As
filed
with the Securities and Exchange Commission on June 12, 2006
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
(State
or Other Jurisdiction of Incorporation or Organization)
|
|
2040
(Primary
Standard Industrial Classification Code Number)
|
|
87-0673375
(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: from time to time 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.
¨
____________________
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.
¨
____________________
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.
¨
____________________
If
delivery of the prospectus is expected to be made pursuant to Rule 434, please
check the following box.
¨
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
|
32,107,981
|
$0.985
|
$31,626,361
|
$3,384.39
|
|
|
(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 June 6,
2006.
|
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 JUNE 12, 2006.
PROSPECTUS
NutraCea
32,107,981
Shares of Common Stock
This
prospectus relates to the disposition of up to 32,107,981 shares of NutraCea
common stock or interests therein by the shareholders named in this prospectus
under the heading "Selling Security Holders". 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 June 6, 2006, the last sale price of our common stock on the
OTC Bulletin Board was $0.99 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) 933-7000.
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 5.
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 June 12, 2006.
|
|
Page
|
|
|
|
|
|
3
|
|
|
3
|
|
|
4
|
|
|
4
|
|
|
12
|
|
|
12
|
|
|
12
|
|
|
13
|
|
|
21
|
|
|
38
|
|
|
48
|
|
|
49
|
|
|
55
|
|
|
58
|
|
|
64
|
|
|
66
|
|
|
66
|
|
|
66
|
|
|
67
|
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.
SP
ECIA
L
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,” “SolublesSolution,” “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.
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 21 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.
|
|
|
|
|
|
The
Offering:
|
|
This
offering relates to the disposition of shares of our common stock,
or
interests therein, that are outstanding and shares of our common
stock
that may be acquired from time to time upon conversion of our outstanding
Series C convertible preferred stock and upon exercise of outstanding
options and warrants. The selling shareholders and the number of
shares
that may be dsposed of by each are set forth on page 58 of this
prospectus.
|
|
|
|
|
|
Shares:
|
|
32,107,981
shares of our common stock. A description of our common stock is
set forth
on page 55 of this prospectus.
|
|
|
|
|
|
Manner
of Sale:
|
|
The
selling shareholders may 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. Thise 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 description of the manner in
which
sales may be made is set forth in this prospectus beginning on page
64 of
this prospectus.
|
|
|
|
|
|
Use
of Proceeds:
|
|
We
will not receive any of the proceeds from the disposition of our
common
stock, or interest therein, 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 5 of this prospectus.
|
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 to fund future business
objectives.
While
we
believe that we have adequate cash reserves and working capital to fund current
operations, our ability to meet long term business objectives is dependent
upon
our ability to raise additional financing through public or private debt or
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 to fund our capital
expenditures. 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. Incurring additional debt may involve restrictive covenants and increased
interest costs and demand on future cash flow. Our inability to obtain
sufficient financing may require us to delay, scale back or eliminate some
or
all of our product development and marketing programs.
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
depend on limited number of customers.
During
2005, we received approximately 85% of all sales revenue from five customers
and
approximately 54% of our revenue from one customer. A loss of any of these
customers could have a material adverse effect on our revenues and results
of
operations.
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.
We
rely upon an adequate supply of raw rice bran.
All
of
our current products depend on our proprietary technology using stabilized
rice
bran, which is a by-product from milling paddy rice to white rice. Our ability
to manufacture rice bran raw materials is currently limited to the production
capability of our facility at Farmers Rice Cooperative and our single 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. The current production capacity will meet our immediate
supply needs, but that capacity may not be sufficient to meet all of our needs
for the year ahead. We have initiated an expansion of the Dillon, Montana
facility which should be completed in the first half of 2006 and have entered
into a new supply agreement in Louisiana, involving the construction of a new
facility which we anticipate will be operating by the end of the third quarter
of 2006. These facilities should meet our needs for 2006 and early 2007, but
are
not anticipated to be sufficient to meet our longer term supply needs.
Therefore, we anticipate building new facilities to meet the forecasted demand
for our products and envision we will be able to execute on this initiative.
In
the event we are unable to create additional production capacity to produce
more
stabilized rice bran products to fulfill our current and future requirements
this could materially and adversely affect our business, results from
operations, and financial condition.
We
are
pursuing other supply sources in the United States and in foreign countries
and
anticipate being able to secure alternatives and back-up sources of rice bran,
although we have not entered into any definitive agreements other than the
agreements with Farmers Rice Cooperative and Louisiana RiceMill. 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.
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;
|
|
|
·
|
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.
|
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.
Our
success depends in part on our ability to obtain patents, licenses and other
intellectual property rights for our products and
technology.
We
have
one patent entitled Methods for Treating Joint Inflammation, Pain and Loss
of
Mobility, which covers both humans and mammals
.
In
addition, our subsidiary 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, and Margie
D.
Adelman, our Secretary and Senior Vice President. Although we have written
employment 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 2006,
through May 31, the high and low sales prices of a share of NutraCea common
stock were $1.45 and $0.65, respectively. During 2005, the high and low sales
prices of a share of our common stock were $1.81 and $0.30, respectively. The
market price of a share of our common stock may continue to fluctuate in
response to a number of factors, including:
|
|
·
|
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 impairment 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 May
23, 2006, NutraCea had approximately 71,833,851 shares of common stock
outstanding, 6,126 shares of Series B preferred stock outstanding, which
preferred shares are convertible into 12,252,000 shares of our common stock,
and
17,560 shares of Series C preferred stock outstanding, which shares are
convertible into 20,658,821 shares of our common stock. Additionally, as of
May
23, 2006, options and warrants to purchase a total of 48,079,740 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 we believe reasonable to increase our working
capital, strengthen our 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.
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 and Series C 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 preferred stock remain outstanding, our preferred
shareholders will enjoy various economic rights and contractual benefits not
held by our common shareholders. Most significantly, holders of preferred stock
are entitled to a liquidation preference upon a liquidation of NutraCea, and
for
purposes of our preferred stock, a liquidation is deemed to include a merger,
acquisition, or similar transaction involving NutraCea. As a result, the holders
of our preferred stock are entitled to receive their liquidation preference
prior to any payments or distributions being made to holders of our common
stock. After payment of the liquidation preference, holders of our preferred
stock and holders of common stock share pro-rata in any remaining proceeds.
The
aggregate outstanding liquidation preferences of our Series B preferred stock
and our Series C preferred stock currently total approximately $5.875 million
and $17.56 million, respectively. Holders of our preferred stock also hold
certain preferential voting rights, including the right to approve liquidation
events and certain future financings.
Based
on
the senior rights of our 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 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 preferred stock. Based
on
the rights of the 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 our Board of Directors or remove our current
management and may be used to defeat hostile bids for control which might
provide shareholders with premiums for their shares.
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;
|
These
purchases also involve numerous risks, including:
|
|
·
|
problems
combining the purchased operations, technologies or products;
|
|
|
·
|
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.
The
Shares covered by this prospectus are being registered for the account of the
selling shareholders. We will not receive any proceeds from the disposition
of
common stock, or the interests therein, by the selling shareholders.
PRICE
RANGE OF CO
MM
ON STOCK
Our
common stock trades on the OTC Bulletin Board under the symbol “NTRC.” The
following table sets forth the high and low sales prices reported by the OTC
Bulletin Board for our common stock 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, 2006
|
|
|
|
|
|
|
Second
Quarter through May 31, 2006
|
|
$
|
1.00
|
|
$
|
1.45
|
|
|
First
Quarter
|
|
$
|
0.65
|
|
$
|
1.42
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2005
|
|
|
|
|
|
|
|
|
Fourth
Quarter
|
|
$
|
0.65
|
|
$
|
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
|
|
As
of May
23, 2006, there were approximately 268 holders of record of our common
stock.
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 and our Certificate
of
Determination, Rights and Privileges of Series C 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 and our Series C preferred stock
equal to 5% of the sales price for the Series B preferred stock and the Series
C
preferred stock. Based upon the number of shares of Series B preferred stock
and
Series C preferred stock outstanding as of May 23, 2006, the aggregate dividend
preference that our Series B and C preferred stock would be entitled to receive
prior to our paying dividends on our common stock equals $834,300.
MAN
AGE
MENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND
RESULTS OF OPERATIONS
The
following discussion on our 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 merged with The RiceX
Company (RiceX), with RiceX surviving the Merger as a wholly-owned subsidiary
of
NutraCea. 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. The stockholders of RiceX received 28,272,064
shares of NutraCea common stock in exchange for 100% of the shares of RiceX
common stock, and NutraCea assumed the outstanding RiceX options and warrants,
which became options and warrants to purchase an aggregate of 11,810,507 shares
of NutraCea common stock.
Financing
Transaction. On May 12, 2006, 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
$17,560,000. Pursuant to the Purchase Agreement, the investors purchased an
aggregate of 17,560 shares of NutraCea’s Series C 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 approximately 1,176 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 10,329,412 shares of NutraCea common stock at an exercise price
of
$1.35 per share. The warrants have a term of five years and are immediately
exercisable.
Comparison
of Results for the Years Ended December 31, 2005 and 2004
Due
to
the recent merger of NutraCea with RiceX which occurred in the fourth quarter
of
2005, the results of operations discussed below may not be comparable to future
operations of the combined entity.
Consolidated
revenues for the year ended December 31, 2005 were $5,564,000, an increase
of
$4,340,000, or 355% on a comparative basis to the year ended December 31, 2004.
The 355% increase was primarily a result of new sales in the infomercial market
of $3,012,000 which began in September 2005. We had sales in the nutraceutical
equine market of $1,071,000, sales in other nutraceutical markets of $323,000,
and technology income of $100,000 in 2005. Also contributing to our revenue
increase was fourth quarter sales included in the merger with The RiceX Company
of approximately $1,058,000. Assuming the merger with RiceX was effective for
the entire year, the unaudited pro forma condensed combined consolidated
revenues for the year ended December 31, 2005 were $8,082,000 (NutraCea 2005
revenues at $4,569,000, RiceX 2005 revenues at $3,838,000 and adjusting for
intercompany sales $325,000).
Cost
of
goods sold increased from $600,000 in 2004 to $2,878,000 in 2005 due primarily
to the significant increase in product sold in 2005. Gross margins increased
$2,062,000 to $2,686,000 in 2005, from $624,000 in 2004. This 330% increase
was
due to new sales in the infomercial market, increased sales in the equine market
and nutraceutical markets, and the addition of gross margins related to the
merger of The RiceX Company in the fourth quarter of 2005. Assuming the merger
with RiceX was effective for the entire year, the unaudited pro forma condensed
combined consolidated gross margins for the year ended December 31, 2005 were
$4,351,000 (NutraCea 2005 gross margins at $2,046,000, RiceX 2005 gross margins
at $2,305,000).
Research
and Development (R&D) expenses increased $64,000 in 2005 to $191,000 due to
increased product development costs.
Sales,
General and Administrative (SG&A) expenses increased $1,059,000 from
$1,928,000 in 2004 to $2,993,000 in 2005. The increase was mostly due to added
employee related, travel, office, commission, and other general operating
expenses resulting from the merger with RiceX.
Share-based
compensation decreased $19,487,000 from $20,998,000 in 2004 to $1,511,000 in
2005. These non-cash charges are related to issuances of common stock and common
stock warrants and options awarded in 2005 compared to 2004.
During
2004, these non-cash expenses relating to the issuance of 5.5 million restricted
shares of common stock to the Company’s former Chief Executive Officer for
services rendered and repayment of debt; the value of restricted shares and
shares covered by the Company’s S-8 registration statement issued to officers,
directors and consultants for services; and the value of options and warrants
issued to various employees and consultants. 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.
Professional
and investor relations fees decreased $138,000 from $1,122,000 in 2004 to
$984,000 in 2005. In 2005, professional expenses, primarily legal expenses,
were
associated with non recurring charges of $612,000 incurred by RiceX. Also in
2005, we incurred investor relations costs of $262,000 associated with an
investor relations firm and professional fees associated with quarterly and
annual SEC filing requirements. In 2004, we incurred significantly higher
professional fees due to non cash expenses for consultants for services.
Interest
expense increased by $868,000 to $896,000 in 2005 due to interest and discount
related to a note payable of $2,400,000 at 7% interest compounded quarterly.
On
October 4, 2005, principle of $2,400,000 and $137,000 interest was paid in
full.
A non-cash discount in the amount of $759,000 was amortized in
2005.
We
had a
net loss of $3,872,000 for the year ended December 31, 2005, or $0.10 loss
per
share, compared to a net loss of $23,583,000 for 2004, or $1.18 loss per share.
The net loss reduction of $19,711,000 was primarily due to the reduction of
non-cash stock options and warrants issued, increased total revenues, and new
business development in the infomercial market. There were positive trends
in
our domestic animal product lines primarily sold to the equine market and our
domestic functional foods and nutraceutical product lines. Assuming the merger
with RiceX was effective for the entire year, the unaudited pro forma condensed
combined consolidated net loss for the year ended December 31, 2005 was
$7,506,000 (NutraCea 2005 net loss at $3,567,000, RiceX 2005 net loss at
$3,994,000, and $55,000 intercompany adjustment).
The
provision of income taxes for the years ended December 31, 2005 and 2004
consists of the $2,226 for minimum state income taxes.
Deferred
taxes arise from temporary differences in the recognition of certain expenses
for tax and financial statement purposes. At December 31, 2005, 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,
2005, net operating loss carryforwards were approximately $23,000,000 for
federal tax purposes that expire at various dates from 2011 through 2025 and
$19,700,000 for state tax purposes that expire in 2010 through 2015.
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 and similar state regulations. The annual limitation may result in
expiration of net operating loss carryforwards before utilization.
Comparison
of Results for the Three Month Periods Ended March 31, 2006 and
2005
For
the
three months ended March 31, 2006, our net loss was $234,000, or $0.00 per
share, compared to $865,000 net loss, or $0.02 per share, in 2005, showing
an
improvement of $631,000 compared to the same period last year. The improvement
for the year was primarily due to increased sales by $3,323,000, offset by
increased cost of sales of $1,818,000, resulting in higher gross margins of
$1,504,000 for the period ended March 31, 2006 compared to this period last
year. Assuming the merger with RiceX was effective for the entire first quarter
of 2005, the unaudited pro forma condensed combined consolidated net loss for
the quarter ended March 31, 2005 would have been $1,222,155 (NutraCea first
quarter of 2005 net loss at $864,693, RiceX first quarter of 2005 net loss
at
$237,462, and $120,000 intercompany adjustment)
.
Consolidated
revenues through March 31, 2006 of $3,782,000 increased $3,323,000, or 724%,
from the same period last year. The revenue increase is primarily attributed
to
our expanded product lines acquired in the RiceX merger and sales into the
infomercial market. Infomercial sales were $2,592,000 for period ended March
31,
2006. There were no infomercial sales in the first quarter of 2005. Assuming
the
merger with RiceX was effective for the entire first quarter of 2005, the
unaudited pro forma condensed combined consolidated revenues for the quarter
ended March 31, 2005 would have been $ 1,303,920 (NutraCea first quarter of
2005
revenues at $459,314, RiceX first quarter of 2005 revenues at $922,606 and
adjusting for intercompany sales of $78,000).
Gross
margins in the quarter ended March 31, 2006 were $1,682,000, or 44%, compared
to
$178,000, or 39%, during the same period last year. Gross margins on our various
product lines vary widely and the gross margins are impacted from period to
period by sales mix and utilization of production capacity. The substantial
change in gross margin dollars during the quarter ended March 31, 2006 compared
to the quarter ended March 31, 2005 is due mostly to increased revenue as
discussed above. Assuming the merger with RiceX was effective for the entire
first quarter of 2005, the unaudited pro forma condensed combined consolidated
gross margins for the quarter ended March 31, 2005 would have been $574,000
(NutraCea first quarter of 2005 gross margins at $178,129, RiceX first quarter
of 2005 gross margins at $465,462, and 70,000 intercompany
adjustment).
Research
and Development (“R&D”) expenses increased from $21,000 for the quarter
ended March 31, 2005 to $98,000 for the quarter ended March 31, 2006, or an
increase of $77,000. The increase was attributed to higher product development
costs and employee related expenses due to increased R&D activities and
expanded scientific staff compared to the same period last year. We expect
to
continue research and development expenditures to establish the scientific
basis
for health claims of existing products and to develop new products and
applications.
Sales,
General and Administrative expenses were $1,278,000 and $336,000 in the
quarterly periods ended March 31, 2006 and 2005 respectively, an increase of
$942,000. The increase was primarily due to the costs of merging operations
of
NutraCea and RiceX. We have added personnel and associated employee related
costs. We have experienced increases in general sales-related activity
associated with expanding our domestic sales force during the period ended
March
31, 2006 compared to this period last year, mostly as a result of the
merger.
Professional
fees decreased $129,000 from $306,000 for the quarter ended March 31, 2005
to
$177,000 for the quarter ended March 31, 2006. The higher professional fees
in
2005 primarily relate to legal fees incurred in connection with the merger
transaction with RiceX. Professional fees include costs related to
accounting, legal and consulting services.
Stock-based compensation
expenses totaled $389,000 for the quarter ended March 31, 2006, of which $15,000
related to the issuance of common stock to directors for services and a total
of
$374,000 related to the vesting of options and warrants issued to employees
and
consultants for services rendered. In the quarter ended March 31, 2005,
stock-based compensation expenditures totaled $147,000, of which $34,000
related to the issuance of common stock to consultants and directors and a
total
of $113,000 related to the vesting of warrants and options issued to consultants
and employees. 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 and employees are calculated
at
fair value using the Black-Scholes valuation method.
