this Agreement.

7.
Confidentiality .

7.1.       Confidential Information . W.F. Young and NutraCea each acknowledges that in the course of performing its duties hereunder, it shall receive Confidential Information which is valuable and proprietary to the other. Confidential Information includes without limitation written or oral information, sales figures, business plans, marketing plans, customer support materials, software or other customer support programs, customer support training or procedures and other customer support information, product plans, upgrade information, product sell-rate, illustrations, prototypes, models, whether patentable or unpatentable, trade secrets, know-how, concepts and other data, trademarks, copyrights, design features, or configuration of any kind, procedures, demonstrations, methods, processes, uses, manufacturing information, techniques, formulas, improvements, research and development data, pamphlets, books, reports or other documents, testing or inspection procedures, apparatuses, compounds, compositions, combinations, programs, software and works of authorship, whether discovered, conceived, developed, made or produced, and whether obtained directly or through inspection of any sample. The Confidential Information of each party is regarded as highly valuable and is now known publicly. Its continued value depends, in part, on retaining its confidential nature.

7.2.         Limited Use. Each party agrees that, continuing for a period of five (5) years after disclosure of the Confidential Information, each party shall not use or disclose any Confidential Information of the other party except in the authorized performance of this Agreement, without the prior written consent of the other party. At all times each party shall treat such information as it would its own confidential or proprietary information. Each party shall limit dissemination of and access to the Confidential Information of the other the personnel to whom disclosure is necessary for the performance of such parties duties hereunder. Each party agrees that no disclosure shall be made to any of its personnel without first obtaining such person’s agreement to the terms of this Agreement.

7.3.       Return of Tangible Information. Each party agrees that all tangible information and property concerning the Confidential Information shall remain the exclusive property of the other party. No documents or other data relating to such Confidential Information shall be copied or reproduced without the prior written consent of an authorized employee of the other party unless required for the performance of the first party’s duties under this Agreement. At the request of either party, and upon the expiration of the terms of this Agreement, the other party shall immediately return to the requesting party all documents and other materials containing or evidencing the Confidential Information of the requesting party, including all copies, whether electronic or hard copy and permanently erase all of such records contained on electronic or other media not so delivered.
 
 
 
8.
Miscellaneous Provisions .

8.1.     Governing Law . This Agreement shall be governed by the laws of the State of New York, notwithstanding its conflict of law principles. The parties agree that any dispute hereunder shall be settled by arbitration in New York, New York, pursuant to the rules of the American Arbitration Association. Any arbitration ruling issued pursuant to this section may be enforced in any court of competent jurisdiction.


8.2.     Entire Agreement . This Agreement, along with the 2001 Agreement and any and all documents expressly referred to and incorporated herein constitutes the entire agreement between the parties regarding the matters contained herein, all oral agreements regarding such Agreement being merged herein, and supersedes all prior representations made by any of the parties hereto with regard to such Agreement. There are no representations, agreements, arrangements, or understandings, oral or written, between or among the parties relating to the subject matter of this Agreement that are not fully expressed in this Agreement or the other agreements referenced herein.

8.3.     Modification . The provisions of this Agreement may not be modified at any time unless agreed to in writing by all parties.

8.4.          Waiver . Any of the terms or conditions of this Agreement may be waived at any time by the party entitled to the benefit thereof, but no such waiver shall affect or impair the right of the waiving party to require observance, performance or satisfaction either of that term or condition as it applies on a subsequent occasion or of any other term or condition.

8.5.     Assignment . This Agreement shall not be assigned by any party without the prior written consent of the other parties. Any assignment contrary to the provisions of this Agreement shall be deemed a default under this Agreement, allowing the nondefaulting parties to exercise all remedies available under law.

8.6.           Successors . Subject to the provisions otherwise contained in this Agreement, this Agreement shall inure to the benefit of and be binding on the successors and assigns of the respective parties.

8.7.     No Third Party Beneficiaries . Nothing in this Agreement, whether express or implied, is intended to confer any rights or remedies under or by reason of this Agreement on any persons other than the parties to it and their respective successors and assigns, nor is anything in this Agreement intended to relieve or discharge the obligation or liability of any third persons to any party to this Agreement, nor shall any provision give any third persons any right of subrogation or action against any party to this Agreement.
 
 
8.8.     Notices . Any notice under this Agreement shall be in writing, and any written notice or other document shall be deemed to have been duly given (a) on the date of personal service on the other party, (b) on the third business day after mailing, if the document is mailed by registered or certified mail, or (c) one day after being sent by professional or overnight courier or messenger service guaranteeing one-day delivery, with receipt confirmed by the courier. Any such notice shall be delivered or addressed to the other party at the addresses set forth above or at the most recent address specified by the addressee through written notice under this provision. Failure to give notice in accordance with any of the foregoing methods shall not defeat the effectiveness of notice actually received by the addressee.

8.9.           Attorneys’ Fees . If the services of an attorney are required by any party to secure the performance of this Agreement or otherwise upon the breach or default of one or more parties to this Agreement, or if any judicial remedy or arbitration is necessary to enforce or interpret any provision of this Agreement or the rights and duties of any person in relation thereto, the prevailing party shall be entitled to reasonable attorneys' fees, costs and other expenses, in addition to any other relief to which such party may be entitled.

8.10.         Counterparts . This Agreement may be executed in any number of counterparts with the same effect as if the parties had all signed the same document. All counterparts shall be construed together and shall constitute one agreement.

8.11.         Captions . All paragraph captions are for reference only and shall not be considered in construing this Agreement.

8.12.         Severability . If any provision of this Agreement is held by a court of competent jurisdiction to be invalid or unenforceable, the remainder of the Agreement which can be given effect without the invalid provision shall continue in full force and effect and shall in no way be impaired or invalidated.

8.13.         Publicity . Except as otherwise provided herein or required by law, no party shall originate any publication, news release or other public announcement, written or oral, whether in the public press, stockholders' reports, or otherwise, relating to this Agreement or to any related agreement hereunder, or to the performance hereunder or any such agreements, without the prior written approval of the other party, which approval shall not be unreasonably withheld.

[SIGNATURE PAGE TO FOLLOW]


NUTRACEA
   
a California Corporation
   
     
     
     
/s/ Bradley D. Edson
   
By: Bradley D. Edson
   
Title: President
   
     
     
W.F. YOUNG, INC.
   
a Massachusetts corporation
   
     
     
     
/s/ Adam D. Raczkowski
 
By: Adam D. Raczkowski
   
Title: Executive VP and COO
   

[SIGNATURE PAGE TO MANUFACTURING AGREEMENT]
 
 
Exhibit A
Equine Flex+
 
Equine Flex+ products for the equine market consist of the following, and include any other equine Flex+ product in other forms or containers, under any brand owned or licensed to W.F. Young now or in the future. Such term includes , without limitation, the contemplated stabilized rice bran based liquid form of Equine Flex+ .
 
 
Product
 
 
FLEX+ and FLX+ Powder - Equine
30 day container
60 day container
150 lbs. bulk container
 
FLEX+ and FLX+ Pellets - Equine
30 day container
60 day container
120 day container
150 lbs. bulk container
 
 
[*] designates portions of this document that have been omitted pursuant to a request
for confidential treatment filed seperately with the Commission
 
Exhibit 10.22
SUPPLY AND DISTRIBUTION
AGREEMENT

This Supply and Distribution Agreement (“ Agreement ”) is made to be effective as of November 4, 2005, (“ Effective Date ”) by and between NutraCea, a California corporation with principal address at 1261 Hawk’s Flight Court, El Dorado Hills, CA 95762 (“ NutraCea ”) and T. Geddes Grant, a Jamaican corporation with principal address at 109 Marcus Garvey Drive, Jamaica, W.I. The parties agree as of the Effective Date as follows:

1.
Background and Purpose .

1.1     Distributor . Distributor currently provides packaging for the Government of Jamaica for various food products. Distributor wishes to package and distribute NutraCea’s stabilized rice bran solubles products, as more specifically defined below, for a school lunch program. Distributor has adequate facilities and personnel to fully and adequately market and distribute the Product (as defined below) in the Territory.

1.2     NutraCea . NutraCea is a nutritional foods company that develops proprietary and patented nutraceutical products for human and animal consumption. NutraCea possesses proprietary technology to stabilize rice bran and an additional process to convert and enhance stabilized rice bran into proprietary products, including fiber and predigested fiber solubles. NutraCea actively promotes its products and requires an effective distribution network. NutraCea wishes to enter into the Jamaican market.

1.3     Supply of Materials and Distribution of Products . NutraCea and Distributor wish to enter into an agreement under which NutraCea will supply and Distributor will purchase raw product materials to Distributor for hydration and packaging and distribution by Distributor.