Liquidity
and Capital Resources
As
of
March 31, 2006, our source of liquidity was cash in the amount of $2,970,000.
Our cash was $3,491,000 at December 31, 2005, a decrease of $521,000 for the
quarter ended March 31, 2006. For the first quarter of 2006, net cash provided
from operations was $212,000, compared to net cash used in operations in the
same period of 2005 of $645,000, an increase of $857,000. This improvement
in
cash provided by operations resulted from our improved net loss position as
noted above. We used approximately $3,378,000 of cash to fund operations during
the twelve months ended December 31, 2005. Cash used in investing activities
in
the first quarter of 2006 was $731,000, compared to $9,000 for the same period
of 2005. This increase was caused by our current plant expansion projects.
Cash
used in financing activities for the three month period ended March 31, 2006,
was approximately $2,000. Our working capital position as of March 31, 2006
was
$5,250,000 compared to negative $408,000 working capital for the same date
last
year.
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.
On May 12, 2006, we sold an aggregate of 17,560 shares of our Series C
Convertible Preferred Stock at a price of $1,000 per share in a private
placement transaction. This private placement of securities generated aggregate
gross proceeds of approximately $17,560,000. The Series C preferred shares
can
be converted to shares of common stock at a conversion rate of 1000/.85 shares
of common stock for each Series C preferred share issued in the transaction.
Additionally, we issued in this transaction warrants to purchase an aggregate
of
10,329,412 shares of common stock at an exercise price of $1.35 per share.
The
warrants have a term of five years and are immediately exercisable. These sales
of securities will provide additional operating capital to be utilized over
at
least the next 12 months.
During
December 2004, we borrowed $2,400,000 in notes payable to help finance future
operations. The notes were for a one-year term, bore interest at 7% interest
compounded quarterly and were secured by all of our assets. The holders of
the
notes also were issued warrants to purchase a total of 2,400,000 shares of
our
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.
Debt discount expense of $786,370 was recorded in connection with issuance
of
these warrants and is being amortized over the life of the notes payable.
Subsequent to the completion of the private placement transaction mentioned
above, we retired the $2,400,000 notes payable and all accrued interest on
October 4, 2005.
In
addition to the capital raised on October 4, 2005 and May 12, 2006, we may
need
to raise additional capital to continue to develop, promote and conduct our
operations. Such additional capital may be raised through public or private
financing as well as borrowing from other sources.
While
we
believe we can increase our production capacity to meet our sales demand, we
may
need significant additional capital within the next twelve months to meet
anticipated expansion plans. We have sufficient cash reserves to meet all
anticipated short-term operating requirements. However, the timing and
amount of any long-term capital requirements cannot be predicted at this
time.
Domestic
Initiatives
We
began
an initiative to expand our Dillon, Montana plant to increase production
capacity to meet the growing market demand for our products made from stabilized
Rice Bran derivatives. During most of the fourth quarter of 2005, since the
NutraCea/RiceX merger closing on October 4, 2005, we have been consistently
utilizing at or close to 100% of the manufacturing capacity of our Dillon,
Montana facility. This represents an increase of daily average production during
the period following the closing of the merger by more than 400% when compared
to the average daily production capacity during the 9 months prior to the
merger. We anticipate that the Dillon facility expansion will be completed
during the 2nd quarter of 2006, and should result in more than a 50% increase
in
production capability of our Stabilized Rice Bran derivative products. Building
and key equipment contracts have been awarded with construction now underway.
We
have existing financial liquidity from cash on hand and current cash flow to
complete the expansion. Strong market interest in our proprietary stabilized
Rice Bran derivatives has prompted the need for increased manufacturing
capability and is consistent with our goal of meeting growing customer demands
and a new awareness of our products' value. This increase in manufacturing
capacity is the most efficient and economical means of boosting capacity as
quickly as possible to meet the increasing demands of the
marketplace.
We
have
entered into a raw rice bran supply agreement with Louisiana Rice Mill LLC,
or
LRM. The agreement triples our capacity to produce our proprietary Stabilized
Rice Bran production in the United States. In addition, we announced the
construction of an additional domestic stabilization facility. Under the terms
of the agreement, LRM will supply raw rice bran from its rice milling operations
to NutraCea. The supply agreement is intended to triple our current supply
of
raw bran, which will be processed through our exclusive proprietary
stabilization system to produce stabilized rice bran and other value
added-products for both the human and animal nutrition markets. The
stabilization process will be implemented at LRM with the construction of a
facility, which retrofits our proprietary engineering process to the equipment
at LRM. We have the ability to fund this project with existing cash resources.
The new facility is expected to be completed prior to the end of the 3rd quarter
of this year.
International
Initiatives
On
September 13, 2005, we entered into an agreement with a Dominican Republic
rice
mill whereby the two companies will form a joint venture. The agreement allows
us the option to install equipment to annually produce at least 5,000 metric
tons of stabilized rice bran in the Dominican Republic, or in the alternative,
to produce the product in the United States and ship the raw ingredients to
the
Dominican Republic for packaging in final form. 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.
On
October 25, 2005, we entered into an agreement with an industrial consortium
in
Colombia to study
the
creation of a joint entity to share equally in the profits generated from sales
of our products in the Colombian market. Under the agreement, the Colombian
consortium is to provide 50% of all the financing necessary to construct the
plants (with us providing the remaining 50% of the financing) and is to be
responsible for providing all the necessary land and space required for the
implementation of the plants to be constructed. The Colombian consortium would
be responsible for providing all of the sales and distribution as part of its
contribution to the joint entity. We continue efforts to execute a formal
definitive agreement; however, we have not entered into a definitive agreement
as of the date of this prospectus.
On
October 28, 2005, we entered into a binding letter of intent with an Ecuadorian
company to study arriving at a definitive agreement for a working arrangement
that will allow the Ecuadorian company the right to utilize our proprietary
ingredients and value-added processing in their multi-faceted food business,
which includes animal feed, poultry and cereals. We have not entered into a
definitive agreement as of the date of this prospectus.
In
November 2005, NutraCea signed a Supply and Distribution Agreement with T.
Geddes Grant, a Jamaican Corporation. The agreement requires us 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 (the “Territory”). 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.
There
can
be no assurance that these international initiatives will be achieved in part
or
whole, however management continues its efforts to formalize it relationship
within these countries to further its business activities.
While
we
believe we can increase our production capacity to meet sales demand,
significant additional capital could be required to meet such expansion
requirements. We have sufficient cash reserves to meet all anticipated
short-term operating requirements. However, the timing and amount of any
long-term capital requirements cannot be predicted at this time.
Critical
Accounting Policies
The
preparation of financial statements in accordance with generally accepted
accounting principles requires management to make judgments, estimates and
assumptions regarding uncertainties that affect the reported amounts presented
and disclosed in the financial statements. Our management reviews these
estimates and assumptions based on historical experience, changes in business
conditions and other relevant factors that they believe to be reasonable under
the circumstances. In any given reporting period, actual results could differ
from the estimates and assumptions used in preparing our financial
statements.
Critical
accounting policies are those that may have a material impact on our financial
statements and also require management to exercise significant judgment due
to a
high degree of uncertainty at the time the estimate is made. Our management
has
discussed the development and selection of our accounting policies, related
accounting estimates and the disclosures set forth below with the Audit
Committee of our Board of Directors. We believe our critical accounting policies
include those addressing revenue recognition, allowance for doubtful accounts,
and inventories.
Revenue
Recognition
Revenues
from product sales are recognized when 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.
Allowance
for Doubtful Accounts
We
continuously monitor collections from our customers and maintain an allowance
for doubtful accounts based upon our historical experience and any specific
customer collection issues that we have identified. While such credit losses
have historically not exceeded our expectations and the provisions established,
there is a risk that credit losses in the future will exceed those that have
occurred in the past, in which case our operating results would be adversely
affected.
Valuation
of Long-lived Assets
Long-lived
assets, consisting primarily of property and equipment, patents and trademarks,
and goodwill, comprise a significant portion of our 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.
Factors
we consider 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
we
determine 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. While we have an inventory of these products, any
significant prolonged shortage of these ingredients or of the supplies used
to
enhance these ingredients could materially adversely affect the our results
of
operations.
Property
and Equipment
Property
and equipment are stated at cost. We provide 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
|
2.4-7
years
|
|
Property
and equipment
|
7-10
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 our 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
On
January 1, 2006, NutraCea adopted SFAS No. 123(R), “Share-Based Payment” (“SFAS
123(R)”). SFAS 123(R) replaced SFAS No. 123 and supersedes APB Opinion No. 25.
SFAS 123(R) requires all share-based payments to employees, including grants
of
employee stock options, to be recognized in the financial statements based
on
their fair values. The pro forma disclosures previously permitted under SFAS
123
are no longer an alternative to financial statement recognition. NutraCea
adopted SFAS 123(R) using the modified prospective method which requires the
application of the accounting standard as of January 1, 2006. The consolidated
financial statements as of and for the quarter ended March 31, 2006 reflect
the
impact of adopting SFAS 123(R). In accordance with the modified prospective
method, the consolidated financial statements for prior periods have not been
restated to reflect, and do not include, the impact of SFAS 123(R). For
stock-based compensation grants to consultants, we recognize as compensation
expense the fair value of such grants, recognized over the related service
period. Prior to 2006, we recored stock-based compensation grants to employees
based on the excess of the estimated fair value of the common stock on the
mearsurement date over the exercise price.
Debt
We
have
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.
GENERAL
NutraCea
(“we,” “us,” “our,” or the “Company”) is 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 and is a wholly-owned
subsidiary. 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.
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.
The
RiceX
subsidiary is primarily engaged in the manufacturing of stabilized rice bran
at
its Sacramento facility for various consumptive uses, and the custom
manufacturing of rice 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 rice 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.
NutraCea
is a health science company that has proprietary Intellectual Property that
allows us to process and convert Rice Bran, one of the world’s largest wasted
food resources, into a highly nutritious ingredient that has applications as
a
value added ingredient in various food products and as a key component of
patented and proprietary formulations that have applications for treatment
modalities in nutritional supplementation and as stand alone products that
can
be sold through non-related entities with distribution into the market place,
both domestically and internationally. These products include food supplements
and medical foods, or "
nutraceuticals,
"
which
provide health benefits for humans and animals based on stabilized rice bran,
rice bran derivatives. We believe that stabilized rice bran products can deliver
beneficial physiological effects. We have conducted and are continuing to pursue
ongoing clinical trials and third party analyses in order to further support
the
uses for and effectiveness of our products.
Through
the acquisition of The RiceX Company by NutraCea on October 4, 2005 the combined
company, known as NutraCea, has created a vertically integrated company
combining the manufacture, product development and marketing of a variety of
products based upon the use of stabilized rice bran and rice bran formulations.
We generated approximately $5,564,000 and $1,224,000 in revenue for the years
ended December 31, 2005 and 2004, respectively, and approximately $3,772,000
and
$460,000 in revenue for the three month periods ended March 31, 2006 and 2005,
respectively. We reported a net loss of $3,872,000 for the year ended December
31, 2005 and net loss of $23,583,000 for the year ended December 31, 2004.
In
addition, we reported net losses of $234,000 and $865,000 for the three month
periods ended March 31, 2006 and 2005, respectively. Our net operating loss,
or
NOL, carry-forwards expire for federal tax purposes at various dates from 2011
through 2025, and expire for state tax purposes in 2006 through 2015.
We
occupy
approximately 51,644 square feet of executive offices, laboratory, warehouse
and
production facilities in El Dorado Hills and West Sacramento, California,
Burley, Idaho, Dillon, Montana and Scottsdale, Arizona.
RiceX
™
and
RiceX Solubles™
are our
registered trade names.
TheraFoods®
,
ProCeuticals®
,
NutraGlo®
,
NutraBeauticals®
,
Mirachol®, Max “E”®, Max “E” Glo®, StaBran®, RiSolubles® and RiceMucil®, are
some of our registered trademarks. In total, we have thirty five registered
trademarks. In addition to our trade names and our trademarks, we hold patents
to the production of Beta Glucan and a micro nutrient enriched rice bran oil
process. We also hold patents to a method to treat high cholesterol, to a method
to treat diabetes and the process for producing Higher Value Fractions, or
(“HVF”) from stabilized rice bran. See PATENTS AND TRADEMARKS below.
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 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 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.
At
special meetings of shareholders held on September 28, 2005 the shareholders
of
NutraCea and RiceX approved various matters relating to the proposed merger
between the two companies. 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. 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.
The
stockholders of RiceX received 28,272,064 shares of NutraCea common stock in
exchange for 100% of the shares of RiceX common stock, and NutraCea assumed
all
outstanding options and warrants to purchase RiceX common stock, which became
options and warrants to purchase an aggregate of 11,810,507 shares of NutraCea
common stock.
PRODUCTS
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,
this
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. Our customers include consumer nutrition and healthcare companies,
domestic and international food companies, and companion animal feed
manufacturers.
We
produce stabilized, nutrient-rich rice bran that may be used in a wide variety
of new products. We are pursuing the development of proprietary rice bran
products from stabilized rice bran. Our current products include:
|
RiceX
Stabilized Rice Bran:
|
|
Stable
whole rice bran and germ. This is our 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.
|
We
have
developed a number of product lines using RiceX Process stabilized rice bran
products and proprietary rice bran formulations in various
categories.
OTHER
PRODUCTS
On
September 13, 2005, we entered into a Production Facility Development and Rice
Bran Supply and Purchase Agreement (the “Production Agreement”) with Food
Trading Company Dominicana, S.A., or 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 which will be equally owned by us and FTCD (the
“Jointly Owned Company”). The term of the Production Agreement is ten
years.
Under
the
terms of the Production Agreement, we will initially ship and produce from
our
United States facilities. 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. The
Jointly Owned Company can, at the option of both parties, agree to construct
or
improve a production facility for the processing of stabilized rice bran into
a
bulk fiber soluble mixture in the Dominican Republic.
FTCD
is
responsible for 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 and at least $4 million monthly for years three and four of
the
agreement. As of the date of this prospectus, we have not sold any product
into
the Dominican Republic. 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.
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.
In
November 2005 NutraCea signed a Supply and Distribution Agreement with T. Geddes
Grant, a Jamaican Corporation. The agreement requires us to deliver a customized
formulated and fortified RiSolubles mix to T. Geddes Grant. The agreement
requires that T. Geddes Grant purchase a minimum of $4.5 million 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.
INDUSTRY
BACKGROUND
By
definition, nutraceuticals are products from natural sources that have
biologically therapeutic effects in humans and animals. These compounds include
vitamins, antioxidants, polyphenols, phytosterols, as well as macro and trace
minerals. The RiceX Process stabilized 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. See section “Benefits of RiceX Stabilized Bran” for additional
information.
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. We have developed a
method of stabilizing rice bran we believe is superior to other methods, and
provides a shelf life greater than one year, which we believe is longer than
any
other stabilized rice bran. The longer shelf life allows for economical
production of nutrition products which incorporate rice bran ingredients.
As
the
market becomes more aware of the value of our ingredients and proprietary
formulations 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 in certain situations, 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.
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 2005-2006
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.
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).
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, approximately 65%
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 contains over 60%
of
the nutrients found in each kernel of rice. (See Juliano, B.O., 1985 Rice:
Chemistry and Technology, American Association 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. We believe 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.
THE
NUTRACEA/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.
Our
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 using our proprietary process and is transported pneumatically to a loop
conveyor system we designed. The loop conveyor system immediately carries the
fresh, unstabilized rice bran to the RiceX Company stabilizer. Stabilization
is
achieved by feeding the fresh rice bran into a specially designed and
proprietary technological process. The result is a selectively deactivated
lipase enzyme and reduced microbiological load. Process controllers that
maintain process conditions within the prescribed pressure/temperature regime
control the system. In case of power failure or interruption of the flow of
fresh bran into the system, the electronic control system is designed to purge
our equipment of materials in process and safely shut down.
Bran
leaving our stabilization system is further tempered through an additional
proprietary technological process that further tempers and reduces the moisture.
We call this bran “RiceX Bran”. This RiceX Bran is then discharged onto the
cooling unit. A further proprietary process involving specifically controlled
air pressure and humidity. The cooled RiceX Bran is then loaded into one ton
shipping containers for transportation to other processing facilities or is
transported by pneumatic conveyor to a bagging unit for packaging in 30, 40,
50
and 2,000 pound sacks. 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. The processing conditions created by the RiceX
Process are unique. 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 RiceX Company units sharing a common conveyor and stage system,
which
can handle the output of the world’s largest rice mills. We have 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.
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.)
In July 2005 we entered into a consulting agreement with an individual to assist
in the research and validation of our products in the medical foods
market.
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.)
We
have
been assigned five U.S. patents relating to the production or use of
nutraceutical HVF products. See PATENTS AND TRADEMARKS below.
BUSINESS
STRATEGY
Our
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. We produce stabilized rice bran and related products
in manufacturing facilities we own or through joint venture arrangements. See
SUPPLY
AND MANUFACTURING
below.
We intend to protect our process and products through both trade secret
protection and through patent and trademark protection. See PATENTS AND
TRADEMARKS below.
We
believe that clinical support for stabilized rice bran products will further
enhance the value of our products as nutraceuticals and functional food
ingredients. Finally, we intend to aggressively market our 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, we have focused and will continue to
focus our 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, our 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,
we
have continued relationships with Korean, German and other European companies
to
introduce our products into these regions. Although there can be no assurance
that our products will be successfully introduced into these regions, we believe
that interest of this type validates the potential opportunity. In addition,
we
believe that the relationship reflects the strategy for our foreign ventures.
We
intend 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
Our
strategic development, using the RiceX model, has been focused on making our
nutrient-dense stabilized rice bran products available to developing countries
where nutritional deficiencies are a major concern, particularly among
school-aged children. We remain on the cutting edge in developing nations by
reducing malnutrition and enhancing nutritional growth potential school-aged
children. The school nutritional and diet upgrading programs in developing
countries worldwide represent a multi-billion dollar market opportunity for
us.
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, we
supplied nutritionally dense ingredients throughout Guatemala over a
twelve-month period starting in January 2001. As a result, our stabilized rice
bran product, RiceX Solubles, has been used as a base for a 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 in the year ended
December 31, 2001. In 2002 and following the similar program of Guatemala,
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. RiceX had similar programs in the region
in 2003 and 2004.
We
are in
the process of broadening our presence in the international markets. Building
on
our 2001 successful proof-of-concept program in Guatemala, we continue to
develop and expand international market development activities in Central and
South America. 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.
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.
We
continue 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. We have 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.
We
also
intend 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. We plan to introduce our 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
we are able to expand into these areas, the installation of 100 RiceX processing
systems has the capacity to provide up to 500 nutritionally dense calories
to
over 100 million people daily on an ongoing basis. The diet supplement provided
by the locally grown and stabilized rice bran would help those people approach
U.S. levels of nutrition.
We
continue to hold discussions regarding the demonstration of our system and
the
end products for our technology with a number of companies and governments
including countries in Central America, India, China, Argentina, Brazil,
Malaysia and certain African countries. We currently have signed binding letters
of intent with companies in the food processing business and rice milling
business in Central and South America countries as well as the Far East. See
MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - “International
Initiatives”, for additional discussions. However, there can be no assurance
that these agreements and discussions will lead to implementation of the RiceX
Process with these companies or governments.
SALES
AND MARKETING
We
have
targeted four distinct product areas in which RiceX Bran and related products
may be used as the primary ingredient. Our key marketing strategy is to form
strategic alliances with industry leaders in each of our target markets. This
strategy will allow us to leverage the research, marketing and distribution
strengths of our partners in order to more economically and efficiently
introduce and market products. We have formed alliances, or have entered into
negotiations to form alliances, in each of our target markets, which are
nutraceuticals, functional food ingredients, performance feed and companion
pet
food supplements.
Our
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. Our ingredient products are
sold to consumer nutrition and healthcare companies, national nutritional
retailers, multi-level personal product marketers, and an infomercial company.
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. We are marketing RiceX Stabilized
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 we estimate
that
this represents more than a several $100 million annual market share opportunity
for us. Premium ingredient manufacturers are in high demand and we are
strategically positioned to take advantage of this growing and sustainable
market opportunity. Our proprietary technology and product patents represent
extremely valuable assets for achieving strategic leverage in this industry
segment.
Performance
Feed and Companion Pet Food Supplements
We
also
market RiceX Bran as a feed supplement for animals. RiceX Stabilized 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
more than a $100 million annual market share opportunity for our 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, and in May 2006, we entered into a supply agreement with
Wolcott Farms.
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. We hold a patent on the process
for
obtaining micronutrient enriched rice bran oil. There can be no assurance that
any of our Stabilized Rice Bran Oil marketing efforts will be
successful.
MARKETING
METHODS
As
of May
23, 2006, we have a Senior Vice-President of Sales and Marketing and four
domestic sales representative. In addition, we have one equine market consultant
and an agreement with a European Brokerage firm for the United Kingdom and
Benelux markets, for developing and marketing RiceX Bran products. In addition,
we have retained a firm to provide and assist in potential qualified customer
introductions. We also have a non-exclusive agreement with a firm granting
rights to advertise, promote, market, sell and distribute some of our products
world-wide. We continue to work to develop additional significant alliances
in
efforts to increase our sales volume.
Pursuant
to the Stabilized Rice Bran Processing Sales and Marketing Agreement between
NutraCea and Farmers’ Rice Cooperative, or Farmers, a cooperative association
organized under the California Food and Agriculture Code, dated September 1,
2005, Farmers has an exclusive license to use our rice bran processing equipment
for production of stabilized rice bran for sale to a limited number of Farmers
customers.
Our
Nutrition Supplements are currently marketed domestically through various
distribution channels. In addition, we distribute products under the names
FlexProtex™, Rice'n Shine™, Flex Protex Cream™, 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. Pursuant to this agreement, ITV will
market and sell our products through infomercials. These infomercials will
feature our former Chief Executive Officer, Patricia McPeak, for which she
will
receive a royalty of $1.00 per unit sold through these infomercials. In 2005,
we
generated $3,012,000 and $2,592,000 in sales from these infomercials in 2005
and
the first quarter of 2006, respectively. 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. The contracts have specific unit and dollar
minimums in order for them to maintain limited exclusivity.
Our
nutraceutical equine products are distributed under the name "
Absorbine
Flex
+®"
by
W.F. Young, Inc. 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 nutraceutical animal products, which we are seeking
to distribute, subject to certain limited rights of first refusal 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.
CUSTOMERS
Our
major
customers were ITV Global, Inc., W.F. Young, Natural Glo, Land O’ Lakes Purina
Feed and PGP International. During 2005, we received approximately 85% of all
sales revenue from these customers. A loss of any of these customers could
have
a material adverse effect on our revenues and results of
operations.
SUPPLY
AND MANUFACTURING
We
purchase unstabilized rice bran from one major supplier, Farmers. Pursuant
to
our agreement with Farmers, our stabilization machinery is physically attached
to Farmers rice processing plants and the rice bran by-product is directly
transferred to our 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 we have ready access to unstabilized
bran. Farmers is currently our only supplier of unstabilized rice bran. We
have
recently entered into a new supply agreement with Louisiana Rice Mill which
should approximately triple our existing capacity. We continue to seek
additional relationships with rice processors, both in the United States and
abroad as part of our overall business strategy. We believe suitable alternative
supply arrangements are readily available if needed. Our production capacity,
prior to the new Louisiana facility coming on line, stands at 1,500 tons per
month.
As
required, we ship RiceX Bran from our facility in California to our plant in
Dillon, Montana for further processing into RiceX Solubles, Dextrinized Rice
Bran and RiceX Fiber Complex. We have currently ordered additional equipment
and
are in the process of expanding the Dillon Montana facility. Additional
equipment should increase our production of RiceX Solubles and RiceX Fiber
Complex by more than 50%. We intend 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. Additionally, we have entered
into an agreement with an individual to assist us in forming a joint operating
agreement with a rice mill in either Ecuador or Colombia.
Every
food product that we manufacture is produced under published FDA and USDA
regulations for “Good Manufacturing Practices.” Our Chief Operating Officer
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.
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. NutraCea has 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 NutraCea’s
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.
A
57-subject clinical trial conducted by Advanced Medical Research with funding
by
RiceX suggested that consumption of the stabilized rice bran used in NutraCea’s
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,
NutraCea® 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 established 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 NutraCea’s Absorbine Flex+®
Equine Products to be effective products for treating joint degeneration as
well
as inflammation in horses.
Our
program managed by Christian Childrens Fund, or CCF, of Guatemala in 2001 was
highly successful in reducing malnutrition in school age children and enhancing
their nutritional growth potential. Our stabilized rice bran product, RiceX
Solubles, was used as a base for a nutritionally enhanced drink for school
breakfast and lunch programs to over 67,000 children in rural communities
throughout Guatemala. CCF randomly selected 150 children from the group and
evaluated their nutritional condition. Thirty-seven percent (37%) of the
children were classified as having acute or chronic malnutrition at the start
of
the test. At the end of six months, no acute malnutrition existed and only
5%
chronic malnutrition remained.
PATENTS
AND TRADEMARKS
Through
our subsidiary NTI, we 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 have entered into an agreement with a consulting firm to provide
patent and license analysis.
Through
our subsidiary RiceX, we 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. NutraCea currently has several additional
patents filed and pending formal review, and we intend to apply for additional
patents in the future as new products, treatments and uses are developed.
The
RiceX
Process is an adaptation and refinement of standard food processing technology
applied to the stabilization of rice bran. We have 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.
GOVERNMENT
REGULATIONS
The
Federal Food, Drug, and Cosmetic Act, or FFDCA, and the U.S. Food and drug
Administration, or FDA, 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 trademarks TheraFoods® and
ProCeutical®.
Marketers
of dietary supplements may make three different types of claims in labeling:
nutrient content claims; nutritional support claims; and health
claims.
-
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 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 it predict the effect of
such
laws or regulations on its operations. We may be required to reformulate certain
of its 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 its relationship
with
its 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.
COMPETITION
Although
we believe that we are the only company to use non-chemical methods to stabilize
all natural rice bran so that the bran has a shelf life of over one year, we
compete with other companies attempting to stabilize rice bran, as well as
companies producing other food ingredients and nutritional supplements. We
believe that our primary competitor is Producer’s Rice Mill. This competitor may
have greater capital resources than us; however, we believe that our products
are superior in several ways to the product that Producer’s Rice Mill currently
offers, including the palatability of our finished products. However, there
can
be no assurance that we will be able to compete successfully in the rice bran
industry. We believe that our major nutritional supplement competitors include
producers of wheat bran and oat bran, particularly in the functional food
ingredients market segment.
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.
Research
and Development Expenditures
During
fiscal years 2005 and 2004, we spent $191,000 and $127,000, respectively, on
product research and development.
Employees
As
of
March 3, 2006, we had a total of 25 full time employees and two part time
employees. Our employee count may change periodically. From year to year we
experience normal variable labor fluctuation at our production facility in
Dillon Montana. In addition, we have three independently contracted staff
members. We consider that our relations with our employees are
good.
Description
of Property
We
currently lease 15,680 square feet of office, laboratory and warehouse space
located at 1241 and 1261 Hawk’s Flight Court, El Dorado Hills, California, a
2,000 square foot office facility at 1901 Conant Avenue, Burly, Idaho, a 1264
square foot office facility at 6991 East Camelback Road, Scottsdale, Arizona
and
a 17,000 square foot warehouse facility at 1755 Enterprise Boulevard, West
Sacramento, California. Our subsidiary, RiceX Nutrients, Inc., 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 our offices in Burley,
Idaho expires in May 2009 and the lease for our West Sacramento, California
warehouse facility is on a month to month basis. We have aggregate annual lease
payments for all the facilities approximating $111,406.
We
believe that our facilities are adequate for our anticipated needs through
2006
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 management, no such lawsuits either
individually or in the aggregate, are expected to have a material effect on
our
financial position or results of operations.
Our
directors, executive officers and key employees and their ages as of May 23,
2006 are as follows:
|
Name
|
|
Age
|
|
Position
|
|
Directors
and Executive Officers:
|
|
|
|
|
|
Bradley
D. Edson
(1)(2)
|
|
46
|
|
Chief
Executive Officer, President and Director
|
|
Todd
C Crow
(1)
|
|
57
|
|
Chief
Financial Officer
|
|
Ike
E. Lynch
(1)
|
|
61
|
|
Chief
Operating Officer
|
|
Margie
D. Adelman
|
|
45
|
|
Secretary
and Senior Vice President
|
|
David
Bensol
(3)(4)(5)
|
|
50
|
|
Director
and Chairman of the Board
|
|
Eliot
Drell
|
|
51
|
|
Director
|
|
James
C. Lintzenich
(2)(3)(4)
|
|
52
|
|
Director
|
|
Edward
L. McMillan
(2)(3)(5)
|
|
60
|
|
Director
|
|
Patricia
McPeak (6)
|
|
65
|
|
Director
|
|
Steven
W. Saunders
|
|
50
|
|
Director
|
|
Kenneth
L Shropshire (4)(5)
|
|
51
|
|
Director
|
|
|
(1)
|
Messrs.
Edson, Crow and Lynch also serve as Chief Executive Officer, Chief
Financial Officer and Chief Operating Officer of our subsidiary,
The RiceX
Company.
|
|
|
(2)
|
Messrs.
Edson, Lintzenich and McMillan are also on the Board of Directors
of our
subsidiary, The RiceX Company.
|
|
|
(3)
|
Member
of the Audit Committee.
|
|
|
(4)
|
Member
of the Compensation Committee.
|
|
|
(5)
|
Member
of the Nominating/Governance
Committee.
|
|
|
(6)
|
Resigned
as NutraCea’s Chief Executive Officer on October 2, 2005 and resigned as
the Chairperson of the Board of Directors on May 24,
2006.
|
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. Since October 2005, Mr. Edson
also serves as Chief Executive Officer of our subsidiary, The RiceX Company,
and
one of its directors. 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. Mr. Edson holds a Bachelor of Science
Degree in Finance from Arizona State University.
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 from January 1999 to October
2005. 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 and President
and Chief Operating Officer of RiceX Nutrients . From January 1997 through
2004,
Mr. Lynch served as Vice President of Operations and International Business
Development of The RiceX Company. In 2005, Mr. Lynch became Chief Executive
Officer of The RiceX Company and served in that position until the
RiceX/NutraCea merger. 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.
David
Bensol,
has
served as one of our directors since March 2005 and as the Chairman of our
Board
of Directors since May 2006. 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 one 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 AdminaStar Federal,
Inc. (a Wellpoint, Inc. subsidiary) and the Lumina Foundation for
Education.
Edward
L. McMillan
,
has
served as one of our directors since October 2005. Mr. McMillan has been a
director of The RiceX Company since July 2004. 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 from
December 2001 to May 2006, she served as our Board Chairperson. 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.
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.
Kenneth
L. Shropshire
,
has
served as one of our directors since April 2006. Mr. Shropshire has been a
professor at the Wharton School of the University of Pennsylvania since 1986;
serving as a David W. Hauck professor since 2001, the chair of the Department
of
Legal Studies from 2000 to 2005, and the faculty director of the Sports Business
Initiative since 2004. Mr. Shropshire is currently the president of the Sports
Lawyers Association. Mr. Shropshire was of counsel at the law firm of Van
Lierop, Burns & Bassett, LLP, from 1998 to 2004 and has been a practicing
attorney in Los Angeles, California, focusing on sports and entertainment law.
Mr. Shropshire has also taught coursework at the University of Pennsylvania
School of Law, the University of San Diego School of Law and Southwestern
University School of Law.
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 Agreements.”
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 has designated an Audit Committee
consisting of Jim Lintzenich, David Bensol and Ed McMillan. Our Board has
determined that the chairman of our Audit Committee, Mr. Lintzenich, meets
the
Securities and Exchange Commission's definition of audit committee financial
expert. Mr. Lintzenich is “independent”, as such term is used in Item
7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934, as
amended.
Director
Compensation
Prior
to
the Merger with RiceX and the formation of the Board of Directors for our
combined Company, effective October 4, 2005, NutraCea provided compensation
to
its directors for serving in such capacity in the form of grants of common
stock
from our 2003 Stock Compensation Plan. Upon joining the Board, NutraCea provides
a one time issuance of 35,000 shares of restricted common stock to each board
member, whether an employee or non-employee, for the first year of service
on
our Board plus reimbursement of expenses. This compensation program was replaced
with a new compensation program, effective April 1, 2006, see below.
Common
Stock Grants to Directors in the Year Ended December 31,
2005
|
Name
|
|
Shares
Acquired
|
|
Value
Realized
|
|
Bradley
D. Edson
|
|
35,000
|
|
$14,000
|
|
David
Bensol
|
|
35,000
|
|
$16,100
|
|
Eliot
Drell, MD
|
|
-
|
|
-
|
|
James
C. Lintzenich (1)
|
|
-
|
|
-
|
|
Edward
L. McMillan (1)
|
|
-
|
|
-
|
|
Patricia
McPeak
|
|
-
|
|
-
|
|
Steven
Saunders (1)
|
|
-
|
|
-
|
|
Kenneth
L. Shropshire (2)
|
|
-
|
|
-
|
|
Ernie
Bodai, MD (3)
|
|
-
|
|
-
|
|
(1)
Appointed
to the Board October 4, 2005.
(2)
Appointed
to the Board on April 5, 2006.
|
|
(3)
Mr.
Bodai resigned as Director on September 28,
2005.
|
A
new
director compensation program was adopted, effective April 1, 2006, for
independent Board members. In the second quarter of 2006 each independent Board
member will receive $12,000 annual cash retainer, $1,000 to participate in
each
Board meeting, $500 if it’s a telephonic meeting, $2,000 per year to serve on
the Audit and Compensation Committee with an additional $1,000 to serve as
a
committee chairman. Each non-employee Director will also receive a warrant
to
purchases 35,000 shares of our common stock per year. The Chairman of our Board
of Directors will receive an additional $4,000 to serve in that
capacity.