1.4     Agreement . Distributor and NutraCea desire to enter into this Agreement to establish their agreement regarding the supply and distribution of Servings of the Products in the Territory (as defined below). Distributor will purchase, distribute and market the Product Servings only in the manner specified herein.

2.       Definitions . As used herein, the following terms shall be defined in the manner set forth below:

 
2.1.
“ Minimum Purchase Requirement ” is defined in Section 5.4.

2.2.          “ Product ” means stabilized rice bran solubles that comply with all quality and other requirements customarily utilized for human consumption and as reasonably established by NutraCea from time to time, as described on Exhibit A, including, without limitation, the Product Specifications set forth therein.

2.3.     “ Product Specifications ” means the specifications, quality and consistency standards, and other Product requirements set forth on Exhibit A, attached hereto.

1

2.4.       “ Territory ” means the country of Jamaica.

2.5.       “ Servings ” means the packaged and hydrated individual Product servings produced by Distributor pursuant to the terms of this Agreement and that are approved in advance and in writing by NutraCea after specific and complete disclosure by Distributor to NutraCea of all relevant product details.

3.
Appointment

3.1.       Appointment of Distributor . Subject to the provisions of this Agreement, including but not limited to prior approval by NutraCea of the Products and Product Servings as specified in Section 5.1 below, NutraCea hereby appoints Distributor, and Distributor hereby accepts such appointment, as an independent, exclusive distributor for the sale and marketing of the Product Servings in the Territory. Distributor may market and distribute Product Servings only as set forth in this Agreement. Distributor further agrees not to distribute or market any items competitive with the Products and Servings or to distribute Products or Product Servings for sale outside of the Territory, except as expressly permitted by NutraCea pursuant to Section 3.2. This Agreement shall be exclusive so long as Distributor meets the Minimum Purchase Requirements.

3.2.       NutraCea’s Rights . NutraCea reserves the right from time to time and in its sole discretion to appoint authorized distributors of Product and hydrated individuals packaged Product for areas outside of the Territory and to distribute Product and individually packaged Product outside the Territory directly to customers, using its own personnel or independent sales representatives. Upon any termination of Distributors exclusivity, pursuant to Section 3.1 or 4.1.1, NutraCea may directly or indirectly sell and market Products and Product Servings in the Territory and may appoint distributors to do the same.

4.
Term; Termination .

4.1.       Term . The term of this Agreement shall commence upon the Effective Date and shall remain in force and effect for two (2) years, unless earlier terminated as set forth below (“ Initial Term ”).

  4.1.1.       Termination of Exclusivity . The appointment of Distributor as an exclusive distributor shall remain exclusive for so long as Distributor meets the Minimum Purchase Requirement, as defined below. In the event the Minimum Purchase Requirement is not met, Distributor immediately and with or without notice shall become a non-exclusive distributor in the Territory and NutraCea may appoint additional distributors in the Territory at its sole discretion.

4.2.     Termination. NutraCea may terminate this Agreement with ninety (90) days notice if Distributor fails to initiate good faith and commercially reasonable marketing of the Product Servings throughout the Territory within one hundred eighty (180) days of the beginning of the Effective Date.

2

4.3.       Immediate Termination . NutraCea may terminate this Agreement immediately upon the occurrence of any of the following events (i) Distributor is unable to obtain timely approval of the Product and Servings pursuant to Section 5.1 below, (ii) Distributor fails to make any payment due to NutraCea hereunder, which failure is not cured in full within ten (10) days after notice thereof from NutraCea, (iii) Distributor fails to cure any other breach of this Agreement (including failure to comply with Minimum Purchase Requirements) by Distributor within (30) days after notice thereof from NutraCea, (iv) Distributor becomes bankrupt, has a receiver appointed for it or its property, or makes an assignment for the benefit of creditors, (v) Distributor dissolves or is liquidated, or (vi) Distributor fails to satisfy the Minimum Purchase Requirement.

4.4.       Effect of Termination . Termination or expiration of this Agreement shall in no way effect the rights or liabilities of either NutraCea or Distributor arising during the period prior to such termination or expiration or release Distributor from the obligation to make any payment due and owing to NutraCea, all of which obligations, Distributor hereby agrees to fulfill and perform. The provisions of this Section 4.4 and Sections 10, 11, 12, 13, 14 and 16 shall survive expiration or any termination of this Agreement. Upon expiration or any termination of this Agreement, Distributor shall return to NutraCea all tangible materials and information of a proprietary or confidential nature disclosed to Distributor under this Agreement, and all copies thereof (including, without limitation, all electronic copies). NutraCea shall not be liable to Distributor for damages of any kind, including incidental or consequential damages, on account of the termination of this Agreement in accordance with this Section 4 even if advised of the possibility of such damages.

5.       Obligations of Distributor . In furtherance of this Agreement, Distributor shall be responsible for the following, each of which is a material obligation of Distributor hereunder:

5.1.       Regulatory Approval of Products . Distributor shall submit all appropriate applications and materials necessary to obtain regulatory approval required for the importation and sale of the Product and Product Servings in the Territory upon NutraCea’s delivery of any necessary documents for product registration and import permit application to Distributor. Distributor shall use its best efforts to obtain necessary approvals during calendar year 2005, after which this Agreement will expire at NutraCea’s option, if necessary or appropriate approvals are not obtained.

5.2.       Marketing and Advertising Products . Distributor shall apply its best efforts to sell the Product Servings in the Territory. Distributor shall advertise and otherwise promote the Product Servings in a commercially reasonable manner and shall transmit appropriate Product information and promotional materials to its customers. Distributor shall develop sales, marketing, advertising and packaging for the Product Servings for distribution in the Territory, all of which shall be subject to the reasonable approval of NutraCea.

3
 
[*] designates portions of this document that have been omitted pursuant to a request
for confidential treatment filed seperately with the Commission
 
5.3       Facilities; Conduct of Business . Distributor represents and warrants to NutraCea that it has, and will continue to maintain, the capacity, facilities and personnel necessary to perform its functions and to carry out its obligations under this Agreement and that it is ready and willing to do so. Distributor shall (i) conduct its business in a professional manner that reflects favorably on NutraCea and its Product and Product Servings, (ii) take all action necessary to prevent and avoid deceptive, misleading or unethical practices, (iii) make no false or misleading representations with regard to NutraCea or the Product Servings, (iv) not publish or participate in the publishing of any false, misleading or deceptive advertising material, and (v) make no representations, warranties or guaranties to anyone with respect to the specifications, features or capabilities of the Product or Product Servings that are inconsistent with the literature distributed by NutraCea.

5.4.     Minimum Purchase   [*] (“ Minimum Purchase Requirement ”).

5.5       Purchase Forecasts . [*] .

5.6.          Reports and Records . Distributor shall submit to NutraCea detailed monthly sales reports that shall include sales of the Product Servings (units and dollars). Distributor shall provide this report to NutraCea no later than the tenth (10th) day of the following month.

5.7.       Resale Prices . Distributor shall be free to unilaterally determine the resale prices for the Product Servings. Distributor shall, however, treat all customers equitably and shall not discriminate unlawfully among them in prices, terms or in any other manner. Distributor may not sell or market any Product or Product Servings in the United States or any area outside of the Territory, directly or indirectly, without NutraCea’s express prior written consent.

5.8.     Product Complaints . Distributor shall promptly submit to NutraCea, detailed reports of any complaints received by Distributor relating to problems with Product or Product Servings advertising .

5.9.     Notification . Distributor shall notify NutraCea in writing of any legal action, claim or proceeding involving the Product or Product Servings no later than ten (10) days after Distributor learns of such claim or proceeding.


5.11.     Legal and Regulatory Compliance . Distributor shall comply with all applicable laws and regulations in performing its duties hereunder and in any of its dealings with respect to the Product and Product Servings. Distributor shall obtain all appropriate governmental and legal permits and consents required for the importation by NutraCea of Product and the packaging and hydration necessary to create the Product Servings.

6.
Obligations of NutraCea .

6.1.       Shipping of Products . NutraCea shall use its good faith efforts to ship the Products within a reasonable amount of time after receipt of Distributor’s order for the Product. Distributor shall provide NutraCea with a list of shipping instructions. All costs of shipment shall be billed to Distributor in accordance with Section 8 below.

4

7.       Orders . All purchase orders shall be submitted by Distributor to NutraCea along with proposed shipment dates. Orders may initially be placed by telephone or facsimile, provided that a signed confirming purchase order is received in writing by NutraCea within five (5) days after a telephonic or facsimile order. Orders for delivery of Product that are intended for shipment more than six (6) months from the date of the order, will be subject to the price modifications as detailed in Section 8.1 below. Distributor acknowledges that any shipment dates indicated in NutraCea’s written acceptance of purchase orders are estimates only. Cancellation of purchase orders shall be subject in each case to NutraCeas’s prior written consent.