Executive
Compensation
The
following Summary Compensation Table shows the aggregate compensation paid
or
accrued by NutraCea during fiscal years 2005, 2004 and 2003 to (i) each person
who served as NutraCea’s Chief Executive Officer during 2005, and (ii) the four
most highly compensated officers other than the Chief Executive Officer who
were
serving as executive officers at the end of 2005 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 2005 (collectively with
the Chief Executive Officer, the “Named Executive Officers”).
|
|
|
|
|
Summary
Compensation Table
|
|
|
|
|
|
|
|
|
for
Years Ended December 31, 2005, 2004 and 2003
|
|
|
|
|
|
|
|
|
Annual
Compensation
|
|
Long-Term
Compensation
|
|
|
|
|
|
|
|
|
|
|
Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
and principal position
|
|
Year
|
|
Salary
|
|
Bonus
|
|
Other
annual compensation
|
|
Restricted
stock awards
|
|
Securities
underlying options
|
|
All
other compensation
|
|
|
Bradley
Edson,
|
|
|
2005
|
|
$
|
62,000
|
|
$
|
250,000
|
|
|
(2)
|
|
|
35,000
|
|
|
—
|
|
|
—
|
|
|
Chief
Executive
|
|
|
2004
|
|
|
2,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,000,000
|
|
$
|
125,000(3)
|
|
|
Officer(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patricia
McPeak,
|
|
|
2005
|
|
|
150,000
|
|
|
150,000
|
|
|
(2)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Chief
Executive
|
|
|
2004
|
|
|
150,000
|
|
|
100,000
|
|
$
|
85,096(5)
|
|
|
53,200
|
|
|
2,000,000
|
|
$
|
8,360,000(6)
|
|
|
Officer(4)
|
|
|
2003
|
|
|
150,000
|
|
|
100,000
|
|
|
(2)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margie
D. Adelman,
|
|
|
2005
|
|
|
135,000
|
|
|
78,000
|
|
|
(2)
|
|
|
—
|
|
|
2,000,000
|
|
|
—
|
|
|
Secretary,
Senior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vice
President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ike
E. Lynch,
|
|
|
2005
|
|
|
135,000(7)
|
|
|
76,000
|
|
|
(2)
|
|
|
—
|
|
|
564,557(8)
|
|
|
41,000(9)
|
|
|
Chief
Operating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Todd
C. Crow,
|
|
|
2005
|
|
|
148,000(7)
|
|
|
78,000
|
|
|
(2)
|
|
|
—
|
|
|
537,678(8)
|
|
|
22,000(9)
|
|
|
Chief
Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Mr.
Edson became President on December 17, 2004 and Chief Executive Officer
on
October 4, 2005. In 2004, Mr. Edson was compensated $72,000 in consulting
fees, which services were rendered through a firm in which he was
a
principle.
|
|
|
(2)
|
Other
Annual Compensation is less than 10% of the total of Salary and
Bonus.
|
|
|
(3)
|
Consists
of $125,000 paid as consulting fees prior to Mr. Edson becoming
President.
|
|
|
(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)
|
Represents
the closing sales price of our common stock as reported on the OTC
Bulletin Board on March 19, 2004, times 5,500,000 shares of NutraCea
common stock that were issued to Ms. McPeak on March 19, 2004 for
services
rendered and stock reimbursements.
|
|
|
(7)
|
Represents
total salary paid during 2005, consisting of nine month of salary
paid by
RiceX and three months of salary paid by
NutraCea.
|
|
|
(8)
|
Represents
options granted by RiceX that were assumed by NutraCea in the
merger.
|
|
|
(9)
|
Represents
payments for accrued vacation benefits paid by RiceX prior to the
merger
and contributions under 401(k) benefit
plan.
|
Option
Grants in Last Fiscal Year
The
following table summarizes the options and warrants granted by NutraCea to
its
Named Executive Officers during the year ended December 31, 2005.
|
|
|
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
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Patricia
McPeak
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Margie
D. Adelman(1)
|
|
|
2,000,000
|
|
|
91%(2)
|
|
$
|
0.30
|
|
|
1/25/2015
|
|
|
Ike
E. Lynch(3)
|
|
|
564,557
|
|
|
42
|
%
|
$
|
0.30
|
|
|
3/30/2015
|
|
|
Todd
C. Crow(4)
|
|
|
537,678
|
|
|
40
|
%
|
$
|
0.30
|
|
|
3/30/2015
|
|
|
|
(1)
|
Represents
two warrants, each to purchase 1,000,000 shares at $0.30 per share,
that
were granted to Ms. Adelman pursuant to her employment agreement.
The
first warrant vested as to 500,000 shares at the signing of the employment
agreement and vested as to 500,000 shares on January 25, 2006. The
other
warrant will vest as to all 1,000,000 shares if NutraCea achieves
annual
gross sales over $25,000,000 and reports a positive EBITDA for the
period.
Both warrants expire on January 25,
2015.
|
|
|
(2)
|
This
calculation excludes the options and warrants assumed by NutraCea
in the
merger transaction with RiceX.
|
|
|
(3)
|
Represents
an option granted by RiceX and assumed by NutraCea in the merger.
In 2005,
RiceX issued to Mr. Lynch an option to purchase 735,111 shares of
RiceX
common stock. Pursuant to the merger, this option was assumed by
NutraCea
and became an option to purchase 564,557 shares of NutraCea common
stock.
One half of the option shares were fully vested and exercisable upon
the
date of grant, March 31, 2005. The remaining option shares vest and
become
exercisable proportionately over three years. On the third anniversary
of
the grant date, March 31, 2008, all option shares will be vested
and
exercisable.
|
|
|
(4)
|
Represents
an option granted by RiceX and assumed by NutraCea in the merger.
In 2005,
RiceX issued to Mr. Crow an option to purchase 700,111 shares of
RiceX
common stock. Pursuant to the merger, this option was assumed by
NutraCea
and became an option to purchase 537,678 shares of NutraCea common
stock.
One half of the option shares were fully vested and exercisable upon
the
date of grant, March 31, 2005. The remaining option shares vest and
become
exercisable proportionately over three years. On the third anniversary
of
the grant date, March 31, 2008, all option shares will be 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 option and warrant exercises
in
fiscal 2005 and the value of options and warrants held by the Named Executive
Officers as of December 31, 2005.
|
|
|
|
|
|
|
Number
of Securities Underlying Unexercised Options at
12/31//05
|
|
Value
of Unexercised In-the-Money Options at 12/31/05
(1)
|
|
|
Name
|
|
Shares
Acquired
on Exercise
|
|
Value
Realized
|
|
Exercisable
|
|
Unexercisable
|
|
Exercisable
|
|
Unexercisable
|
|
|
Bradley
Edson
|
|
|
—
|
|
|
—
|
|
|
6,000,000
|
|
|
—
|
|
$
|
3,000,000
|
|
|
—
|
|
|
Patricia
McPeak
|
|
|
—
|
|
|
—
|
|
|
2,002,882
|
|
|
—
|
|
$
|
1,000,000
|
|
|
—
|
|
|
Margie
D. Adelman
|
|
|
—
|
|
|
—
|
|
|
1,002,500
|
|
|
1,000,000
|
|
$
|
500,000
|
|
$
|
500,000
|
|
|
Ike
E. Lynch
|
|
|
—
|
|
|
—
|
|
|
1,271,078
|
|
|
188,186
|
|
$
|
635,539
|
|
$
|
94,093
|
|
|
Todd
C. Crow
|
|
|
—
|
|
|
—
|
|
|
1,383,716
|
|
|
179,226
|
|
$
|
691,858
|
|
$
|
89,613
|
|
|
(1)
|
Based
on the last reported sales price of NutraCea’s common stock as reported on
the OTCBB on December 30, 2005 of $0.80, minus the exercise price
(where
the exercise price of a given option is greater than $0.80, the value
of
such option was calculated as zero).
|
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 (“Edson Incentive
Bonus”) 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.
Mr.
Edson’s employment may be terminated prior to the expiration of the agreement
upon Mr. Edson’s death, disability or resignation or by NutraCea for cause
or without cause. If Mr. Edson is terminated due to death or disability,
he, or his estate, shall be entitled to receive the Edson Incentive Bonus with
respect to the entire fiscal year in which he is terminated and six months
of
base salary. For the purposes of the employment agreement, “disability” means
Mr. Edson’s inability, by reason of accident, illness or other disability,
to perform substantially all of the normal duties and obligations for a period
exceeding 180 days. If Mr. Edson’s employment is terminated by his
resignation for good reason, he shall be entitled to receive his salary for
the
remainder of the term, but not less than an amount equal to his base salary
in
the preceding twelve months. For purposes of the employment agreement, “good
reason” means the assignment to Mr. Edson of duties that are inconsistent
with his title and duties under the employment agreement, a reduction in
compensation and benefits without Mr. Edson’s prior consent, the failure of
a successor of NutraCea to assume and perform the employment agreement or a
corporate change of control (as defined in the employment agreement). If
Mr. Edson is terminated without cause, he shall be entitled to receive his
base salary for the remainder of the term, but not less than an amount equal
to
his base salary in the preceding twelve months, and the Edson Incentive Bonus
through the remainder of the term. For purposes of the employment agreement,
“cause” shall mean the conviction of Mr. Edson of a felony, a crime
involving moral turpitude causing material harm to NutraCea’s reputation, or for
fraud against NutraCea.
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. On February 26, 2006,
the
agreement was modified to include a car allowance of $600 per month, a cost
of
living increase for the balance of the term of her agreement, and an additional
week of paid vacation per calendar year. Ms. Adelman will receive
additional compensation if she is terminated prior to the end of the term for
disability or without cause. If Ms. Adelman is terminated due to a
disability, she shall be entitled to receive six months of base salary. For
the
purposes of the employment agreement, Ms. Adelman’s “disability” shall mean
that for a period of three months in any twelve month period, she is incapable
of substantially fulfilling her duties under the employment agreement because
of
physical, mental or emotional incapacity from injury, sickness or disease.
If
Ms. Adelman is terminated prior to the end of the term without cause (as
defined in the employment agreement), she shall be entitled to receive twelve
months salary at her then current base salary.
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).
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 term will be automatically
extended for two additional one-year terms unless either party delivers notice
of election not to extend the employment at least 180 days prior to the
expiration 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. The warrant is subject to
a
lock-up agreement through December 31, 2007
.
The
terms
of Ms. McPeak’s employment agreement regarding early termination payments are
substantially similar to those terms contained in Mr. Edson’s employment
agreement.
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.
NutraCea
carries Officers and Directors insurance. The aggregate limit of liability
for
the policy period (inclusive of costs of defense) is $5,000,000. 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
RELATI
ON
SHIPS AND RELATED TRANSACTIONS
Related
Party Transactions
In
November 2004, NutraCea purchased an automobile valued at $73,096 for use by
Patricia McPeak, a director and former Chief Executive Officer. Ms. McPeak
waived a car allowance in exchange for use of the automobile.
In
2004,
we issued 100,000 shares of our common stock to a director, Dr. Eliot Drell,
to
serve as the Chairman of our Medical Advisory Board.
In
2004,
we issued 100,000 shares of our common stock to a director, Dr. Ernie Bodai,
to
serve as our Corporate Medical Director.
In
April
2005, a direct response marketing company agreed to pay Patricia McPeak, our
former Chief Executive Officer and one of our directors, a royalty per unit
of
our products sold through infomercials that demonstrate certain of our products.
Pursuant to this agreement, Ms. McPeak should have earned approximately $270,000
in 2005 from this direct marketing company. The agreement provides for royalty
payments to be made over the next two years by the direct response marketing
company. These payments are not the obligations of NutraCea.
On
April
15, 2004, we paid a consulting fee to Drell-Pecha, a partnership in which Dr.
Elliot Drell, our director, is a partner. The consulting fee consisted of
300,000 shares of common stock and options to purchase an aggregate of 300,000
shares of common stock at $1.00 per share. 100,000 of the option shares vested
upon grant and the remaining 200,000 option shares vest at a rate of 50,000
option shares per year.
Private
Placement Transactions
In
May
2006, we sold approximately 17,560 shares of our Series C preferred stock at
a
price of $1,000.00 per share, and warrants to purchase an aggregate of
10,329,412 shares of our common stock with an exercise price of $1.35 per share,
to a small number of sophisticated investors in a private placement
transactions. Our Series C preferred stock can be converted to shares of our
common stock at a conversion rate of 1000/.85 shares of common stock for each
share of Series C preferred Stock. Gross proceeds from the offering were
approximately $17.56 million. The investors included The Pinnacle Fund, L.P.,
funds related to WS Management, Funds related to Enable Partners, Gryphon Master
Fund, Sherleigh Associates Profit Sharing Plan, Bushido Capital Master Fund,
Funds related to SRB Greenway Capital, Westpark Capital, Iroquois Master Fund
and Funds related to Xerion Partners Equity, which purchased 3,000, 2,000,
1,150, 1,000, 1,000, 1,000, 1,000, 1,000, 1,000 and 500 shares of Series C
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.”
SEC
UR
ITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The
following tables set forth certain information regarding beneficial ownership
of
our common stock, Series B preferred stock and Series C preferred stock as
of
May 23, 2006, by (i) each person or entity who is known by us to own
beneficially more than 5% of the outstanding shares of that class or series
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, Series
C
preferred stock or issuable upon exercise of options and warrants that are
currently exercisable or are exercisable within 60 days after May 23, 2006,
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. 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.
COMMON
STOCK
|
|
|
Shares
of Common Stock Beneficially Owned
|
|
|
Name
and Address of Beneficial Owner
|
|
Number
(1)
|
|
Percentage
(1)
|
|
|
Patricia
McPeak (2)
|
|
|
13,907,571
|
|
|
18.36
|
%
|
|
Langley
Park Investments PLC (3)
|
|
|
7,000,000
|
|
|
9.74
|
|
|
Bradley
D. Edson (4)
|
|
|
6,155,000
|
|
|
7.91
|
|
|
Monsanto
(5)
|
|
|
5,504,552
|
|
|
7.66
|
|
|
Funds
related to Pequot Capital Management, Inc. (6)
|
|
|
5,250,000
|
|
|
7.06
|
|
|
The
Pinnacle Fund, L.P. (7)
|
|
|
8,294,117
|
|
|
10.35
|
|
|
Leonardo,
L.P. (8)
|
|
|
7,500,000
|
|
|
9.45
|
|
|
James
C. Lintzenich (9)
|
|
|
2,888,852
|
|
|
3.93
|
|
|
Ike
E. Lynch (10)
|
|
|
1,687,542
|
|
|
2.30
|
|
|
Todd
C. Crow (11)
|
|
|
1,428,770
|
|
|
1.95
|
|
|
Margie
D. Adelman (12)
|
|
|
1,059,442
|
|
|
1.45
|
|
|
Eliot
Drell (13)
|
|
|
1,054,168
|
|
|
1.46
|
|
|
Steven
W. Saunders (14)
|
|
|
1,153,027
|
|
|
1.59
|
|
|
Edward
L. McMillan (15)
|
|
|
177,171
|
|
|
*
|
|
|
David
Bensol (16)
|
|
|
40,833
|
|
|
*
|
|
|
Kenneth
L. Shropshire (17)
|
|
|
5,833
|
|
|
*
|
|
|
All
directors and executive officers as a group (11 persons)
(18)
|
|
|
29,552,376
|
|
|
33.47
|
|
|
(1)
|
Applicable
percentage of ownership is based on 71,833,851 shares of our common
stock
outstanding as of May 23, 2006, together with applicable options
and
warrants for such shareholder exercisable within 60 days of May 23,
2006.
|
|
(2)
|
Includes
1,158,301 shares held by reporting person’s spouse, 1,900,775 shares
issuable upon exercise of options held by reporting person’s spouse and
2,002,882 shares issuable upon exercise of options held by reporting
person. 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.
|
|
(3)
|
The
address for the security holder is 30 Farringdon Street, London EC4A
4HJ.
|
|
(4)
|
Includes
6,000,000 shares issuable upon exercise of
options.
|
|
(5)
|
The
address for the security holder is: 800 N. Lindbergh, St. Louis,
MO
63167.
|
|
(6)
|
Shares
beneficially owned by Pequot Capital Management, Inc. represent shares
of
common stock underlying Series B preferred stock, of which 1,856,000
shares underlie preferred stock held of record by Pequot Scout Fund,
L.P.
and 1,294,000 shares underlie preferred stock 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
underlie warrants held of record by Pequot Scout Fund L.P. and 719,000
shares underlie warrants held of record by Pequot Mariner Master
Fund,
L.P. Also includes 206,000 and 144,000 shares held of record by Pequot
Scout Fund, L.P. and Pequot Mariner Master Fund L.P., respectively.
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. The address for the funds named
above
is 500 Myala Farm Road, Westport, CT
06880.
|
|
(7)
|
Securities
beneficially owned by The Pinnacle Fund, L.P. represent 3,529,411
shares
of common stock underlying Series C preferred stock, 2,000,000 shares
of
common stock underlying Series B preferred stock and 2,764,706 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. The holder
may not
convert the Series C convertible preferred stock into shares of our
common
stock if after the conversion, such holder, together with any of
its
affiliates, would beneficially own over 9.99% of the outstanding
shares of
our common stock. However, the 9.99% limitation would not prevent
the
holder from acquiring and selling in excess of 9.99% of our common
stock
through a series of conversions.
|
|
(8)
|
Includes
2,500,000 shares issuable upon exercise of warrants and 5,000,000
shares
issuable upon conversion of 2,500 shares of Series B preferred stock.
Leonardo Capital Management Inc. (“LCMI”) is the sole general partner of
Leonardo, L.P. Angelo, 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
Messrs. Angelo and Gordon disclaim beneficial ownership of the
securities held by Leonardo, L.P. The address of Leonardo, L.P. is
245
Park Avenue, 26
th
Floor,
New York, NY 10167.
|
|
(9)
|
Includes
1,371,411 shares issuable upon exercise of a warrant and 1,371,411
outstanding shares held by 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.
|
|
(10)
|
Includes
1,389,865 shares issuable upon exercise of options held by the reporting
person and the reporting person’s spouse. Also includes 11,065 shares
owned indirectly through the reporting person’s spouse. The reporting
person disclaims beneficial ownership with regard to all shares owned
by
her spouse.
|
|
(11)
|
Includes
1,419,070 shares issuable upon exercise of
options.
|
|
(12)
|
Includes
56,942 shares and an additional 2,500 shares issuable upon exercise
of
options held by Adelman Global of which the filing person is the
owner.
Also includes 1,000,000 shares issuable upon exercise of options
held by
the reporting person.
|
|
(13)
|
Includes
257,974 shares issuable upon exercise of options or warrants held
by
reporting person. Also includes 304,282 outstanding shares owned
by, and
314,987 shares issuable upon exercise of options or warrants held
by,
Drell-Pecha Partnership, of which the reporting person is a partner.