8.
Price; Terms of Sale .

8.1.       Price . For all Product purchased hereunder, Distributor shall pay NutraCea the amounts set forth on Exhibit B attached hereto. NutraCea may increase the price of any or all of the Product with a minimum of one hundred twenty (120) day written notice. NutraCea shall provide written notification to Distributor of all price increases. Price increases shall apply to all purchase orders received after the effective date of the price increase. Distributor shall provide NutraCea with reasonable assistance to determine the validity of price protection claims.

8.2.       Terms . All Product shall be purchased F.O.B. at NutraCea’s designated warehouse and payment made by confirmed, irrevocable letter of credit denominated in United States Dollars. NutraCea shall provide the Product to Distributor, at NutraCea’s point of shipping and risk of loss shall pass to Distributor upon delivery of Product and proper documentation to the carrier at NutraCea’s shipping point . Distributor shall pay for all costs of shipment and transportation. Distributor shall specify the method of shipment; provided, that if Distributor fails to specify a method, NutraCea shall select the appropriate carrier.

8.3.       Taxes; Whitholding . The price for each Product specified in Exhibit B does not include any excise, sales, use, value added or other taxes, tariffs or duties that may be applicable to the sale of the Product or Product Servings. All payments by Distributor shall be made free and clear of, and without reduction for, any withholding taxes. When NutraCea has the legal obligation to collect such taxes or duties, the appropriate amount may be added to Distributor’s invoice and paid by Distributor unless Distributor provides NutraCea with a valid tax exemption certificate authorized by the appropriate taxing authority. Any such taxes which are otherwise imposed on payments to NutraCea shall be the sole responsibility of Distributor. Distributor shall hold NutraCea harmless for any taxing authority or such other responsibility relative to this issue.


8.5.       No Modification by Purchase Order . All Product purchases will be on the terms and conditions specified herein. Nothing contained in any purchase order, shipping order or other document submitted by Distributor shall modify the terms of purchase.

5

9.       Product Returns . Distributor shall coordinate all Product returns in accordance with NutraCea’s standard policies then in effect. If the reason for the Product return relates to a Product defect originated from Nutracea, NutraCea will credit Distributor the actual price paid by Distributor for the defective Product. Return of defective Product or destruction of the Product in Jamaica shall be pre-authorized in writing by NutraCea.

10.     Disclaimer of Warranties . Notwithstanding anything contained in this Agreement, neither party makes any representations or warranties of any kind to the other, whether express or implied (including without limitation any implied warranty of merchantability or fitness of products for a particular purpose).

11.
Trademarks and Other Proprietary Information .

11.1.       Labeling . Distributor shall repackage and sell the Product Servings under the trade names, brands or trademarks approved by NutraCea.

11.2.       No Rights in Products, Trademarks or Copyrights . Distributor acknowledges that NutraCea owns and retains all of its trade names, trademarks and logos and all copyrights and other proprietary rights in all the Product and agrees that it will not at any time during or after the term of this Agreement assert or claim any interest in or do anything which may adversely affect the validity or enforceability of any trademark, trade name, copyright or logo belonging to or licensed to NutraCea.

11.3.       Obligation to Protect . Distributor shall use reasonable efforts to protect NutraCea’s proprietary rights and, at its own expense, shall reasonably cooperate in NutraCea’s efforts to protect its proprietary rights. Distributor shall notify NutraCea of any known or suspected breach of NutraCea’s proprietary rights that comes to Distributor’s attention.

11.4.       Confidentiality . Distributor acknowledges that in the course of performing its obligations hereunder, it will receive information which is confidential and proprietary to NutraCea. Distributor agrees not to use such information except in performance of this Agreement and not to disclose such information to third parties. All information that is given to Distributor by NutraCea that is identified as confidential, and is marked accordingly, will be treated as such, and will not be disclosed to any other party.


13.       Relationship of the Parties . Nothing contained herein shall be construed to make Distributor the agent of NutraCea or NutraCea the agent of Distributor for any purpose, except as specifically set forth herein, and neither party shall have any right whatsoever to incur any obligations on behalf of or binding upon the other party, except as specifically set forth herein. Distributor agrees that at all times it shall act as an independent contractor in accordance with the terms of this Agreement and that it shall not at any time represent orally or in writing to any person or entity that it has any right, power or authority not expressly granted by this Agreement.

6

15.
Miscellaneous .

15.1.       Governing Law . The rights and obligations of the parties and the interpretation and performance of this Agreement shall be governed by the law of California, excluding its conflict of laws rules.

15.2.       Counterparts . This Agreement may be executed in any number of counterparts with the same effect as if the parties had all signed the same document. All counterparts shall be construed together and shall constitute one agreement.

15.3.       Waiver . Any of the terms or conditions of this Agreement may be waived at any time by the party entitled to the benefit thereof, but no such waiver shall affect or impair the right of the waiving party to require observance, performance or satisfaction either of that term or condition as it applies on a subsequent occasion or of any other term or condition.

15.4.       Entire Agreement . This document constitutes the entire agreement between the parties, all oral agreements being merged herein, and supersedes all prior representations. There are no representations, agreements, arrangements, or understandings, oral or written, between or among the parties relating to the subject matter of this Agreement that are not fully expressed herein.

15.5.       Nonassignability . This Agreement shall not be assigned by any party without the prior written consent of the other. Any assignment contrary to the provisions of this Agreement shall be null and void and be deemed a default under the Agreement, allowing the nondefaulting party to exercise all remedies available under law.
 
15.6.       Notices . Any notice under this Agreement shall be in writing, and any written notice or other document shall be deemed to have been duly given (i) on the date of personal service on the parties, (ii) on the third business day after mailing, if the document is mailed by registered or certified mail, (iii) one day after being sent by professional or overnight courier or messenger service guaranteeing one-day delivery, with receipt confirmed by the courier, or (iv) on the date of transmission if sent by telegram, telex, telecopy or other means of electronic transmission resulting in written copies, with receipt confirmed. Any such notice shall be delivered or addressed to the parties at the addresses set forth below or at the most recent address specified by the addressee through written notice under this provision. Failure to conform to the requirement that mailings be done by registered or certified mail shall not defeat the effectiveness of notice actually received by the addressee.

NutraCea
1261 Hawk’s Flight Court
El Dorado Hills, CA 95762
United States
Fax: (916) 933-7001
Attention: Bradley Edson

7

15.7.       Severability . If any provision of this Agreement is held by a court of competent jurisdiction to be invalid or unenforceable, the remainder of the Agreement which can be given effect without the invalid provision shall continue in full force and effect and shall in no way be impaired or invalidated.

15.8.       Attorneys' Fees; Prejudgment Interest . If the services of an attorney are required by any party to secure the performance of this Agreement or otherwise upon the breach or default of another party to this Agreement, or if any judicial remedy or arbitration is necessary to enforce or interpret any provision of this Agreement or the rights and duties of any person in relation thereto, the prevailing party shall be entitled to reasonable attorneys' fees, costs and other expenses, in addition to any other relief to which such party may be entitled. Any award of damages following judicial remedy or arbitration as a result of the breach of this Agreement or any of its provisions shall include an award of prejudgment interest from the date of the breach at the maximum amount of interest allowed by law.

15.9.       Amendment . The provisions of this Agreement may be modified at any time by agreement of the parties. Any such agreement hereafter made shall be ineffective to modify this Agreement in any respect unless in writing and signed by the parties against whom enforcement of the modification or discharge is sought.

15.10.     Force Majeure . NutraCea shall not be responsible or liable to Distributor or its customers for any damages including without limitation, incidental and consequential damages, arising out of nonperformance or delay in performance of the terms and conditions herein due to acts of God, wars, riots, strikes, unavailability of suitable and sufficient components or materials, die or capacity or technical or weld failures and any unforeseen events beyond NutraCea’s control.

15.11.     Export or Re-Export Requirements . Distributor and NutraCea shall comply with all export laws of the United States and Jamaica. Export directly or indirectly of the Product, or goods containing the Product to any other country shall be subject to applicable laws and written consent of NutraCea. Distributor shall hold NutraCea harmless and indemnify it for any fines, penalties or other liability, (including attorney’s fees) that result from Distributor’s failure to meet these obligations.

15.12.     Arbitration. All disputes arising out of or in connection with this Agreement shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one arbitrator appointed in accordance with said rules. Arbitration shall take place in Sacramento, California USA in the event NutraCea is the non-defaulting party and in Jamaica in the event Distributor is the non-defaulting party. Any proceeding under this Section shall be conducted in the English language. The award of the arbitrator shall be final and binding on both parties. The parties agree to bind themselves to carry out the award of the arbitrator.