Also
includes 31,925 shares of common stock jointly held by reporting
person
and spouse.
|
|
(14)
|
Includes
513,025 shares issuable upon exercise of options and
warrants.
|
|
(15)
|
Includes
159,431 shares issuable upon exercise of
options.
|
|
(16)
|
Includes
5,833 shares issuable upon exercise of
options.
|
|
(17)
|
Includes
5,833 shares issuable upon exercise of
options.
|
|
(18)
|
Includes
an aggregate of 16,464,616 shares issuable upon exercise of options
and
warrants.
|
SERIES
B AND SERIES C PREFERRED STOCK
|
|
|
Shares
of Series B Preferred
Stock Beneficially Owned
|
|
Shares
of Series C Preferred Stock Beneficially Owned
|
|
|
Name
and Address of Beneficial Owner
|
|
Number
(1)
|
|
Percentage
(1)
|
|
Number
(2)
|
|
Percentage
(2)
|
|
|
Leonardo,
L.P. (3)
|
|
|
2,500
|
|
|
40.82
|
|
|
-
|
|
|
-
|
%
|
|
Funds
related to Pequot Capital Management, Inc.(4)
|
|
|
1,575
|
|
|
25.71
|
|
|
-
|
|
|
-
|
|
|
The
Pinnacle Fund, L.P.(5)
|
|
|
1,000
|
|
|
16.33
|
|
|
3,000
|
|
|
17.08
|
|
|
Reid
S. Walker and G. Stacy Smith (6)
|
|
|
-
|
|
|
-
|
|
|
2,000
|
|
|
11.39
|
|
|
Funds
related to Enable Partners (7)
|
|
|
200
|
|
|
3.27
|
|
|
1,150
|
|
|
6.55
|
|
|
Gryphon
Master Fund, L.P. (8)
|
|
|
-
|
|
|
-
|
|
|
1,000
|
|
|
5.69
|
|
|
Sherleigh
Associates Profit Sharing Plan (9)
|
|
|
-
|
|
|
-
|
|
|
1,000
|
|
|
5.69
|
|
|
Bushido
Capital Master Fund (10)
|
|
|
-
|
|
|
-
|
|
|
1,000
|
|
|
5.69
|
|
|
Steven
R. Becker (11)
|
|
|
-
|
|
|
-
|
|
|
1,000
|
|
|
5.69
|
|
|
Westpark
Capital (12)
|
|
|
-
|
|
|
-
|
|
|
1,000
|
|
|
5.69
|
|
|
Iroquois
Master Fund (13)
|
|
|
-
|
|
|
-
|
|
|
1,000
|
|
|
5.69
|
|
|
SF
Capital Partners (14)
|
|
|
|
|
|
|
|
|
1,000
|
|
|
5.69
|
|
|
Corsair
Capital Management, LLC (15)
|
|
|
-
|
|
|
-
|
|
|
1,000
|
|
|
5.69
|
|
|
Funds
related to Xerion Partners Equity (16)
|
|
|
350
|
|
|
5.71
|
|
|
500
|
|
|
2.85
|
|
|
Bradley
D. Edson
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Todd
C. Crow
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Ike
E. Lynch
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Margie
D. Adelman
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
David
Bensol
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Eliot
Drell
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
James
C. Lintzenich
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Edward
L. McMillan
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Patricia
McPeak
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Steven
W. Saunders
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Kenneth
L. Shropshire
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
All
directors and executive officers as a group (11 persons)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1)
|
Applicable
percentage of ownership is based on 6,125 shares of our Series B
preferred
stock outstanding as of May 23, 2006.
|
|
(2)
|
Applicable
percentage of ownership is based on 17,560 shares of Series C preferred
stock outstanding as of May 23,
2006.
|
|
(3)
|
Leonardo
Capital Management Inc. (“LCMI”) is the sole general partner of Leonardo,
L.P. Angelo, 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
Messrs. Angelo and Gordon disclaim beneficial ownership of the
securities held by Leonardo, L.P. The address of Leonardo, L.P. is
245
Park Avenue, 26
th
Floor,
New York, NY 10167.
|
|
(4)
|
Shares
beneficially owned by Pequot Capital Management, Inc. consist of
928
shares of Series B preferred stock held of record by Pequot Scout
Fund,
L.P. and 647 shares of Series B preferred stock 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. The address for the funds named above is 500 Myala Farm
Road,
Westport, CT 06880.
|
|
(5)
|
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.
|
|
(6)
|
Consists
of (i) 54 shares of Series C convertible stock owned by Walker Smith
Capital, L.P. (“WSC”), (ii) 307 shares of Series C convertible stock owned
by Walker Smith Capital (Q.P.), L.P. (“WSCQP”), (iii) 460 shares of Series
C convertible stock owned by Walker Smith International Fund, Ltd.
(“WS
International”) and (iv) 179 shares of Series C convertible stock owned by
HHMI Investments, L.P. (“HHMI”). WS Capital Management, L.P. (“WSC
Management”) is the general partner of WSC and WSCQP, the agent and
attorney-in-fact for WS International and the investment manager
of HHMI.
WS Capital, L.L.C. (“WS Capital”) is the general partner of WSC
Management. Reid S. Walker and G. Stacy Smith are the controlling
principals of WS Capital. Through their control of WS Capital, Messrs.
Walker and Smith share voting and investment control over the portfolio
securities of each of WSC, WSCQP, WS International and HHMI. The
address
for WS Capital is 300 Crescent Court, Suite 1111, Dallas, Texas 75201.
Pursuant to a letter agreement, Steven R. Becker may collaborate
with
Messrs. Walker and Smith on investment strategies from time to
time.
|
|
(7)
|
Securities
beneficially owned by Enable Partners consist of 160 and 40 shares
of
Series B preferred stock held of record by Enable Growth Partners
LP and
Enable Opportunity Partners LP, respectively, and 175 and 975 shares
of
Series C preferred stock held of record by Enable Growth Partners
LP and
Enable Opportunity Partners LP, respectively. 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.
The
address for the security holder named above is
One
Ferry Building, Suite 255, San Francisco, CA
94111.
|
|
(8)
|
The
natural person who has voting and dispositive power for the shares
held by
Gryphon Master Fund is E.B. Lyons, IV. Mr. Lyons disclaims beneficial
ownership of the shares except for his pecuniary interest. The address
for
Gryphon Master Fund, L.P. is 100 Crescent Court, Suite 490, Dallas,
Texas
75201.
|
|
(9)
|
The
natural person who has voting and dispositive power for the shares
held by
Sherleigh Associates Profit Sharing Plan is Jack Silver, who is Trustee
of
the fund. Mr. Silver disclaims beneficial ownership of the shares
except
for his pecuniary interest. The address for Sherleigh Associates
Profit
Sharing Plan is 920 Fifth Avenue, #3B, New York, New York, 10022.
|
|
(10)
|
Bushido
Capital Partners, Ltd. is the general partner of Bushido Capital
Master
Fund, L.P. and Christopher Rossman is the Managing Director of Bushido
Capital Partners, Ltd. Mr. Rossman disclaims beneficial ownership
of the
shares except for his pecuniary interest. The address for Bushido
Capital
Master Fund, L.P. is c/o Bushido Capital Partners, Ltd., 275 Seventh
Ave.,
Suite 2000, New York, New York
10001.
|
|
(11)
|
Consists
of (i) 48 shares of Series C convertible stock owned by SRB Offshore
Fund,
(ii) 848 shares of Series C convertible stock owned by SRB QP Fund
and
(iii) 104 shares of Series C convertible stock owned by SRB Capital
Fund.
SRB Management is the general partner of SRB Offshore Fund, SRB QP
Fund
and SRB Capital Fund. BCA is the general partner of SRB Management.
Steven
R. Becker is the sole principal of BCA. Through his control of BCA,
Mr.
Becker possesses sole voting and investment control over the portfolio
securities of each of SRB Offshore Fund, SRB QP Fund and SRB Capital
Fund.
The address for BCA is 300 Crescent Court, Suite 1111, Dallas, Texas
75201. Pursuant to a letter agreement, Steven R. Becker may collaborate
with Messrs. Walker and Smith on investment strategies from time
to
time.
|
|
(12)
|
The
natural person who has voting and dispositive power for the shares
held by
Westpark Capital, L.P. is Patrick J. Brosnahan, who is Managing Partner
of
the fund. Mr. Brosnahan disclaims beneficial ownership of the shares
except for his pecuniary interest. The address for Westpark Capital,
L.P.
is 4965 Preston Park Blvd., Suite 220, Plano, Texas 75093.
|
|
(13)
|
The
natural person who has voting and dispositive power for the shares
held by
Iroquois Master Fund Ltd. is Joshua Silverman, who is an authorized
signatory of the fund. Mr. Silverman disclaims beneficial ownership
of the
shares except for his pecuniary interest. The address for Iroquois
Master
Fund Ltd. is 641 Lexington Avenue, 26
th
Fl, New York, New York, 10022.
|
|
(14)
|
The
natural persons who have voting and dispositive power for the shares
held
by SF Capital Partners Ltd. are Michael A. Roth and Brian J. Stark.
Mr.
Roth and Mr. Stark disclaim beneficial ownership of the shares except
for
their respective pecuniary interests. The address for SF Capital
Partners
Ltd. is c/o Stark Offshore Management, LLC, 3600 South Lake Drive,
St.
Francis, Wisconsin 53235-3716.
|
|
(15)
|
Securities
beneficially owned by Corsair Capital Management, LLC (“Corsair”)
represent shares of common stock underlying Series C convertible
preferred
stock, of which 689 are held of record by Corsair Capital Partners
L.P.,
33 are held of record by Corsair Capital Partners 100 L.P., 78 are
held of
record by Corsair Capital Investors Ltd., and 200 are held of record
by
Corsair Select, L.P. The natural persons who have voting and dispositive
power for the shares held by Corsair are Steven Major and Jay Petschek.
Mr. Major and Mr. Petschek disclaim beneficial ownership of the shares
except for their respective pecuniary interests. The address of Corsair
is
The address for Corsair is 350 Madison Avenue, 9
th
Fl., New York, New York, 10017.
|
|
(16)
|
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 II Master
Fund
Limited is 450 Park Avenue, New York, New York
10022.
|
DESC
RIPT
ION
OF SECURITIES
Our
authorized capital stock consists of 200,000,000 shares of common stock, no
par
value, 20,000,000 shares of Preferred Stock, no par value, of which 3,000,000
shares are designated Series A Preferred Stock, 25,000 shares are designated
Series B Preferred Stock and 25,000 shares are designated Series C Preferred
Stock. As of May 23, 2006, there were 71,833,851 shares of common stock
outstanding, no shares of Series A Preferred Stock outstanding, 6,126 shares
of
Series B Preferred Stock outstanding, and 17,560 shares of Series C 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, 6,126 of which
are issued and outstanding as of May 23, 2006.
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.
Series
C Preferred Stock
We
have
authorized a total of 25,000 shares of Series C preferred stock, 17,560 of
which
are issued and outstanding as of May 23, 2006.
Voting
Series
C
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 C preferred stock.
These actions include, among other things, amending our Certificate of
Determination, Rights and Privileges of Series C preferred stock, authorizing
or
creating any capital stock senior to, or on parity with, the Series C preferred
stock, altering the powers, preferences or rights of the Series C preferred
stock, issuing additional shares of Series C preferred stock and incurring
certain debt.
Conversion
Each
share of Series C 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 $0.85. 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
C
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 C 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.
SE
LLI
NG
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 prior to this offering on May 23, 2006. The third column lists
the
number of shares of common stock that are covered by this prospectus. The fourth
and fifth columns list the number of shares of common stock owned and the
percentage of common stock owned, assuming to sale of all of the shares of
common stock covered by this prospectus. The following table assumes that the
number of shares beneficially owned, other than the shares offered hereby,
do
not change after May 23, 2006. We do not know how long the selling shareholders
will hold the shares set forth in the following table or how many shares they
will ultimately sell or otherwise dispose of pursuant to this
offering.
|
|
|
Common Shares
Beneficially Owned
Prior
to Offering
|
|
Common Shares
Offered by this
Prospectus
|
|
Common Shares
Beneficially Owned
After
Offering
|
|
Name
of Selling Sharehold
|
|
|
|
|
|
Number
|
|
Percentage
|
|
|
|
|
|
|
|
|
|
|
|
The
Pinnacle Fund, L.P (1)
|
|
8,294,117
|
|
5,294,117
|
|
3,000,000
|
|
4.0%
|
|
Gryphon
Master Fund, L.P. (2)
|
|
1,764,705
|
|
1,764,705
|
|
-
|
|
*
|
|
Westpark
Capital, L.P. (3)
|
|
1,764,705
|
|
1,764,705
|
|
-
|
|
*
|
|
Iroquois
Master Fund Ltd. (4)
|
|
1,764,705
|
|
1,764,705
|
|
-
|
|
*
|
|
Sherleigh
Associates Profit Sharing Plan (5)
|
|
1,764,705
|
|
1,764,705
|
|
-
|
|
*
|
|
Bushido
Capital Master Fund LP (6)
|
|
1,764,705
|
|
1,764,705
|
|
-
|
|
*
|
|
SF
Capital Partners Ltd. (7)
|
|
1,764,705
|
|
1,764,705
|
|
-
|
|
*
|
|
Enable
Opportunity Partners LP (8)
|
|
538,823
|
|
308,823
|
|
230,000
|
|
*
|
|
Enable
Growth Partners L.P. (8)
|
|
2,683,547
|
|
1,720,587
|
|
962,960
|
|
1.32%
|
|
SRB
Greenway Capital (QP), L.P. (9)
|
|
1,658,471
|
|
1,496,471
|
|
162,000
|
|
*
|
|
SRB
Greenway Capital, L.P. (9)
|
|
205,529
|
|
183,528
|
|
22,000
|
|
*
|
|
SRB
Greenway Offshore Operating Fund, L.P. (9)
|
|
100,705
|
|
84,705
|
|
16,000
|
|
*
|
|
Corsair
Capital Partners L.P. (10)
|
|
1,215,882
|
|
1,215,882
|
|
-
|
|
*
|
|
Corsair
Select, L.P. (10)
|
|
352,941
|
|
352,941
|
|
-
|
|
*
|
|
Corsair
Capital Investors Ltd. (10)
|
|
137,647
|
|
137,646
|
|
-
|
|
*
|
|
Corsair
Capital Partners 100 L.P. (10)
|
|
58,235
|
|
58,235
|
|
-
|
|
*
|
|
Sandor
Capital Master Fund, L.P. (11)
|
|
900,000
|
|
900,000
|
|
-
|
|
*
|
|
GSSF
Master Fund, L.P. (12)
|
|
882,353
|
|
882,353
|
|
-
|
|
*
|
|
Xerion
Partners II Master Fund Limited (13)
|
|
1,932,353
|
|
882,353
|
|
1,050,000
|
|
1.4%
|
|
Southwell
Partners, L.P. (14)
|
|
882,353
|
|
882,353
|
|
-
|
|
*
|
|
Walker
Smith International Fund, Ltd. (15)
|
|
811,764
|
|
811,764
|
|
-
|
|
*
|
|
Walker
Smith Capital (QP), L.P. (15)
|
|
541,764
|
|
541,764
|
|
-
|
|
*
|
|
HHMI
Investments, L.P. (15)
|
|
315,882
|
|
315,882
|
|
-
|
|
*
|
|
Walker
Smith Capital, L.P. (15)
|
|
95,294
|
|
95,294
|
|
-
|
|
*
|
|
WS
Opportunity Fund (QP), L.P. (16)
|
|
432,353
|
|
432,353
|
|
-
|
|
*
|
|
WS
Opportunity Fund, L.P. (16)
|
|
499,412
|
|
499,412
|
|
-
|
|
*
|
|
WS
Opportunity Fund International, Ltd. (16)
|
|
832,941
|
|
832,941
|
|
-
|
|
*
|
|
Pierce
Diversified Strategy Master Fund LLC (17)
|
|
617,646
|
|
617,646
|
|
-
|
|
*
|
|
Gamma
Opportunity Capital Partners, L.P. (18)
|
|
441,176
|
|
441,176
|
|
-
|
|
*
|
|
ClearView
Investment Fund, LP (19)
|
|
352,941
|
|
352,941
|
|
-
|
|
*
|
|
Insiders
Trend Fund L.P. (20)
|
|
352,941
|
|
352,941
|
|
-
|
|
*
|
|
Leo
E Mindel Non-Est Exempt Family Trust II (21)
|
|
176,471
|
|
176,471
|
|
-
|
|
*
|
|
Carlin
Multi-Manager Fund L.P. (22)
|
|
176,471
|
|
176,471
|
|
-
|
|
*
|
|
Geary
Partners L.P. (23)
|
|
436,514
|
|
151,764
|
|
284,750
|
|
*
|
|
Presidio
Partners (23)
|
|
533,500
|
|
150,000
|
|
383,500
|
|
*
|
|
Brady
Retirement Fund LP (23)
|
|
134,926
|
|
51,176
|
|
83,750
|
|
*
|
|
Bi-Coastal
Pharmaceutical Corp. (24)
|
|
250,000
|
|
250,000
|
|
-
|
|
*
|
|
Halpern
Capital, Inc. (25)
|
|
1,279,200
|
|
400,000
|
|
879,200
|
|
1.21%
|
|
Baruch
Halpern & Shoshana Halpern WROS(26)
|
|
909,900
|
|
50,000
|
|
859,900
|
|
*
|
|
David
Kolb(27)
|
|
159,900
|
|
50,000
|
|
109,900
|
|
*
|
|
Wolcott
Farms, Inc. (28)
|
|
122,760
|
|
122,760
|
|
-
|
|
*
|
|
Diane
and Kieran Adams
|
|
3,958
|
|
3,958
|
|
-
|
|
*
|
|
Bar
W, Inc (29)
|
|
81,831
|
|
81,831
|
|
-
|
|
*
|
|
Pat
Cassidy
|
|
3,443
|
|
3,443
|
|
-
|
|
*
|
|
2000
Cecil Family Trust (30)
|
|
49,292
|
|
49,292
|
|
-
|
|
*
|
|
Kathleen
Mehlschau
|
|
12,315
|
|
12,315
|
|
-
|
|
*
|
|
Mehlschau
Trust (31)
|
|
16,272
|
|
16,272
|
|
-
|
|
*
|
|
Maren
Newton
|
|
6,401
|
|
6,401
|
|
-
|
|
*
|
|
Val
Otterson
|
|
17,753
|
|
17,753
|
|
-
|
|
*
|
|
Dawn
O’Day
|
|
6,178
|
|
6,178
|
|
-
|
|
*
|
|
John
O’Day
|
|
6,178
|
|
6,178
|
|
-
|
|
*
|
|
Barry
Stone
|
|
12,315
|
|
12,315
|
|
-
|
|
*
|
|
Catherine
A. Stone Revocable Trust (32)
|
|
12,315
|
|
12,315
|
|
-
|
|
*
|
|
Winton
Family Trust (33)
|
|
11,353
|
|
11,353
|
|
-
|
|
*
|
|
Wayne
and Carol Hodges
|
|
7,397
|
|
7,397
|
|
-
|
|
*
|
|
*
|
Represents
holdings of less than one percent
|
|
(1)
|
Securities
beneficially owned by The Pinnacle Fund, L.P. represent 3,529,411
shares
of common stock underlying Series C convertible preferred stock,
2,000,000
shares of common stock underlying Series B convertible preferred
stock and
2,764,706 shares of common stock underlying warrants. 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 holder may not convert the Series
B
convertible preferred stock into shares of our common stock or exercise
warrants, if after the conversion, such holder, together with any
of its
affiliates, would beneficially own over 9.99% of the outstanding
shares of
our common stock. However, the 9.99% limitation would not prevent
the
holder from acquiring and selling in excess of 9.99% of our common
stock
through a series of conversions. Moreover, the holder may not convert
the
Series C convertible preferred stock into shares of our common stock
or
exercise warrants if after the conversion, such holder, together
with any
of its affiliates, would beneficially own over 4.99% or 9.99% of
the
outstanding shares of our common stock. However, the 4.99% and the
9.99%
limitations would not prevent the holder from acquiring and selling
in
excess of 4.99% or 9.99% of our common stock through a series of
conversions.
|
|
(2)
|
Securities
beneficially owned by Gryphon Master Fund represent 1,176,470 shares
of
common stock underlying Series C convertible preferred stock and
588,235
shares of common stock underlying warrants immediately exercisable.
The
natural person who has voting and dispositive power for the shares
held by
Gryphon Master Fund is E.B. Lyons, IV. Mr. Lyons disclaims beneficial
ownership of the shares except for his pecuniary interest.
|
|
(3)
|
Securities
beneficially owned by Westpark Capital, L.P. represent 1,176,470
shares of
common stock underlying Series C convertible preferred stock and
588,235
shares of common stock underlying warrants immediately exercisable.
The
natural person who has voting and dispositive power for the shares
held by
Westpark Capital, L.P. is Patrick J. Brosnahan, who is Managing Partner
of
the fund. Mr. Brosnahan disclaims beneficial ownership of the shares
except for his pecuniary interest.
|
|
(4)
|
Securities
beneficially owned by Iroquois Master Fund Ltd. represent 1,176,470
shares
of common stock underlying Series C convertible preferred stock and
588,235 shares of common stock underlying warrants immediately
exercisable. The natural person who has voting and dispositive power
for
the shares held by Iroquois Master Fund Ltd. is Joshua Silverman,
who is
an authorized signatory of the fund. Mr. Silverman disclaims beneficial
ownership of the shares except for his pecuniary interest.
|
|
(5)
|
Securities
beneficially owned by Sherleigh Associates Profit Sharing Plan represent
1,176,470 shares of common stock underlying Series C convertible
preferred
stock and 588,235 shares of common stock underlying warrants immediately
exercisable. The natural person who has voting and dispositive power
for
the shares held by Sherleigh Associates Profit Sharing Plan is Jack
Silver, who is Trustee of the fund. Mr. Silver disclaims beneficial
ownership of the shares except for his pecuniary interest.
|
|
(6)
|
Securities
beneficially owned by Bushido Capital Master Fund, L.P. represent
1,176,470 shares of common stock underlying Series C convertible
preferred
stock and 588,235 shares of common stock underlying warrants immediately
exercisable. Bushido Capital Partners, Ltd. is the general partner
of
Bushido Capital Master Fund, L.P. and Christopher Rossman is the
Managing
Director of Bushido Capital Partners, Ltd. Mr. Rossman disclaims
beneficial ownership of the shares except for his pecuniary interest.
|
|
(7)
|
Securities
beneficially owned by SF Capital Partners Ltd. represent 1,176,470
shares
of common stock underlying Series C convertible preferred stock and
588,235 shares of common stock underlying warrants immediately
exercisable. The natural persons who have voting and dispositive
power for
the shares held by SF Capital Partners Ltd. are Michael A. Roth and
Brian
J. Stark. Mr. Roth and Mr. Stark disclaim beneficial ownership of
the
shares except for their respective pecuniary interests. The selling
security holder has indicated to the issuer that it may be considered
an
affiliate of a broker-dealer. The selling security holder has represented
to the issuer that the securities were acquired in the ordinary course
of
business, and that at the time of the acquisition of securities,
the
selling security holder had no agreements or understandings, directly
or
indirectly, with any party to distribute the securities.
|
|
(8)
|
Securities
beneficially owned by Enable Partners represent shares of common
stock
underlying Series C convertible preferred stock, of which 1,147,058
are
held of record by Enable Growth Partners LP and 205,882 are held
of record
by Enable Opportunity Partners LP, and shares of common stock underlying
Series B convertible preferred stock, of which 362,960 shares are
held of
record by Enable Growth Partners LP and 80,000 shares are held of
record
by Enable Opportunity Partners LP. In addition, Enable Partners represents
shares of common stock underlying warrants immediately exercisable
of
which 1,173,529 shares are held of record by Enable Growth Partners
LP and
252,941 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. The selling security holder has indicated
to the
issuer that it may be considered an affiliate of a broker-dealer.
The
selling security holder has represented to the issuer that the securities
were acquired in the ordinary course of business, and that at the
time of
the acquisition of securities, the selling security holder had no
agreements or understandings, directly or indirectly, with any party
to
distribute the securities.
|
|
(9)
|
SRB
Management
is
the
general partner of SRB Offshore Fund, SRB QP Fund; and SRB Capital
Fund
is
the general partner of SRB Management
.
Steven
R. Becker is the sole principal of BCA. Through his control of BCA,
Mr.
Becker possesses sole voting and investment control over the portfolio
securities of
each
of SRB Offshore Fund, SRB QP Fund and SRB Capital Fund. Pursuant
to a
letter agreement, Steven R. Becker may collaborate with Messrs. Walker
and
Smith on investment strategies from time to time
.
|
|
(10)
|
Securities
beneficially owned by Corsair Capital Management, LLC (“Corsair”)
represent shares of common stock underlying Series C convertible
preferred
stock, of which 810,588 are held of record by Corsair Capital Partners
L.P., 38,823 are held of record by Corsair Capital Partners 100 L.P.,
91,764 are held of record by Corsair Capital Investors Ltd., and
235,294
are held of record by Corsair Select, L.P. In addition, Corsair represents
shares of common stock underlying warrants immediately exercisable
of
which 405,294 shares are held of record by Corsair Capital Partners
L.P.,
19,412 are held of record by Corsair Capital Partners 100 L.P., 45,882
are
held by Corsair Capital Investors Ltd., and 117,647 are held of record
by
Corsair Select, L.P. The natural persons who have voting and dispositive
power for the shares held by Corsair are Steven Major and Jay Petschek.
Mr. Major and Mr. Petschek disclaim beneficial ownership of the shares
except for their respective pecuniary interests. The selling security
holder has indicated to the issuer that it may be considered an affiliate
of a broker-dealer. The selling security holder has represented to
the
issuer that the securities were acquired in the ordinary course of
business, and that at the time of the acquisition of securities,
the
selling security holder had no agreements or understandings, directly
or
indirectly, with any party to distribute the securities.
|
|
(11)
|
Securities
beneficially owned by Sandor Capital Master Fund, L.P. represent
600,000
shares of common stock underlying Series C convertible preferred
stock and
300,000 shares of common stock underlying warrants immediately
exercisable. The natural person who has voting and dispositive power
for these shares is John S. Lemak, who is General Partner of the
fund. Mr. Lemak disclaims beneficial ownership of the shares except
for his pecuniary interest.
|
|
(12)
|
Securities
beneficially owned by GSSF Master Fund represent 588,235 shares of
common
stock underlying Series C convertible preferred stock and 294,118
shares
of common stock underlying warrants immediately exercisable. The
natural person who has voting and dispositive power for these shares
is
Tom C. Davis. Mr. Davis disclaims beneficial ownership of the shares
except for his pecuniary interest.
|
|
(13)
|
Securities
beneficially owned by Xerion Partners II Master Fund Limited represent
588,235 shares of common stock underlying Series C convertible preferred
stock, 700,000 shares of common stock underlying Series B convertible
preferred stock and 644,118 shares of common stock underlying warrants
immediately exercisable. The natural person who has voting and
dispositive power for these shares is Daniel J. Arbess. Mr. Arbess
disclaims beneficial ownership of the shares except for his pecuniary
interest.
|
|
(14)
|
Securities
beneficially owned by Southwell Partners, L.P. represent 588,235
shares of
common stock underlying Series C convertible preferred stock and
294,118
shares of common stock underlying warrants immediately exercisable.
The natural person who has voting and dispositive power for these
shares
is Wilson S. Jaeggli, who is Managing Director of the partnership.
Mr. Jaeggli disclaims beneficial ownership of the shares except for
his
pecuniary interest.
|
|
(15)
|
WSC
Management
is
the general partner
of
WSC and WSCQP, the agent and attorney-in-fact for WS International
and the
investment manager
of
HHMI
.
WS
Capital
is
the general partner of
WSC
Management.
Reid
S. Walker
and
G.
Stacy Smith
are
the
controlling
principals of WS Capital. Through
their
control
of WS Capital, Messrs
.
Walker
and Smith share voting and investment control over the portfolio
securities of each of WSC, WSCQP, WS International and HHMI. Pursuant
to a
letter agreement, Steven R. Becker may collaborate with Messrs. Walker
and
Smith on investment strategies from time to time.
|
|
(
16)
|
WS
Ventures Management, L.P. (“WSVM”) is the general partner of WS
Opportunity Fund, L.P. (“WSO”) and WS Opportunity Fund (Q.P.), L.P.
(“WSOQP”) and is the agent and attorney-in-fact for WS Opportunity Fund
International, Ltd. (“WSO International”). WSV Management, L.L.C. (“WSV
Management”) is the general partner of WSVM. Reid S. Walker, G. Stacy
Smith and Patrick P. Walker are the controlling principals of WSV
Management. Through their control of WSV Management, Messrs. R. Walker,
Smith and P. Walker share voting and investment control over the
portfolio
securities of each of WSO, WSOQP and WSO International. Pursuant
to a
letter agreement, Steven R. Becker may collaborate with Reid S. Walker,
G.
Stacy Smith and Patrick P. Walker on investment strategies from time
to
time.
|
|
(17)
|
Securities
beneficially owned by Pierce Diversified Strategy Master Fund LLC
represent 411,764 shares of common stock underlying Series C convertible
preferred stock and 205,882 shares of common stock underlying warrants
immediately exercisable. The natural person who has voting and
dispositive power for these shares is Mitch Levine, managing partner
of
the LLC. Mr. Levine disclaims beneficial ownership of the shares
except for his pecuniary interest. The selling security holder has
represented to the issuer that the securities were acquired in the
ordinary course of business, and that at the time of the acquisition
of
securities, the selling security holder had no agreements or
understandings, directly or indirectly, with any party to distribute
the
securities.
|
|
(18)
|
Securities
beneficially owned by Gamma Opportunity Capital Partners, L.P. represent
294,117 shares of common stock underlying Series C convertible preferred
stock and 441,176 shares of common stock underlying warrants immediately
exercisable. Gamma Opportunity Capital Partners, LP Class A is the
general
partner of Gamma Opportunity Capital Partners, L.P. Jonathan P. Knight
is
an authorized signatory of Gamma Opportunity Capital Partners, LP
Class A
and disclaims beneficial ownership of the shares except for his pecuniary
interest.
|
|
(19)
|
Securities
beneficially owned by Clear View Investment Fund, L.P. represent
235,294
shares of common stock underlying Series C convertible preferred
stock and
117,647 shares of common stock underlying warrants immediately
exercisable. The natural person who has voting and dispositive power
for these shares is Walter T. Beach, Managing Director of the
partnership. Mr. Beach disclaims beneficial ownership of the shares
except for his pecuniary interest.
|
|
(20)
|
Securities
beneficially owned by Insiders Trend Fund L.P. represent 235,294
shares of
common stock underlying Series C convertible preferred stock and
117,647
shares of common stock underlying warrants immediately exercisable.
The natural person who has voting and dispositive power for these
shares
is Anthony Marchese, General Partner. Mr. Marchese disclaims
beneficial ownership of the shares except for his pecuniary
interest.
|
|
(21)
|
Securities
beneficially owned by Leo E Mindel Non-Est Exempt Family Trust II
represent 117,647 shares of common stock underlying Series C convertible
preferred stock and 58,824 shares of common stock underlying warrants
immediately exercisable. The natural person who has voting and
dispositive power for these shares is Meg Mindel, Trustee of the
trust. Ms. Mindel disclaims beneficial ownership of the shares
except for her pecuniary interest.
|
|
(22)
|
Securities
beneficially owned by Carlin Multi-Manger Fund L.P. represent 117,647
shares of common stock underlying Series C convertible preferred
stock and
58,824 shares of common stock underlying warrants immediately
exercisable. The natural person who has voting and dispositive power
for these shares is Sachin Shah, who is director of the partnership.
Mr. Shah disclaims beneficial ownership of the shares except for
his
pecuniary interest. The selling security holder has indicated to the
issuer that it may be considered an affiliate of a broker-dealer.
The
selling security holder has represented to the issuer that the securities
were acquired in the ordinary course of business, and that at the
time of
the acquisition of securities, the selling security holder had no
agreements or understandings, directly or indirectly, with any party
to
distribute the securities.
|
|
(23)
|
Securities
beneficially owned by Presidio Management represent shares of common
stock
underlying Series C convertible preferred stock, of which 100,000
are held
of record by Presidio Partners, 101,176 are held of record by Geary
Partners L.P. and 34,117 are held of record by Brady Retirement Fund
L.P.,
and shares of common stock underlying Series B convertible preferred
stock, of which 256,000 are held of record by Presidio Partners,
190,000
are held of record by Geary Partners and 56,000 are held of record
by
Brady Retirement Fund. In addition, Presidio Management represents
shares
of common stock underlying warrants immediately exercisable of which
177,500 shares are held of record by Presidio Partners, 145,338 shares
are
held of record by Geary Partners L.P. and 44,809 shares are held
of record
by Brady Retirement Fund L.P. The natural person who has voting and
dispositive power for the shares held by all funds named above is
William
Brady, who is Managing Partner of all funds named above. Mr. Brady
disclaims beneficial ownership of the shares except for his pecuniary
interest.
|
|
(24)
|
Represents
250,000 shares of common stock underlying an outstanding warrant
received
subject to a service agreement.
|
|
(25)
|
Represents
warrants for Series B and Series C convertible preferred stock received
as
compensation for investment banking services. David Kolb and Baruch
Halpern have indicated to the issuer that they may be considered
affiliates of a broker-dealer. Mr. Kolb and Mr. Halpern have represented
to the issuer that the securities were acquired in the ordinary course
of
business, and that at the time of the purchase of shares, the selling
security holders had no agreements or understandings, directly or
indirectly, with any party to distribute the shares.
|
|
(26)
|
Represents
securities purchased and securities received as compensation for
investment banking services. Baruch Halpern has indicated that he
may be
considered an affiliate of a broker-dealer. Mr. Halpern has represented
to
the issuer that the securities were acquired in the ordinary course
of
business, and that at the time of the acquisition of securities,
the
selling security holder had no agreements or understandings, directly
or
indirectly, with any party to distribute the
securities.
|
|
(27)
|
Represents
securities received as compensation for investment banking services.