15.13.       Benefit; Assignment . This Agreement shall be binding upon the parties and their respective successors and assigns and shall inure to the benefit of the parties and their respective successors and permitted assigns. No party may assign nay of its rights or delegate any of its duties under this Agreement without the prior written consent of the other party and any assignment or delegation of this Agreement by either party without the prior written consent of the other party shall be void. In no event shall either party assign any of its rights or delegate any of its duties under this Agreement to any person other than a transferee of its interests pursuant to the Operating Agreement.

8

15.14.       No Third Party Beneficiaries . This provisions of this Agreement are intended to bind each party to the other party and, except for the Company, are not intended to create and do not create any rights in any other person, including without limitation , any employee of the Company. No person or entity, other than the Company, shall be deemed to be a third party beneficiary of this Agreement.

15.15.       Headings . The headings set forth in this Agreement have been inserted for convenience of reference only, shall not be considered a part of this Agreement and shall not limit, modify or affect in any way the meaning or interpretation of this Agreement.

15.16.         Language . This Agreement shall be written and construed in the English language.

15.17    Binding Agreement. This Agreement is subject to the approval of the board of NutraCea and the board of T. Geddes Grant (Distributors) Limited and the execution of a Binding Agreement.
 
         T. Geddes Grant        
 
         NUTRACEA:        
 
           
           
/s/ Michael Subratie
 
/s/ Margie Adelman
 
By
Michael Subratie
 
By:
Margie Adelman
 
Title:
Director
 
Title:
Senior V.P.
 
 
 
9
 
[*] designates portions of this document that have been omitted pursuant to a request
for confidential treatment filed seperately with the Commission
 
EXHIBIT A
Products and Quantities


[ *]
 
10
 
[*] designates portions of this document that have been omitted pursuant to a request
for confidential treatment filed seperately with the Commission
 
EXHIBIT B
Pricing
 
[*]
 
11
 
EXHIBIT C

Customer Limited Warranty


[No Customer Limited Warranty attached]
 
12

 
NUTRACEA
Exhibit 10.45

STOCK OPTION ASSUMPTION AGREEMENT
(RiceX 1997 Stock Option Plan)
Dear «Name»:

As you know, on October 4, 2005, (the “ Closing Date ”), a wholly-owned subsidiary of NutraCea, a California corporation (“ NutraCea ”), merged with and into The RiceX Company (“ RiceX ”) (the “ Merger ”). In the Merger, each outstanding option for RiceX common stock that was not terminated pursuant to either an option termination agreement or the terms of The RiceX Company 1997 Stock Option Plan (the “ Plan ”) was converted into an option to purchase NutraCea common stock. The number of NutraCea common shares subject to the converted option is equal to the product of the number of RiceX common shares formerly subject to such option multiplied by 0.76799 (rounded down to the nearest whole share). The exercise price per NutraCea common share subject to such option is equal to the exercise price provided for under the terms of such option.

On the Closing Date, you held one or more outstanding options to purchase shares of RiceX common stock granted to you under the Plan and documented with a Stock Option Agreement (collectively, as amended by the letter agreement entered into by you and RiceX, the “ Option Agreements ”) that were not subject to termination pursuant to an option termination agreement (the “ RiceX Plan Options ”). In accordance with the Merger, on the Closing Date NutraCea assumed all obligations of RiceX under the RiceX Plan Options. This Agreement evidences the assumption of the RiceX Plan Options, including the necessary adjustments to the RiceX Plan Options required by the Merger.

The table below summarizes your RiceX Plan Options immediately before and after the Merger:

 RICEX PLAN OPTIONS
 
NUTRACEA ASSUMED OPTION
Grant Date
Option
Expiration
Date
No. of Shares
of RiceX Common
Stock
Exercise Price
per share
No. of Shares
of NutraCea Common
Stock
Exercise Price
Per Share
 
<<Grant Date>>
 
 
<<Expiration Date>>
 
<<RiceX No.>>
 
$<< RiceXExPrice>>
 
<<NutraCea No.>>
 
$<< NutraCeaExPrice>>
 
<<Grant Date>>
 
 
<<Expiration Date>>
 
<< RiceX No.>>
 
$<< RiceXExPrice>>
 
<< NutraCea No.>>
 
$<< NutraCeaExPrice>>
 
<<Grant Date>>
 
 
<<Expiration Date>>
 
<< RiceX No.>>
 
$<< RiceXExPrice>>
 
<< NutraCea No.>>
 
$<< NutraCeaExPrice>>
 

Unless the context otherwise requires, any references in the Plan and the Option Agreement (i) to the “Company” or the “Corporation” means NutraCea, (ii) to “Stock,” “Common Stock” or “Shares” means shares of the common stock, no par value, of NutraCea, (iii) to the “Board of Directors” or the “Board” means the Board of Directors of NutraCea and (iv) to the “Committee” or the “Administrator” means the Compensation Committee of the NutraCea Board of Directors. All other provision s that govern either the exercise or the termination of the assumed RiceX Plan Options remain the same as set forth in your Option Agreement, and the provisions of the Option Agreement (except as expressly modified by this Agreement and the Merger) will govern and control your rights under this Agreement to purchase shares of NutraCea common stock. You understand that, without the prior written consent of NutraCea, you may not sell, pledge, hypothecate or otherwise transfer any of the shares of NutraCea Common Stock that are issuable upon exercise of your assumed RiceX Plan Options until October 4, 2008.

Upon your termination of employment with NutraCea or any of its present or future subsidiaries, you will have the limited time period specified in your Option Agreement to exercise your assumed RiceX Plan Option to the extent outstanding at the time, after which time your RiceX Plan Options will expire and NOT be exercisable for NutraCea common stock. Nothing in this Agreement or your Option Agreement interferes in any way with your rights and NutraCea’s rights, which rights are expressly reserved, to terminate your employment at any time for any reason, except to the extent expressly provided otherwise in a written agreement executed by both you and NutraCea. Any future options, if any, you may receive from NutraCea will be governed by the terms of the applicable NutraCea stock option plan, and such terms may be different from the terms of your assumed RiceX Plan Options, including, but not limited to, the time period in which you have to exercise vested options after your termination of employment.

Please sign and date this Agreement on the following page and return it promptly to NutraCea at the address below. If you have any questions regarding this Agreement or your assumed RiceX Plan Options, please contact Todd C. Crow at (916) 933-3000.

 
NutraCea
 
1261 Hawk's Flight Court
 
El Dorado Hills, CA 95762
 
Attn: Todd C. Crow
     
     
   
NUTRACEA
     
     
   
          
   
Todd C. Crow
   
Chief Financial Officer
 
2

[ACKNOWLEDGMENT PAGE FOLLOWS]

3
 
ACKNOWLEDGMENT
 
The undersigned acknowledges receipt of the foregoing Stock Option Assumption Agreement and understands that all rights and liabilities with respect to each of his or her RiceX Plan Options hereby assumed by NutraCea are as set forth in the Option Agreement, the Plan and such Stock Option Assumption Agreement.


DATED:
          
, 2005
 
          
 
       
«Employee», OPTIONEE
 
 
4


 
NUTRACEA
Exhibit 10.46

STOCK OPTION ASSUMPTION AGREEMENT
(Non-Plan Options)
Dear «Name»:

As you know, on October 4, 2005, (the “ Closing Date ”), a wholly-owned subsidiary of NutraCea, a California corporation (“ NutraCea ”), merged with and into The RiceX Company (“ RiceX ”) (the “ Merger ”). In the Merger, each outstanding option for RiceX common stock was assumed by NutraCea and converted into an option to purchase NutraCea common stock. The number of NutraCea common shares subject to the converted option is equal to the product of the number of RiceX common shares formerly subject to such option multiplied by 0.76799 (rounded down to the nearest whole share). The exercise price per NutraCea common share subject to such option is equal to the exercise price provided for under the terms of such option.
 
On the Closing Date, you held one or more outstanding options to purchase shares of RiceX common stock granted to you other than pursuant to The RiceX Company 1997 Stock Option Plan and documented with a Stock Option Agreement (collectively, as amended by the letter agreement entered into by you and RiceX, the “ Option Agreements ”) that were not subject to termination pursuant to an option termination agreement (the “ RiceX Non-Plan Options ”). In accordance with the Merger, on the Closing Date NutraCea assumed all obligations of RiceX under the RiceX Non-Plan Options. This Agreement evidences the assumption of the RiceX Non-Plan Options, including the necessary adjustments to the RiceX Non-Plan Options required by the Merger.