David
Kolb has indicated to the issuer that he may be considered an affiliate
of
a broker-dealer. Mr. Kolb has represented to the issuer that the
securities were acquired in the ordinary course of business, and
that at
the time of the purchase of shares, the selling security holder had
no
agreements or understandings, directly or indirectly, with any party
to
distribute the shares.
|
|
(28)
|
The
natural person who has voting and dispositive power for these shares
is
Win Wolcott. Mr. Wolcott disclaims beneficial ownership of the shares
except for his pecuniary interest.
|
|
(29)
|
The
natural person who has voting and dispositive power for these shares
is
Scott Wolcott. Mr. Wolcott disclaims beneficial ownership of the
shares except for his pecuniary interest.
|
|
(30)
|
The
natural persons who have voting and dispositive power for these shares
are
Calvert and Shirly Cecil, Trustees of the above named trust. Calvert
and
Shirly Cecil disclaim beneficial ownership of the shares except for
their
respective pecuniary interest.
|
|
(31)
|
The
natural persons who have voting and dispositive power for these shares
are
Donna and Howard Mehlschau, Trustees of the above-named trust. Donna
and
Howard Mehlschau disclaim beneficial ownership of the shares except
for
their respective pecuniary
interest.
|
|
(32)
|
The
natural persons who have voting and dispositive power for these shares
are
Evan and David Stone, Trustees. Evan and David Stone disclaim beneficial
ownership of the shares except for their respective
interest.
|
|
(33)
|
The
natural person who has voting and dispositive power for these shares
is
Margaret Winton, Trustee. Ms. Winton disclaims beneficial ownership
of the
shares except for her pecuniary
interest.
|
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 effective date of the registration
statement of which this prospectus is a
part;
|
|
|
·
|
broker-dealers
may agree with the selling shareholders to sell a specified number
of such
shares at a stipulated price per
share;
|
|
|
·
|
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or
otherwise;
|
|
|
·
|
a
combination of any such methods of sale;
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.
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) May 12, 2009, (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.
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.
The
consolidated financial statements of NutraCea as of December 31, 2005, and
for
each of the years in the two-year period ended December 31, 2005, 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.
W
HERE
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.
I
NDE
X
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, 2005
|
|
F-2
|
|
|
Consolidated
Statements of Operations for the years ended December 31, 2005
and
2004
|
|
F-4
|
|
|
Consolidated
Statements of Comprehensive Loss for the years ended December 31,
2005 and
2004
|
|
F-5
|
|
|
Consolidated
Statements of Changes in Stockholders' Equity as of December 31,
2005 and
2004
|
|
F-6
|
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2005
and
2004
|
|
F-7
|
|
|
Notes
to Consolidated Financial Statements
|
|
F-9
|
|
Interim
Financial Statements
|
|
|
|
|
Consolidated
Balance Sheet as of March 31, 2006 (Unaudited) and December 31,
2005
|
|
F-28
|
|
|
Consolidated
Statements of Operations for the three months ended March 31, 2006
and 2005 (Unaudited)
|
|
F-29
|
|
|
Consolidated
Statements of Comprehensive Losses for the three months ended March
31,
2006 and 2005 (Unaudited)
|
|
F-30
|
|
|
Consolidated
Statements of Cash Flows for the three months ended March 31, 2006
and
2005 (Unaudited)
|
|
F-31
|
|
|
Notes
to Unaudited Consolidated Financial Statements
|
|
F-32
|
|
The
RiceX Company and Subsidiaries
|
|
|
|
Annual
Financial Statements
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
F-37
|
|
|
Consolidated
Balance Sheet as of December 31, 2004
|
|
F-38
|
|
|
Consolidated
Statement of Operations for the year ended December 31,
2004
|
|
F-39
|
|
|
Consolidated
Statement of Shareholders' Equity as of December 31, 2004
|
|
F-40
|
|
|
Consolidated
Statement of Cash Flows for the year ended December 31,
2004
|
|
F-41
|
|
|
Notes
to Consolidated Financial Statements
|
|
F-42
|
|
Interim
Financial Statements
|
|
|
|
|
Consolidated
Balance Sheet as of September 30, 2005 (Unaudited)
|
|
F-52
|
|
|
Consolidated
Statement of Operations for the nine ended September 30, 2005
and 2004 (Unaudited)
|
|
F-53
|
|
|
Consolidated
Statement of Cash Flows for the nine months ended September 30, 2005
and 2004 (Unaudited)
|
|
F-54
|
|
|
Notes
to Unaudited Consolidated Financial Statements
|
|
F-55
|
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, 2005, and the related statements of operations, comprehensive loss, changes
in stockholders’ equity, and cash flows 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 audits.
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,
2005, 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
March
15,
2006
NUTRACEA
AND SUBSIDIARIES
Consolidated
Balance Sheets
The
financial statements and accompanying notes comprise twelve months of operations
for NutraCea and three months of operations for the recently-acquired
subsidiary, The RiceX Company, or RiceX.
|
NUTRACEA
AND SUBSIDIARIES
|
|
|
Consolidated
Balance Sheet
|
|
|
December
31, 2005
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
Cash
|
|
$
|
3,490,556
|
|
|
Marketable
securities
|
|
|
144,947
|
|
|
Accounts
receivable
|
|
|
2,514,961
|
|
|
Inventory
|
|
|
594,614
|
|
|
Prepaid
expenses
|
|
|
82,400
|
|
|
Total
current assets
|
|
|
6,827,478
|
|
|
|
|
|
|
|
|
Restricted
marketable securities
|
|
|
144,947
|
|
|
Property
and equipment
,
net
|
|
|
5,493,036
|
|
|
Patents
and trademarks
,
net
|
|
|
2,417,815
|
|
|
Goodwill
|
|
|
32,581,007
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
47,464,283
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
Accounts
payable
|
|
$
|
998,706
|
|
|
Accrued
expenses
|
|
|
248,282
|
|
|
Due
to related parties
|
|
|
2,897
|
|
|
Note
payable, current portion
|
|
|
6,069
|
|
|
Deferred
revenue
|
|
|
5,147
|
|
|
Total
current liabilities
|
|
|
1,261,101
|
|
|
|
|
|
|
|
|
Long
term liabilities
|
|
|
|
|
|
Note
payable, net of current portion
|
|
|
8,906
|
|
|
Total
liabilities
|
|
|
1,270,007
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
Convertible,
series B preferred stock, no par value, $1000 stated value 20,000,000
shares authorized 7,850 shares issued and outstanding
|
|
|
7,300,500
|
|
The
accompanying notes are an integral part of these financials
|
Shareholders'
equity
|
|
|
|
|
|
Common
stock, no par value 200,000,000 shares authorized 67,102,079 shares
issued
and outstanding
|
|
|
89,783,817
|
|
|
Accumulated
deficit
|
|
|
(48,799,935
|
)
|
|
Accumulated
other comprehensive income, unrealized loss on marketable
securities
|
|
|
(2,090,106
|
)
|
|
Total
shareholders' equity
|
|
|
38,893,776
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders' equity
|
|
$
|
47,464,283
|
|
The
accompanying notes are an integral part of these financials
|
NUTRACEA
AND SUBSIDIARIES
|
|
|
Consolidated
Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
For
the years ended
|
|
|
|
|
December
31,
|
|
|
|
|
2005
|
|
2004
|
|
|
Revenues
|
|
|
|
|
|
|
Net
product sales
|
|
$
|
5,564,151
|
|
$
|
1,009,729
|
|
|
Licensing
fees
|
|
|
-
|
|
|
214,500
|
|
|
Total
revenues
|
|
|
5,564,151
|
|
|
1,224,229
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
2,877,801
|
|
|
600,129
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
2,686,350
|
|
|
624,100
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Sales,
general and administrative
|
|
|
2,993,466
|
|
|
1,927,970
|
|
|
Research
and development
|
|
|
191,374
|
|
|
127,124
|
|
|
Share-based
compensation
|
|
|
1,511,417
|
|
|
20,998,118
|
|
|
Investor
relations
|
|
|
307,172
|
|
|
306,001
|
|
|
Professional
fees
|
|
|
677,339
|
|
|
816,249
|
|
|
Total
operating expenses
|
|
|
5,680,768
|
|
|
24,175,462
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(2,994,418
|
)
|
|
(23,551,362
|
)
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
18,299
|
|
|
4,497
|
|
|
Interest
expense
|
|
|
(896,021
|
)
|
|
(27,602
|
)
|
|
|
|
|
|
|
|
|
|
|
Total
other income (expense)
|
|
|
(877,721
|
)
|
|
(23,105
|
)
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(3,872,140
|
)
|
|
(23,574,467
|
)
|
|
|
|
|
|
|
|
|
|
|
Cumulative
preferred dividends
|
|
|
-
|
|
|
8,373
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss charged to common shareholders
|
|
$
|
(3,872,140
|
)
|
$
|
(23,582,840
|
)
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share
|
|
$
|
(0.10
|
)
|
$
|
(1.18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted weighted-average shares outstanding
|
|
|
38,615,344
|
|
|
19,905,965
|
|
The
accompanying notes are an integral part of these financials
|
NUTRACEA
AND SUBSIDIARIES
Consolidated
Statements of Comprehensive Loss
|
|
|
|
|
|
|
|
For
the years ended
December
31
|
|
|
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(
3,872,140
|
)
|
$
|
(23,574,467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive loss
|
|
|
|
|
|
|
|
|
Unrealized
loss on marketable securities
|
|
|
(2,090,106
|
)
|
|
(2,012,398
|
)
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss
|
|
$
|
(5,962,246
|
)
|
$
|
(25,586,865
|
)
|
The
accompanying notes are an integral part of these financials
NUTRACEA
AND SUBSIDIARIES
Consolidated
Statement of Changes in Stockholders' Equity
For
the Years ended December 31, 2005 and 2004
|
|
|
Convertible,
Redeemable
Series
A Preferred Stock
|
|
Common
Stock
|
|
Deferred
|
|
Other
Comprehensive
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Compensation
|
|
Loss
|
|
Deficit
|
|
Total
|
|
|
Balance,
December 31, 2003
|
|
|
670,000
|
|
$
|
351,790
|
|
|
11,773,842
|
|
$
|
20,979,874
|
|
$
|
(122,192
|
)
|
$
|
-
|
|
$
|
(21,344,955
|
)
|
$
|
(487,273
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,648
|
|
|
|
|
|
|
|
|
57,648
|
|
|
Common
stock cancelled
|
|
|
|
|
|
|
|
|
(50,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
Common
stock issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for
accounts payable
|
|
|
|
|
|
|
|
|
168,626
|
|
|
57,944
|
|
|
|
|
|
|
|
|
|
|
|
57,944
|
|
|
for
marketable securities
|
|
|
|
|
|
|
|
|
7,000,000
|
|
|
2,380,000
|
|
|
|
|
|
|
|
|
|
|
|
2,380,000
|
|
|
for
patent incentive plan
|
|
|
|
|
|
|
|
|
180,000
|
|
|
239,100
|
|
|
|
|
|
|
|
|
|
|
|
239,100
|
|
|
for
services rendered
|
|
|
|
|
|
|
|
|
4,407,950
|
|
|
3,470,100
|
|
|
|
|
|
|
|
|
|
|
|
3,470,100
|
|
|
for
settlements
|
|
|
|
|
|
|
|
|
5,780,000
|
|
|
8,837,816
|
|
|
|
|
|
|
|
|
|
|
|
8,837,816
|
|
|
Common
stock repurchased
|
|
|
|
|
|
|
|
|
(344,956
|
)
|
|
(230,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(230,000
|
)
|
|
Other
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,012,398
|
)
|
|
|
|
|
(2,012,398
|
)
|
|
Preferred
dividends converted to common stock
|
|
|
|
|
|
(5,986
|
)
|
|
5,759
|
|
|
5,986
|
|
|
|
|
|
|
|
|
|
|
|
5,986
|
|
|
Preferred
stock converted to common stock
|
|
|
(540,000
|
)
|
|
(348,351
|
)
|
|
630,000
|
|
|
348,351
|
|
|
|
|
|
|
|
|
|
|
|
348,351
|
|
|
Preferred
stock dividend
|
|
|
|
|
|
8,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,373
|
)
|
|
(8,373
|
)
|
|
Preferred
stock dividend paid
|
|
|
|
|
|
(48,004
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock repurchased
|
|
|
(130,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclass
of options to preferred stock
|
|
|
62,651
|
|
|
|
|
|
(62,651
|
)
|
|
|
|
|
|
|
|
|
|
|
(62,651
|
)
|
|
|
|
|
Reversal
of stock options
|
|
|
|
|
|
|
|
|
|
|
|
(48,590
|
)
|
|
48,590
|
|
|
|
|
|
|
|
|
-
|
|
|
Stock
options cancelled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
Stock
options exercised for cash
|
|
|
|
|
|
|
|
|
6,579,323
|
|
|
2,776,468
|
|
|
|
|
|
|
|
|
|
|
|
2,776,468
|
|
|
Stock
options issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for
notes payable
|
|
|
|
|
|
|
|
|
|
|
|
786,370
|
|
|
|
|
|
|
|
|
|
|
|
786,370
|
|
|
for
services rendered
|
|
|
|
|
|
|
|
|
|
|
|
8,582,516
|
|
|
|
|
|
|
|
|
|
|
|
8,582,516
|
|
|
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
|
|
|
Amortization
of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
80,954
|
|
|
|
|
|
|
|
|
80,954
|
|
|
|
|
|
Common
stock issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for
Consultants
|
|
|
|
|
|
|
|
|
1,904,805
|
|
|
906,759
|
|
|
|
|
|
|
|
|
|
|
|
906,759
|
|
|
for
Officers/Directors
|
|
|
|
|
|
|
|
|
70,000
|
|
|
30,100
|
|
|
|
|
|
|
|
|
|
|
|
30,100
|
|
|
for
Patent Incentive Plan
|
|
|
|
|
|
|
|
|
30,000
|
|
|
12,600
|
|
|
|
|
|
|
|
|
|
|
|
12,600
|
|
|
for
Settlement
|
|
|
|
|
|
|
|
|
97,000
|
|
|
97,655
|
|
|
|
|
|
|
|
|
|
|
|
97,655
|
|
|
Preferred
Stock issued to Investors
|
|
|
7,850
|
|
|
7,850,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,850,000
|
|
|
RiceX
Acquisition
|
|
|
|
|
|
(20,473
|
)
|
|
28,272,064
|
|
|
40,028,539
|
|
|
|
|
|
|
|
|
|
|
|
40,028,539
|
|
|
Stock
options/warrants exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for
Cash
|
|
|
|
|
|
|
|
|
531,000
|
|
|
105,432
|
|
|
|
|
|
|
|
|
|
|
|
105,432
|
|
|
for
Cashless
|
|
|
|
|
|
|
|
|
66,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
Stock
options/warrants issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for
Consultants
|
|
|
|
|
|
|
|
|
|
|
|
349,449
|
|
|
|
|
|
|
|
|
|
|
|
349,449
|
|
|
for
Employees
|
|
|
|
|
|
|
|
|
|
|
|
130,000
|
|
|
(65,000
|
)
|
|
|
|
|
|
|
|
65,000
|
|
|
for
Commissions
|
|
|
|
|
|
(549,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(549,500
|
)
|
|
Net
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(77,708
|
)
|
|
(3,872,140
|
)
|
|
(3,949,848
|
)
|
|
Balance,
December 31, 2005
|
|
|
7,850
|
|
$
|
7,300,500
|
|
|
67,102,079
|
|
$
|
89,783,817
|
|
$
|
0
|
|
$
|
(2,090,106
|
)
|
$
|
(48,799,935
|
)
|
$
|
46,194,277
|
|
The
accompanying notes are an integral part of these financials
|
NUTRACEA
AND SUBSIDIARIES
|
|
|
Consolidated
Statements of Cash Flows
|
|
|
|
|
|
|
|
For
the Years Ended
|
|
|
|
|
December
31,
|
|
|
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(3,872,140
|
)
|
$
|
(23,574,467
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,091,390
|
|
|
38,057
|
|
|
Non-cash
issuances of common stock
|
|
|
1,017,014
|
|
|
12,365,859
|
|
|
Non-cash
issuances of stock options & warrants
|
|
|
509,549
|
|
|
9,306,234
|
|
|
Modifications
of options and warrants, non-employees
|
|
|
-
|
|
|
62,651
|
|
|
Modifications
of options and warrants, employees
|
|
|
-
|
|
|
(48,590
|
)
|
|
(Increase)
decrease in
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(2,094,131
|
)
|
|
22,772
|
|
|
Inventory
|
|
|
107,488
|
|
|
(233,170
|
)
|
|
Prepaid
expenses and other current assets
|
|
|
(106,395
|
)
|
|
(15,898
|
)
|
|
Increase
(decrease) in
|
|
|
|
|
|
|
|
|
Advances
from related parties
|
|
|
(71,081
|
)
|
|
55,590
|
|
|
Accounts
payable
|
|
|
246,030
|
|
|
(43,280
|
)
|
|
Deferred
compensation
|
|
|
-
|
|
|
106,238
|
|
|
Accrued
expenses
|
|
|
(106,040
|
)
|
|
(43,771
|
)
|
|
Customer
deposits
|
|
|
(100,000
|
)
|
|
-
|
|
|
Net
cash used in operating activities
|
|
|
(3,378,316
|
)
|
|
(2,001,775
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
Purchase
of The RiceX Company, net of $546,148 cash received
|
|
|
32,777
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(14,181
|
)
|
|
(117,421
|
)
|
|
Payments
for patents and trademarks
|
|
|
(82,420
|
)
|
|
(56,184
|
)
|
|
Net
cash used in investing activities
|
|
|
(63,824
|
)
|
|
(173,605
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds
from notes payable, net
|
|
|
-
|
|
|
1,635,174
|
|
|
Proceeds
from private placement
|
|
|
7,300,500
|
|
|
-
|
|
|
Principal
payments on notes payable, net of discount
|
|
|
(2,401,517
|
)
|
|
-
|
|
|
Payment
of preferred dividends
|
|
|
-
|
|
|
(48,004
|
)
|
|
Repurchase
of preferred stock
|
|
|
-
|
|
|
(130,000
|
)
|
|
Repurchase
of common stock
|
|
|
-
|
|
|
(230,000
|
)
|
|
Proceeds
from exercise of stock options
|
|
|
105,432
|
|
|
2,776,468
|
|
|
Net
cash provided by financing activities
|
|
|
5,004,415
|
|
|
4,003,638
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash
|
|
|
1,562,275
|
|
|
1,828,258
|
|
|
Cash,
beginning of year
|
|
|
1,928,281
|
|
|
100,023
|
|
|
Cash,
end of year
|
|
$
|
3,490,556
|
|
$
|
1,928,281
|
|
The
accompanying notes are an integral part of these financials
|
NUTRACEA
AND SUBSIDIARIES
|
|
Consolidated
Statements of Cash Flows
(continued)
|
|
Cash
paid for interest
|
|
$
|
137,043
|
|
$
|
1,391
|
|
|
Cash
paid for income taxes
|
|
$
|
-
|
|
$
|
-
|
|
|
Non-cash
disclosures
|
|
|
|
|
|
|
|
|
Purchase
of Langley PLC shares with common stock
|
|
$
|
-
|
|
$
|
2,380,000
|
|
|
Payments
for patents with common stock
|
|
$
|
12,600
|
|
$
|
239,100
|
|
|
Conversion
of preferred stock to common stock
|
|
$
|
-
|
|
$
|
354,337
|
|
The
accompanying notes are an integral part of these financials
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”) reorganized 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 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.