The table below summarizes your RiceX Non-Plan Options immediately before and after the Merger:

RICEX NON-PLAN OPTIONS
 
NUTRACEA ASSUMED OPTIONS
Grant Date
Option
Expiration
Date
No. of Shares of
RiceX Common
Stock
Exercise Price
per share
No. of Shares of
NutraCea Common
Stock
Exercise Price
Per Share
 
<<Grant Date>>
 
 
<<Expiration Date>>
 
 
<<RiceX No.>>
 
$<< RiceXExPrice>>
 
<<NutraCea No.>>
 
$<< NutraCeaExPrice>>
 
<<Grant Date>>
 
 
<<Expiration Date>>
 
<< RiceX No.>>
 
$<< RiceXExPrice>>
 
<< NutraCea No.>>
 
$<< NutraCeaExPrice>>
 
<<Grant Date>>
 
 
<<Expiration Date>>
 
<< RiceX No.>>
 
$<< RiceXExPrice>>
 
<< NutraCea No.>>
 
$<< NutraCeaExPrice>>

Unless the context otherwise requires, any references in the Option Agreement (i) to the “Company” or the “Corporation” means NutraCea, (ii) to “Stock,” “Common Stock” or “Shares” means shares of the common stock, no par value, of NutraCea, (iii) to the “Board of Directors” or the “Board” means the Board of Directors of NutraCea and (iv) to the “Committee” or the “Administrator” means the Compensation Committee of the NutraCea Board of Directors. All other provision s that govern either the exercise or the termination of the assumed RiceX Non-Plan Options remain the same as set forth in your Option Agreement, and the provisions of the Option Agreement (except as expressly modified by this Agreement and the Merger) will govern and control your rights under this Agreement to purchase shares of NutraCea common stock. You understand that, without the prior written consent of NutraCea, you may not sell, pledge, hypothecate or otherwise transfer any of the shares of NutraCea Common Stock that are issuable upon exercise of your assumed RiceX Non-Plan Options until October 4, 2008.
 

Upon your termination of employment with NutraCea or any of its present or future subsidiaries, you will have the limited time period specified in your Option Agreement to exercise your assumed RiceX Non-Plan Option to the extent outstanding at the time, after which time your RiceX Non-Plan Options will expire and NOT be exercisable for NutraCea common stock. Nothing in this Agreement or your Option Agreement interferes in any way with your rights and NutraCea’s rights, which rights are expressly reserved, to terminate your employment at any time for any reason, except to the extent expressly provided otherwise in a written agreement executed by both you and NutraCea. Any future options, if any, you may receive from NutraCea will be governed by the terms of the applicable NutraCea stock option plan, and such terms may be different from the terms of your assumed RiceX Non-Plan Options, including, but not limited to, the time period in which you have to exercise vested options after your termination of employment.

Please sign and date this Agreement on the following page and return it promptly to NutraCea at the address below. If you have any questions regarding this Agreement or your assumed RiceX Non-Plan Options, please contact Todd C. Crow at (916) 933-3000.

 
NutraCea
 
1261 Hawk's Flight Court
 
El Dorado Hills, CA 95762
 
Attn: Todd C. Crow
     
     
   
NUTRACEA
     
     
   
          
   
Todd C. Crow
   
Chief Financial Officer
 
 
 

 
[ACKNOWLEDGMENT PAGE FOLLOWS]

2
 
ACKNOWLEDGMENT

The undersigned acknowledges receipt of the foregoing Stock Option Assumption Agreement and understands that all rights and liabilities with respect to each of his or her RiceX Non-Plan Options hereby assumed by NutraCea are as set forth in the Option Agreement and such Stock Option Assumption Agreement.


DATED:
          
, 2005
 
          
 
       
«Employee», OPTIONEE
 
 
3


 
NUTRACEA
Exhibit 10.47
 
 
NOTICE OF ASSUMPTION OF RICEX OPTIONS
(RiceX 1997 Stock Option Plan)
Dear «Name»:

As you know, on October 4, 2005, (the “ Closing Date ”), a wholly-owned subsidiary of NutraCea, a California corporation (“ NutraCea ”), merged with and into The RiceX Company (“ RiceX ”) (the “ Merger ”). In the Merger, each outstanding option for RiceX common stock was converted into an option to purchase NutraCea common stock. The number of NutraCea common shares subject to the converted option is equal to the product of the number of RiceX common shares formerly subject to such option multiplied by 0.76799 (rounded down to the nearest whole share). The exercise price per NutraCea common share subject to such option is equal to the exercise price provided for under the terms of such option.

On the Closing Date, you held one or more outstanding options to purchase shares of RiceX common stock (the “ RiceX Options ”) granted to you under The RiceX Company 1997 Stock Option Plan (“ Plan ”) and documented with a Stock Option Agreement (collectively, and including any written amendments thereto, the “ Option Agreements ”). This letter confirms that as a result of the Merger, your RiceX Options are no longer exercisable for RiceX common stock. Instead, your RiceX Options are exercisable for shares of NutraCea common stock. In addition, this letter sets forth the adjustments that have been made to your assumed RiceX Options pursuant to the terms of the Merger.

The table below summarizes your RiceX Options immediately before and after the Merger:

RICEX OPTIONS
 
NUTRACEA ASSUMED OPTION
Grant Date
Option
Expiration
Date
No. of Shares
of RiceX Common
Stock
Exercise Price
per share
No. of Shares
of NutraCea Common
Stock
Exercise Price
Per Share
 
<<Grant Date>>
 
 
<<Expiration Date>>
 
<<RiceX No.>>
 
$<< RiceXExPrice>>
 
<<NutraCea No.>>
 
$<< NutraCeaExPrice>>
 
<<Grant Date>>
 
 
<<Expiration Date>>
 
<< RiceX No.>>
 
$<< RiceXExPrice>>
 
<< NutraCea No.>>
 
$<< NutraCeaExPrice>>
 
<<Grant Date>>
 
 
<<Expiration Date>>
 
<< RiceX No.>>
 
$<< RiceXExPrice>>
 
<< NutraCea No.>>
 
$<< NutraCeaExPrice>>

Unless the context otherwise requires, any references in the Plan and the Option Agreement (i) to the “Company” or the “Corporation” means NutraCea, (ii) to “Stock,” “Common Stock” or “Shares” means shares of the common stock, no par value, of NutraCea, (iii) to the “Board of Directors” or the “Board” means the Board of Directors of NutraCea and (iv) to the “Committee” or the “Administrator” means the Compensation Committee of the NutraCea Board of Directors. All other provision s that govern either the exercise or the termination of the assumed RiceX Options remain the same as set forth in your Option Agreement, and the provisions of the Option Agreement (except as expressly modified by this letter and the Merger) will govern and control your rights to purchase shares of NutraCea common stock.
 

You have the limited time period to exercise your assumed RiceX Plan Option, after which time your RiceX Options will expire and NOT be exercisable for NutraCea common stock. The time period in which you have to exercise your assumed RiceX Plan Option and the extent to which you may exercise such option is provided for in your Option Agreement and any other written agreements entered into between you and RiceX in connection with your termination from the Company. To exercise your assumed RiceX Plan Option(s) before they expire, you must send to NutraCea at the address listed on the attached Exercise Notice (i) an executed and completed Exercise Notice in the form attached as Exhibit A for each RiceX Plan Option that you intend to exercise and (ii) the full purchase price of the NutraCea common stock that you wish to acquire upon exercise of the RiceX Plan Option in accordance with the Exercise Notice.

If you have any questions regarding your assumed RiceX Options, please contact Todd C. Crow at (916) 933-3000.

 
NutraCea
 
1261 Hawk's Flight Court
 
El Dorado Hills, CA 95762
 
Attn: Todd C. Crow
     
     
   
NUTRACEA
     
     
   
          
   
Todd C. Crow
   
Chief Financial Officer
 
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EXHIBIT A

NOTICE OF EXERCISE
(For Option Holders that are Not Employees of The RiceX Company)


NUTRACEA

Address:
1261 Hawk's Flight Court
 
El Dorado Hills, CA 95762


Attn: Chief Financial Officer:

1.       Exercise of Option . Effective as of today, _________200_, _____, the undersigned (“Optionee”) hereby elects to exercise Optionee’s option (“Option”) to purchase _________ shares of the Common Stock (the “Shares”) of NutraCea, a California corporation (the “Company”), under and pursuant to the Stock Option Agreement dated ____________, ____ (the “Option Agreement”).

2.       Delivery of Payment . Optionee herewith delivers to the Company the full purchase price of the Shares, as set forth in the Option Agreement, and any and all withholding taxes due in connection with the exercise of the Option.

3.       Representations of Optionee . Optionee acknowledges that Optionee has received, read and understood the Option Agreement and the Notice of Assumption of RiceX Options that was previously delivered to Optionee and agrees to abide by and be bound by their terms and conditions.

4.       Rights as Shareholder . Until the issuance of the Shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the shares underlying the Option, notwithstanding the exercise of the Option. The Shares shall be issued to the Optionee as soon as practicable after the Option is exercised.

5.       Tax Consultation . Optionee understands that Optionee may suffer adverse tax consequences as a result of Optionee’s purchase or disposition of the Shares. Optionee represents that Optionee has consulted with any tax consultants Optionee deems advisable in connection with the purchase or disposition of the Shares and that Optionee is not relying on the Company for any tax advice.

6.       Representations of Optionee . In connection with the purchase of the Shares, Optionee represents to the Company the following:

6.1       Optionee is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Shares. Optionee is acquiring these Shares for investment for Optionee’s own account only and not with a view to, or for resale in connection with, any “distribution” thereof within the meaning of the Securities Act of 1933, as amended (the “Securities Act”).

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6.2       Optionee acknowledges and understands that the Shares constitute “restricted securities” under the Securities Act and have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Optionee’s investment intent as expressed herein. In this connection, Optionee understands that, in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable if Optionee’s representation was predicated solely upon a present intention to hold these Shares for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Shares, or for a period of one year or any other fixed period in the future. Optionee further understands that the Shares must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Optionee further acknowledges and understands that the Company is under no obligation to register the Shares. Optionee understands that the certificate evidencing the Shares will be imprinted with any legend required under applicable state securities laws.

6.3       Optionee is familiar with the provisions of 144 promulgated under the Securities Act, which, in substance, permit limited public resale of “restricted securities” acquired, directly or indirectly from the issuer thereof, in a non-public offering subject to the satisfaction of certain conditions. The Shares may be resold in certain limited circumstances subject to the provisions of Rule 144, which requires the resale to occur not less than one year after the later of the date the Shares were sold by the Company or the date the Shares were sold by an affiliate of the Company, within the meaning of Rule 144; and, in the case of acquisition of the Shares by an affiliate, or by a non-affiliate who subsequently holds the Shares less than two years, the satisfaction of the following conditions: (1) the resale is made through a broker in an unsolicited “broker’s transaction” or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934); (2) the availability of certain public information about the Company; (3) the amount of Shares being sold during any three month period not exceeding the limitations specified in Rule 144(e); and (4) the timely filing of a Form 144, if applicable.

6.4       Optionee further understands that in the event all of the applicable requirements of Rule 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rules 144 is not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rules 144 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. Optionee understands that no assurances can be given that any such other registration exemption will be available in such event.

7.       Restrictive Legends and Stop-Transfer Orders .

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7.1       Legends . Optionee understands and agrees that the Company shall cause the legend set forth below or legends substantially equivalent thereto, to be placed upon any certificate(s) evidencing ownership of the Shares together with any other legends that may be required by the Company or by state or federal securities laws:

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”) AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.

7.2       Stop-Transfer Notices . Optionee agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate “stop transfer” instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.

7.3       Refusal to Transfer . The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Exercise Notice or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred.

8.       Successors and Assigns . The Company may assign any of its rights under this Exercise Notice to single or multiple assignees, and this Exercise Notice shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Exercise Notice shall be binding upon Optionee and his or her heirs, executors, administrators, successors and assigns.

9.       Governing Law; Severability . This Exercise Notice is governed by the internal substantive laws but not the choice of law rules, of the State of California . In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, the remaining provisions shall nevertheless continue in full force and effect.


[remainder of page intentionally left blank]

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10.       Entire Agreement . The Option Agreement and the Notice of Assumption of RiceX Options that was previously delivered to Option Holder in connection with the Company’s acquisition of The RiceX Company (“Option Assumption Notice”) are incorporated herein by reference. This Exercise Notice, the Option Assumption Notice, and the Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee’s interest except by means of a writing signed by the Company and Optionee.

Submitted by:
 
Accepted by:
OPTIONEE
 
NUTRACEA
     
     
 
     
Signature
 
By
     
     
 
     
Print Name
 
Title
     
Address :
   
     
   
     
   
     
   
     
   
     
   
Date Received
 
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Spousal Consent


I acknowledge that I have read the foregoing Notice of Exercise (the “ Notice ”) and that I know its contents. I hereby consent to and approve all of the provisions of the Notice, and agree that the shares of the Common Stock of NutraCea purchased thereunder (the “ Shares ”) and any interest I may have in such Shares are subject to all the provisions of the Notice. I will take no action at any time to hinder operation of the Agreement on these Shares or any interest I may have in or to them.

     
 
     
 
Date
 
Signature of Optionee’s Spouse
 
       
   
     
 
   
Spouse’s Name typed or printed
 
       
   
     
 
   
Optionee’s Name typed or printed
 
 
 
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Exhibit 10.48
 
RESALE RESTRICTION AGREEMENT
 
THIS RESALE RESTRICTION AGREEMENT (the “ Agreement ”) is made and entered into as of October 4, 2005, by and among NutraCea, a California corporation and <Name> (“ Shareholder ”). Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Merger Agreement (as defined below). The obligations of the parties hereto shall be effective as of the Effective Time.
 
NutraCea and Shareholder agree as follows:
 
1.              Background and Purpose . NutraCea, Red Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of NutraCea (“ Merger Sub ”), and The RiceX Company, a Delaware corporation (“ RiceX ”), are parties to that certain Agreement and Plan of Merger and Reorganization (“ Merger Agreement ”) dated as of April 4, 2005, which provides for the merger (“ Merger ”) of Merger Sub into RiceX and for RiceX to thereafter be a wholly-owned subsidiary of NutraCea. Shareholder is the holder of shares of RiceX common stock and/or options to purchase shares of RiceX common stock and accordingly will receive significant consideration pursuant to the terms of the Merger Agreement. As a condition to the Merger, the Merger Agreement contemplates, among other things, that Shareholder will enter into this Resale Restriction Agreement (“ Agreement ”).
 
2.              Resale Restriction . Shareholder agrees that, without the express prior written consent of NutraCea’s Chief Executive Officer acting on behalf of NutraCea, Shareholder will not offer, sell, make any short sale of, loan, encumber, grant any option for the purchase of, or otherwise dispose of (the “ Resale Restrictions ”), any securities of the NutraCea beneficially owned or otherwise held by Shareholder as of the date of this Agreement or hereafter acquired by Shareholder (collectively, the “ Shares ”) for a period of three (3) years after the Effective Time (the “ Lock-up Period ”). The foregoing Resale Restrictions are expressly agreed to preclude the holder of the Shares from engaging in any hedging or other transaction which may lead to or result in a sale of Shares during the Lock-up Period even if such Shares would be sold by someone other than Shareholder. Such prohibited hedging or other transactions would include without limitation any short sale, any pledge or any purchase, sale or grant of any right (including without limitation any put or call option) with respect to any of the Shares. The Resale Restrictions shall apply regardless of whether Shareholder is an employee of NutraCea.
 
3.              Permitted Transfers to Family Members . Notwithstanding the provisions of Section 2 above, Shareholder may transfer (subject to the terms of any option or warrant agreement) any or all of the Shares either during Shareholder’s lifetime or on death by will or intestacy to Shareholder’s immediate family or to a trust the beneficiaries of which are exclusively Shareholder and/or a member or members of Shareholder’s immediate family; provided, however , that in any such case it shall be a condition to the transfer that the transferee execute an agreement stating that the transferee is receiving and holding the Shares subject to the provisions of this Agreement, and there shall be no further transfer of such Shares except in accordance with this Agreement. For purposes of this Agreement, “immediate family” shall mean spouse, lineal descendant, father, mother, brother or sister of the transferor.
 
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4.              Stock Transfer Instructions . Shareholder agrees and consents to the entry of stop transfer instructions with the transfer agent for NutraCea’s common stock against any transfer of shares of NutraCea’s common stock by Shareholder in contravention of the Resale Restrictions.
 
5.              Restrictive Legends . The certificates representing the Shares shall be marked with restrictive legends as follows:
 
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS UPON TRANSFER AS SET FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE CORPORATION
 
6.       Miscellaneous .
 
6.1.            Entire Agreement . This Agreement, the Merger Agreement and the documents attached thereto or hereto as exhibits constitute the entire agreement between the parties, all oral agreements being merged herein, and supersede all prior representations. There are no representations, agreements, arrangements, or understandings, oral or written, between or among the parties relating to the subject matter of this Agreement that are not fully expressed herein and therein.
 
6.2.            Amendment . This Agreement may be amended by the parties hereto at any time by execution of an instrument in writing signed on behalf of each of the parties hereto.
 
6.3.            Waiver . Any waiver of the terms or conditions of this Agreement may be waived at any time by the party entitled to the benefit thereof, but no such waiver shall affect or impair the right of the waiving party to require observance, performance or satisfaction either of that term or condition as it applies on a subsequent occasion or of any other term or condition.
 
6.4.            Nonassignability . This Agreement shall not be assigned by Shareholder without the prior written consent of NutraCea. Any assignment contrary to the provisions of this Agreement shall be deemed a default under this Agreement, allowing NutraCea to exercise all remedies available under law.
 
6.5.            Succession . Subject to the provisions otherwise contained in this Agreement, this Agreement shall inure to the benefit of and be binding on successors and assigns of the respective parties.
 
6.6.            Notices . Any notice under this Agreement shall be in writing, and any written notice or other document shall be deemed to have been duly given (i) on the date of personal service on the parties, (ii) on the third business day after mailing, if the document is mailed by registered or certified mail, (iii) one day after being sent by professional or overnight courier service or messenger service guaranteeing one-day delivery, with receipt confirmed by the courier, or (iv) on the date of transmission by telegram, telex, telecopy or other means of electronic transmission resulting in written copies, with receipt confirmed. Any such notice shall be delivered or addressed to the parties at the addresses set forth below or at the most recent address specified by the addressee through written notice under this provision. Failure to conform to the requirement that mailings be done by registered or certified mail shall not defeat the effectiveness of notice actually received by the addressee.
 
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6.7.            Attorneys’ Fees; Prejudgment Interest . If the services of an attorney are required by any party to secure the performance of this Agreement or otherwise upon the breach or default of another party to this Agreement, or if any judicial remedy or arbitration is necessary to enforce or interpret any provision of this Agreement or the rights and duties of any person in relation thereto, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and other expenses, in addition to any other relief to which such party may be entitled. Any award of damages following judicial remedy or arbitration as a result of the breach of this Agreement or any of its provisions shall include an award of prejudgment interest from the date of the breach at the maximum amount of interest allowed by law.
 
6.8.            Counterparts . This Agreement may be executed in any number of counterparts with the same effect as if the parties had all signed the same document. All counterparts shall be construed together and shall constitute one agreement.
 
6.9.            Captions . All paragraph captions are for reference only and shall not be considered in construing this Agreement.
 
6.10.          Severability . If any provision of Agreement is held by a court of competent jurisdiction to be invalid or enforceable, the remainder of the Agreement which can be given effect without the invalid provision shall continue in full force and effect and shall in no way be impaired or invalidated.
 
6.11.          Governing Law . The rights and obligations of the parties and the interpretation and performance of this Agreement shall be governed by the law of California, excluding its conflict of laws rules.
 
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.
 
NUTRACEA
 
SHAREHOLDER
     
     
Bradley Edson, President
 
<Name>
         
Address:
NutraCea
 
Address:
c/o The RiceX Company
 
1261 Hawks’ Flight Court
   
1241 Hawk’s Flight Court
 
El Dorado Hills, CA 95762
   
El Dorado Hills, California 95762
Facsimile:
(916) 933-7001
 
Facsimile:
(916) 933-3232
 
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Exhibit 10.49

RESALE RESTRICTION AGREEMENT

NUTRACEA, a California corporation (“ NutraCea ”) and [_______] (“ Shareholder ”), agree, as of September 30, 2005, as follows:

1.             Background and Purpose . NutraCea, Red Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of NutraCea (“ Merger Sub ”), and The RiceX Company, a Delaware corporation (“ RiceX ”), are parties to that certain Agreement and Plan of Merger and Reorganization (“ Merger Agreement ”) dated as of April 4, 2005, which provides for the merger (“ Merger ”) of Merger Sub into RiceX and for RiceX to thereafter be a wholly owned subsidiary of NutraCea. Pursuant to the Merger, each share of RiceX common stock will be converted into NutraCea common stock and each option to purchase RiceX common stock that is outstanding at the effective time of the Merger will be assumed by NutraCea and become an option to purchase NutraCea common stock. Shareholder is the holder of shares of RiceX common stock and/or options to purchase shares of RiceX common stock and accordingly will receive significant consideration pursuant to the terms of the Merger Agreement. In connection with the Merger, NutraCea and Shareholder desire to enter into this Resale Restriction Agreement (“ Agreement ”) on the terms set forth below. NutraCea and Shareholder shall not be required to perform their obligations under this Agreement until the effective time of the Merger.

2.             Resale Restriction . Except as set forth in Section 3 below, Shareholder agrees that, without the express prior written consent of NutraCea, Shareholder will not offer, sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of (the " Resale Restrictions "), any securities of NutraCea beneficially owned or otherwise held by Shareholder immediately following the Merger (collectively, the " Shares ") until December 31, 2007 (the " Lock-up Period "). The Resale Restrictions shall apply regardless of whether Shareholder is an employee or Director of NutraCea.

3.             Permitted Transfers . Notwithstanding the provisions of Section 2 above, Shareholder may transfer (subject to the terms of any option or warrant agreement) any or all of the Shares either during Shareholder’s lifetime or on death by will or intestacy to Shareholder’s immediate family or to a trust the beneficiaries of which are exclusively Shareholder and/or a member or members of Shareholder’s immediate family; provided, however , that in any such case it shall be a condition to the transfer that the transferee execute an agreement stating that the transferee is receiving and holding the Shares subject to the provisions of this Agreement, and there shall be no further transfer of such Shares except in accordance with this Agreement. For purposes of this Agreement, "immediate family" shall mean spouse, lineal descendant, father, mother, brother or sister of the transferor. In addition, notwithstanding the provision of Section 2 above, Shareholder may pledge or hypothecate shares of NutraCea common stock held beneficially or of record by Shareholder and Shareholder may net exercise any options or warrants that are held by Shareholder pursuant to a net exercise provision as long as 100% of the shares received pursuant to the transaction are subject to this agreement.

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4.              Stock Transfer Instructions . Shareholder agrees and consents to the entry of stop transfer instructions with the transfer agent for NutraCea’s common stock against any transfer of shares of NutraCea’s common stock by Shareholder in contravention of the Resale Restrictions.

5.              Miscellaneous .

5.1.           Entire Agreement . This Agreement constitutes the entire agreement between the parties regarding the matters contained herein, all oral agreements being merged herein, and supersede all prior representations. There are no representations, agreements, arrangements, or understandings, oral or written, between or among the parties relating to the subject matter of this Agreement that are not fully expressed herein and therein. Notwithstanding the foregoing, this Agreement shall not modify or limit any other agreement by which Shareholder is bound that restricts the transfer by Shareholder of NutraCea securities.

5.2.           Amendment . This Agreement may be amended by the parties hereto at any time by execution of an instrument in writing signed on behalf of each of the parties hereto.

5.3.            Waiver . Any waiver of the terms or conditions of this Agreement may be waived at any time by the party entitled to the benefit thereof, but no such waiver shall affect or impair the right of the waiving party to require observance, performance or satisfaction either of that term or condition as it applies on a subsequent occasion or of any other term or condition.

5.4.            Nonassignability . This Agreement shall not be assigned by Shareholder without the prior written consent of NutraCea. Any assignment contrary to the provisions of this Agreement shall be deemed a default under this Agreement, allowing NutraCea to exercise all remedies available under law.

5.5.            Succession . Subject to the provisions otherwise contained in this Agreement, this Agreement shall inure to the benefit of and be binding on successors and assigns of the respective parties.

5.6.            Notices . Any notice under this Agreement shall be in writing, and any written notice or other document shall be deemed to have been duly given (i) on the date of personal service on the parties, (ii) on the third business day after mailing, if the document is mailed by registered or certified mail, (iii) one day after being sent by professional or overnight courier service or messenger service guaranteeing one-day delivery, with receipt confirmed by the courier, or (iv) on the date of transmission by telegram, telex, telecopy or other means of electronic transmission resulting in written copies, with receipt confirmed. Any such notice shall be delivered or addressed to the parties at the addresses set forth below or at the most recent address specified by the addressee through written notice under this provision. Failure to conform to the requirement that mailings be done by registered or certified mail shall not defeat the effectiveness of notice actually received by the addressee.

5.7.            Attorneys' Fees; Prejudgment Interest . If the services of an attorney are required by any party to secure the performance of this Agreement or otherwise upon the breach or default of another party to this Agreement, or if any judicial remedy or arbitration is necessary to enforce or interpret any provision of this Agreement or the rights and duties of any person in relation thereto, the prevailing party shall be entitled to reasonable attorneys' fees, costs and other expenses, in addition to any other relief to which such party may be entitled. Any award of damages following judicial remedy or arbitration as a result of the breach of this Agreement or any of its provisions shall include an award of prejudgment interest from the date of the breach at the maximum amount of interest allowed by law.

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5.8.            Counterparts . This Agreement may be executed in any number of counterparts with the same effect as if the parties had all signed the same document. All counterparts shall be construed together and shall constitute one agreement.

5.9.            Captions . All paragraph captions are for reference only and shall not be considered in construing this Agreement.

5.10.          Severability . If any provision of Agreement is held by a court of competent jurisdiction to be invalid or enforceable, the remainder of the Agreement which can be given effect without the invalid provision shall continue in full force and effect and shall in no way be impaired or invalidated.

5.11.          Governing Law . The rights and obligations of the parties and the interpretation and performance of this Agreement shall be governed by the law of California, excluding its conflict of laws rules.


NUTRACEA
 
SHAREHOLDER
 
       
     
Bradley Edson, President
 
[________________]
         
Address
1261 Hawks’ Flight Court
 
Address:
 
 
El Dorado Hills, CA 95762
     
Facsimile:
(916) 933-7001
 
Facsimile:
(___) ___-____
 
3
Exhibit 10.50

RESALE RESTRICTION AGREEMENT

NUTRACEA, a California corporation (“ NutraCea ”) and __________ (“ Shareholder ”), agree, as of September 30, 2005, as follows:

1.             Background and Purpose . NutraCea, Red Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of NutraCea (“ Merger Sub ”), and The RiceX Company, a Delaware corporation (“ RiceX ”), are parties to that certain Agreement and Plan of Merger and Reorganization (“ Merger Agreement ”) dated as of April 4, 2005, which provides for the merger (“ Merger ”) of Merger Sub into RiceX and for RiceX to thereafter be a wholly owned subsidiary of NutraCea. Shareholder is the holder of shares of NutraCea common stock and/or warrants to purchase shares of NutraCea common stock and will receive significant benefits from the combination of NutraCea and RiceX in the Merger. In connection with the Merger, NutraCea and Shareholder desire to enter into this Resale Restriction Agreement (“ Agreement ”) on the terms set forth below. NutraCea and Shareholder shall not be required to perform their obligations under this Agreement until the effective time of the Merger.

2.             Resale Restriction . Except as set forth in Section 3 below, Shareholder agrees that, without the express prior written consent of NutraCea, Shareholder will not offer, sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of (the " Resale Restrictions "), any securities of NutraCea beneficially owned or otherwise held by Shareholder immediately following the Merger (collectively, the " Shares ") until December 31, 2007 (the " Lock-up Period "). The Resale Restrictions shall apply regardless of whether Shareholder is an employee or Director of NutraCea.

3.             Permitted Transfers . Notwithstanding the provisions of Section 2 above, Shareholder may transfer (subject to the terms of any option or warrant agreement) any or all of the Shares either during Shareholder’s lifetime or on death by will or intestacy to Shareholder’s immediate family or to a trust the beneficiaries of which are exclusively Shareholder and/or a member or members of Shareholder’s immediate family; provided, however , that in any such case it shall be a condition to the transfer that the transferee execute an agreement stating that the transferee is receiving and holding the Shares subject to the provisions of this Agreement, and there shall be no further transfer of such Shares except in accordance with this Agreement. For purposes of this Agreement, "immediate family" shall mean spouse, lineal descendant, father, mother, brother or sister of the transferor. In addition, notwithstanding the provision of Section 2 above, Shareholder may pledge or hypothecate shares of NutraCea common stock held beneficially or of record by Shareholder and Shareholder may net exercise any options or warrants that are held by Shareholder pursuant to a net exercise provision as long as 100% of the shares received pursuant to the transaction are subject to this agreement.

4.             Stock Transfer Instructions . Shareholder agrees and consents to the entry of stop transfer instructions with the transfer agent for NutraCea’s common stock against any transfer of shares of NutraCea’s common stock by Shareholder in contravention of the Resale Restrictions.

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5.             Miscellaneous .

5.1.           Entire Agreement . This Agreement constitutes the entire agreement between the parties regarding the matters contained herein, all oral agreements being merged herein, and supersede all prior representations. There are no representations, agreements, arrangements, or understandings, oral or written, between or among the parties relating to the subject matter of this Agreement that are not fully expressed herein and therein. Notwithstanding the foregoing, this Agreement shall not modify or limit any other agreement by which Shareholder is bound that restricts the transfer by Shareholder of NutraCea securities.

5.2.           Amendment . This Agreement may be amended by the parties hereto at any time by execution of an instrument in writing signed on behalf of each of the parties hereto.

5.3.           Waiver . Any waiver of the terms or conditions of this Agreement may be waived at any time by the party entitled to the benefit thereof, but no such waiver shall affect or impair the right of the waiving party to require observance, performance or satisfaction either of that term or condition as it applies on a subsequent occasion or of any other term or condition.

5.4.           Nonassignability . This Agreement shall not be assigned by Shareholder without the prior written consent of NutraCea. Any assignment contrary to the provisions of this Agreement shall be deemed a default under this Agreement, allowing NutraCea to exercise all remedies available under law.

5.5.           Succession . Subject to the provisions otherwise contained in this Agreement, this Agreement shall inure to the benefit of and be binding on successors and assigns of the respective parties.

5.6.           Notices . Any notice under this Agreement shall be in writing, and any written notice or other document shall be deemed to have been duly given (i) on the date of personal service on the parties, (ii) on the third business day after mailing, if the document is mailed by registered or certified mail, (iii) one day after being sent by professional or overnight courier service or messenger service guaranteeing one-day delivery, with receipt confirmed by the courier, or (iv) on the date of transmission by telegram, telex, telecopy or other means of electronic transmission resulting in written copies, with receipt confirmed. Any such notice shall be delivered or addressed to the parties at the addresses set forth below or at the most recent address specified by the addressee through written notice under this provision. Failure to conform to the requirement that mailings be done by registered or certified mail shall not defeat the effectiveness of notice actually received by the addressee.

5.7.           Attorneys' Fees; Prejudgment Interest . If the services of an attorney are required by any party to secure the performance of this Agreement or otherwise upon the breach or default of another party to this Agreement, or if any judicial remedy or arbitration is necessary to enforce or interpret any provision of this Agreement or the rights and duties of any person in relation thereto, the prevailing party shall be entitled to reasonable attorneys' fees, costs and other expenses, in addition to any other relief to which such party may be entitled. Any award of damages following judicial remedy or arbitration as a result of the breach of this Agreement or any of its provisions shall include an award of prejudgment interest from the date of the breach at the maximum amount of interest allowed by law.

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5.8.           Counterparts . This Agreement may be executed in any number of counterparts with the same effect as if the parties had all signed the same document. All counterparts shall be construed together and shall constitute one agreement.

5.9.           Captions . All paragraph captions are for reference only and shall not be considered in construing this Agreement.

5.10.         Severability . If any provision of Agreement is held by a court of competent jurisdiction to be invalid or enforceable, the remainder of the Agreement which can be given effect without the invalid provision shall continue in full force and effect and shall in no way be impaired or invalidated.

5.11.         Governing Law . The rights and obligations of the parties and the interpretation and performance of this Agreement shall be governed by the law of California, excluding its conflict of laws rules.


NUTRACEA
 
SHAREHOLDER
     
     
Patricia McPeak, Chief Executive Officer
 
[____________]
         
Address:
1261 Hawks’ Flight Court
 
Address:
 
 
El Dorado Hills, CA 95762
     
Facsimile:
(916) 933-7001
 
Facsimile:
(___) ___-____
 
 
3
Exhibit 21.01
 
NutraCea Subsidiaries


NutraGlo Incorporated, a Nevada corporation, 100% ownership by NutraStar Technologies Incorporated.
 
NutraStar Technologies Incorporated, a Nevada corporation, 100% ownership by NutraCea.
 
NutraStarSport, Inc., a Nevada corporation, partial ownership by NutraStar Technologies Incorporated with Chris Basio.
 
The RiceX Company, a Delaware corporation, 100% ownership by NutraCea.

RiceX Nutrients, Inc., a Montana corporation, 100% ownership by The RiceX Company.
 

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors
Nutracea and subsidiaries
El Dorado Hills, California

We hereby consent to the use in this Registration Statement on Form SB-2 our report dated February 14, 2005 relating to the financial statements as of December 31, 2004 and the two years then ended, included herein. We also consent to the reference to us under the heading "Experts" in this registration statement.


Malone & Bailey, PC
www.malone-bailey.com
Houston, Texas

November 18, 2005
 
 

Exhibit 23.2

 
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the use in this Registration Statement of Nutracea, Inc. on Form S8-2 of our report, dated March 4, 2005, with respect to the consolidated balance sheet of The RiceX Company as of December 31, 2004, and the related consolidated statements of operations, shareholders' equity and cash flows for the year then ended appearing in the Prospectus, which is part of this Registration Statement.

We also consent to the reference to our Firm under the caption "Experts" in the Prospectus.
 
 
/s/ Perry-Smith LLP
 
 
Sacramento, California
November 17, 2005
 
 

Exhibit 23.3


CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


We hereby consent to the use in the Prospectus constituting part of the Registration Statement, on Form SB-2, filed November 18, 2005 of our report dated February 20, 2004 on the consolidated balance sheet of The RiceX Company and Subsidiary as of December 31, 2003, and the related consolidated statements of operations, shareholders’ equity and cash flows for the year then ended, which appear in the Prospectus. We also consent to the reference to our Firm under the heading "Experts" in the Prospectus.
 

 
/s/ Moss Adams LLP

Moss Adams LLP
Stockton, California
November 18, 2005