NutraGlo
is a wholly-owned subsidiary of NutraCea. This subsidiary of the Company markets
NutraCea’s products to the equine market.
On
October 4, 2005, NutraCea consummated the acquisition of RiceX pursuant to
the
terms of an Agreement and Plan of Merger, dated April 4, 2005. RiceX survived
the merger as a wholly-owned subsidiary of NutraCea. RiceX stockholders received
.076799 of NutraCea common stock for each share of RiceX common stock. RiceX
shareholders received 28,272,064 shares of NutraCea common stock, valued at
$29,120,226 and NutraCea assumed the outstanding RiceX options and warrants
to
purchase 11,810,507 NutraCea common stock, valued at $11,421,684.
Due
to
the recent acquisition of RiceX, and the subsequent reorganization, NutraCea
and
its subsidiaries are operating as one segment.
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, Nu
traGlo®,
and The RiceX Company
(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. Bad debt expense is recognized
based on management’s estimate of likely losses per year, based on past
experience and an estimate of current year uncollectible amounts. As of December
31, 2005, 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
stabilized rice bran manufactured by RiceX, and nutraceutical products
manufactured by NutraCea.
NUTRACEA
AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
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
|
2.4-7
years
|
|
Property
and equipment
|
7-10
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
-In
addition to patents filed and acquired directly by the Company, the Company
owns
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.
In
conjunction with the RiceX acquisition, NutraCea has been assigned five U.S.
patents relating to the production or use of Nutraceutical or HVF products.
The
patents include:
|
|
(1)
|
Patent
Number 5,512,287 "PRODUCTION OF BETA-GLUCAN AND BETA-GLUCAN PRODUCT,"
which issued on April 30,
1996;
|
|
|
(2)
|
Patent
Number 5,985,344 "PROCESS FOR OBTAINING MICRONUTRIENT ENRICHED RICE
BRAN
OIL," which issued on November 16, 1999;
|
|
|
(3)
|
Patent
Number 6,126,943 "METHOD FOR TREATING HYPERCHOLESTEROLEMIA,
HYPERLIPIDEMIA, AND ATHEROSCLEROSIS," which issued on October 3,
2000;
|
|
|
(4)
|
Patent
Number 6,303,586 B1 "SUPPORTIVE THERAPY FOR DIABETES, HYPERGLYCEMIA
AND
HYPOGLYCEMIA," which issued on October 15, 2001; and
|
|
|
(5)
|
Patent
Number 6,350,473 B1 "METHOD FOR TREATING HYPERCHOLESTEROLEMIA,
HYPERLIPIDEMIA AND ATHEROSCLEROSIS," which issued on February 26,
2002.
|
We
plan
to apply for additional patents in the future as new products, treatments and
uses are developed.
Amortization
is computed on the straight-line method based on estimated useful lives of
12.25
to 20 years. The Company also has registered trademarks, which are amortized
over estimated useful lives of 10 years.
Deferred
Compensation
-Deferred
compensation at December 31, 2005 represents the intrinsic value of options
previously issued to employees that have not been vested. All such options
have
vested as of December 31, 2005.
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.
NUTRACEA
AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
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.
|
|
|
For
the years
Ended
December 31,
|
|
|
|
|
2005
|
|
2004
|
|
|
Net
loss available to common shareholders:
|
|
|
|
|
|
|
As
reported:
|
|
$
|
(3,872,140
|
)
|
$
|
(23,582,840
|
)
|
|
Add:
Stock-based compensation to employees under intrinsic value based
method
|
|
|
130,000
|
|
|
832,069
|
|
|
Deduct:
Stock-based compensation to employees under fair value based
method
|
|
|
(516,992
|
)
|
|
(3,204,309
|
)
|
|
Pro
forma:
|
|
$
|
(4,259,062
|
)
|
$
|
(25,955,080
|
)
|
|
Basic
loss per common share:
|
|
|
|
|
|
|
|
|
As
reported:
|
|
$
|
(0.10
|
)
|
$
|
(1.18
|
)
|
|
Pro
forma:
|
|
$
|
(0.11
|
)
|
$
|
(1.31
|
)
|
Advertising
Expense-
The
Company expenses all advertising costs, including direct response advertising,
as they are incurred. Advertising expense for 2005 and 2004 was $7,607 and
$22,074, 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.
NUTRACEA
AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
Concentrations
of Credit Risk
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. For the year ended December
31, 2005, sales to this customer totaled $3,012,947 or 54% of total
sales.
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 2005, sales to this customer totaled $1,071,038 or 19% of total sales.
Reclassifications
- Certain reclassifications have been made to the prior year statement of
operations to conform to the current year presentation.
Recently
Issued Accounting Pronouncements-
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 in Stock-Based Compensation
above.
NutraCea
does not expect the adoption of any other issued accounting pronouncements
to
have a significant impact on its results of operations, financial position
or
cash flows.
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, which is
actively traded on a London Stock Exchange. 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, 2005, the NutraCea shares had not lost any value. However, the
Langley shares are marked down to their fair market value of $289,894, with
one-half or $144,947 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.
NUTRACEA AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
NOTE
4 - PROPERTY AND EQUIPMENT
Property
and equipment at December 31, 2005 consisted of the following:
|
Land
|
|
$
|
5,000
|
|
|
Furniture
and equipment
|
|
|
698,570
|
|
|
Automobile
|
|
|
73,096
|
|
|
Software
|
|
|
366,664
|
|
|
Leasehold
improvements
|
|
|
395,871
|
|
|
Property
and plan
|
|
|
4,510,000
|
|
|
Subtotal
|
|
|
6,049,201
|
|
|
Less
accumulated depreciation
|
|
|
(556,165
|
)
|
|
Total
|
|
$
|
5,493,036
|
|
Depreciation
expense was $240,795 and $16,303 for 2005 and 2004, respectively.
NOTE
5 - PATENTS AND TRADEMARKS
Patents
and trademarks at December 31, 2005 consisted of the following:
|
Patents
|
|
$
|
2,456,988
|
|
|
Trademarks
|
|
|
80,154
|
|
|
Subtotal
|
|
|
2,537,132
|
|
|
Less
accumulated amortization
|
|
|
(119,317
|
)
|
|
Total
|
|
$
|
2,417,815
|
|
Amortization
expense was $69,815 and $21,754 for 2005 and 2004, 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. At October 4, 2005, the principle and
interest on the three promissory notes were paid in full.
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. During 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, 2005, NutraCea had accumulated net
operating loss ("NOL") carryforwards for income tax purposes of approximately
$23.0 million, resulting in a deferred tax asset amount of $8.0 million. All
deferred tax asset amounts are fully reserved. These carryforwards expire in
2019 through 2025.
NUTRACEA AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
NOTE
9 - COMMITMENTS AND CONTINGENCIES
Employment
contracts
Minimum
future payments for key employees are as follows:
|
|
|
Year
Ending
December
31,
|
|
|
|
|
|
|
|
2006
|
|
$
|
766,666
|
|
|
2007
|
|
|
950,000
|
|
|
2008
|
|
|
245,770
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,962,436
|
|
Lease
NutraCea
leases its office, laboratory and warehouse space in El Dorado Hills, California
under a non-cancelable operating lease with Roebbelen that expires in September
2006 and requires monthly payments of $7,414
.
The
Company also leases warehouse space in West Sacramento, California which expires
in July of 2006 for $5,440 per month. RiceX leases office space in Burley,
Idaho
at a rate of $550 per month, expiring in May of 2009. Future minimum payments
under these leases at December 31, 2005 were as follows:
|
|
|
Year
Ending
December
31,
|
|
|
|
|
|
|
|
2006
|
|
$
|
111,406
|
|
|
2007
|
|
|
6,600
|
|
|
2008
|
|
|
6,600
|
|
|
2009
|
|
|
2,200
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
126,806
|
|
Rent
expense was $110,501 and $64,688 for the years ended December 31, 2005 and
2004,
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, Patricia
McPeak and John Howell, to reflect quarterly bonuses. Under the contract,
compensation was to be $45,000 per calendar quarter, with 250,000 shares of
common stock to be granted in the event NutraCea achieved gross revenues of
$1
million or more for the quarter. In addition, a one-time stock grant of 550,000
shares of common stock shall 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 former
Chief Executive Officer, Patricia McPeak. Patricia McPeak, the former Chief
Executive Officer will be eligible to receive an annual bonus under terms
otherwise governing the annual bonus program.
The
bonus
amount for both executives
in 2004
totaled $180,000, and was paid on April 1, 2004.
NUTRACEA AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
Effective
January 1, 2004, NutraCea amended the stock options section of John Howell’s
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”. The President resigned
on July 20, 2004.
For
the
year ended December 31, 2004, NutraCea entered into two consulting agreements
with two communications companies. The terms of the agreements ranged from
6
months to 1 year, compensation was $34,600 in cash, plus 27,930 shares of common
stock valued at $43,350.
During
fiscal 2004, NutraCea entered into two 90-day consulting agreements with two
financial relations companies. Total compensation was $50,000 cash, and 300,000
shares of common stock valued at $142,000.
On
March
25, 2004, NutraCea entered into two, two-year consulting agreements with two
medical advisors and directors. Under the terms of the agreement, compensation
was 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 were valued
at $286,000, and the options were valued at $107,684.
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 issued 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 were valued at $102,782.
On
April
29, 2004, NutraCea entered into a one-year consulting agreement for research
and
development (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 were valued at $91,370
and
expire in 5 years. Either party can cancel this agreement with 30-day written
notice.
For
the
year ended December 31, 2004, NutraCea entered into nine contracts ranging
from
6 months to one year with nine sales and marketing consultants. Total
compensation included $ 24,000 in cash, 5,540,000 options and warrants valued
at
$6,245,400, and 1,589,772 shares of common stock valued at $1,188,500. The
terms
of the options and warrants ranged from an exercise price from $.001 to $1.20,
immediately vested, and exercisable from 6 months to 3 years.
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. In 2005, this consultant signed an employment contract
to become the Company’s Senior Vice President and Corporate
Secretary.
In
2004,
NutraCea 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
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 bonus. The bonus for 2004, was $125,000 and 1,000,000 shares of
common stock valued at $370,000.
NUTRACEA
AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
On
December 17, 2004, NutraCea entered into an employment contract with Bradley
Edson to become the Company’s President, whereby the Company will 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. 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 were valued at $600,000, are immediately exercisable,
and
expire in ten years from the date of issuance.
On
December 10, 2004 the Company entered into an employment agreement that expires
December 31, 2007 with its former Chief Executive Officer, Patricia McPeak,
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. 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 were valued at
$200,000, immediately exercisable and expire in ten years from the date of
issuance.
On
January 25, 2005, NutraCea entered into a three year employment agreement with
Margie Adelman, its Senior Vice President and Secretary 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, valued at $130,000, 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.
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.
On
January 26, 2005 NutraCea entered into a 3 year, non-exclusive domestic
agreement to distribute NutraCea’s rice based nutraceutical products. An initial
order for $25,000 was made concurrently with the signing of the agreement.
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.
On
February 9, 2005, NutraCea issued 200,000 stock options with an exercise price
of $0.45 per share, vesting over three years, to two employees of NutraCea
with
each receiving 100,000 options. These options were granted at market price
and
the intrinsic value of the employee options were valued at $0.
On
February 10, 2005, 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, expiring in 3 year, valued at $45,224.
NUTRACEA
AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
On
March
1, 2005, NutraCea amended and restated a consulting agreement for science
research and development (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. Also, in November of 2005, NutraCea executed an agreement
with this consultant for rights to use two clinical studies in perpetuity
for
$10,000. If any patent is granted by the patent office to NutraCea, which
uses
the clinical studies as supporting documentation, the Company agrees to pay
the
consultant an additional payment of $10,000.
In
February of 2005, the Company terminated a consulting agreement with a retired
employee, then in May of 2005, NutraCea entered into a one year consulting
agreement (with Company options to extend on an annual basis) with the same
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.
In
2005,
NutraCea entered into a two medical advisory agreements ranging from 1 year
to 5
years. Under the terms of one the agreements, annual compensation shall be
15,000 warrants to purchase shares of common stock at the market price on the
anniversary date for the next four years. The option price for the first year
of
service is a price of $.50 per share, expiring in 3 years, valued at $5,462.
The
other agreement paid 8,000 shares of common, valued at $10,400, and options
of
30,000 shares at $.60 a share, expiring in 5 years, valued at
$34,121.
On
March
23, 2005, NutraCea agreed to pay $15,000 of unpaid fees to a web design
consultant and issued 26,786 shares of common stock, valued at $15,000.
On
April
5, 2005, NutraCea hired a financial services firm for $50,000 to assist in
evaluating the proposed merger with RiceX and to provide a fairness
opinion.
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. This
agreement was subsequently terminated in August 2005 and total of 105,000
options vested during the term that this contract was effective. The options
are
vested, expire in 4 year, with an exercise price of $.60 a share.
On
April
12, 2005, NutraCea granted various rights to its principal equine division
products customer that specifically include:
|
|
(1)
|
The
grant to NutraCea of exclusive worldwide rights to manufacture certain
equine products for the customer.
|
|
|
(2)
|
The
transfer and assignment of the customer’s technology rights granted to it
in a prior agreement for 1,222,222 shares of NutraCea’s common stock.
|
|
|
(3)
|
The
transfer and assignment of technology rights of a limited liability
corporation formed by the customer and granted to it in a prior agreement
for 166,667 shares of NutraCea’s common
stock
|
NUTRACEA AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
|
|
(4)
|
The
grant of marketing and distribution rights to the customer
covering:
|
|
|
a)
|
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
|
|
|
b)
|
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.
|
The
customer agrees to use NutraCea as the exclusive manufacturer for any new,
non-human products as defined and may owe a royalty to NutraCea of 5% royalty
on
new products on revenues exceeding specified annual minimum volume
levels.
On
April
18, 2005, a direct response marketing company hired NutraCea’s former Chief
Executive Officer, Patricia McPeak, 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. This contract was amended
on
August 24, 2005. 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 the products designated
in the agreement 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
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. Based on the performance schedule in the contract,
the Company issued 359,182 shares of common stock, valued at
$171,959.
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, expiring
in 5 years, valued $90,044, expiring in five years, and vesting on the contract
anniversary date.
On
July
1, 2005 NutraCea hired a company for 12 months (which can be terminated by
written notice by either party) to provide potential qualified customer
introductions. NutraCea granted the company an option to purchase 250,000 shares
of restricted common stock at a price of $0.65 per share. The options do 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, valued at $120,221.
In
conjunction with the private placement of series B preferred stock, NutraCea
exclusively hired a financial advisory services company for a term of 12 months.
Compensation was a $10,000 advisory fee and 1,099,000 options to purchase common
stock, with an exercise of $.50 expiring in five years, valued at
$1,085,713.
NUTRACEA
AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
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 S-8 shares of common stock plus $15,000 in
cash or
its equivalent value in S-8 shares of common stock. Also, during the term
of the
contract, NutraCea shall pay monthly either $5,000 cash or S-8 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
July
14, 2005, NutraCea hired for 9 months (and can be terminated by either party),
an individual to assist in forming a joint operating agreement with a rice
mill
in either Ecuador or Colombia. 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 100,000
servings per day for the first two years while a production plant is being
constructed and a subsequent commitment for an additional 1,000,000 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.
In
the
fall of 2005, the Company entered into agreements with four international
companies, serving seven countries, as follows:
|
|
(1)
|
A
joint venture with a Dominican Republic rice mill was formed with
NutraCea, 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 entities in the Dominican Republic
and
Haiti.;
|
|
|
(2)
|
The
Company signed an agreement with an industrial consortium in Colombia
to
study
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), responsible for providing all the
necessary land and space required for the implementation of the plants,
and providing for all of the sales and distribution as part of its
contribution to the joint entity. It is the intention of the parties
to
execute a formal definitive agreement on or before March 25, 2006.;
|
|
|
(3)
|
NutraCea
agreed with an Ecuadorian company to study arriving 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.; and,
|
|
|
(4)
|
NutraCea
signed a Supply and Distribution Agreement with T. Geddes Grant,
a
Jamaican Corporation, to deliver a customized formulated and fortified
RiSolubles mix. 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. T. Geddes Grant is 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.
|
On
November 8, 2005, the Company granted the non-exclusive right to advertise,
promote, market, sell and distribute NutraCea’s products world-wide for two
years. If this distributor achieves net sales in amounts of $500,000 per
calendar quarter, then NutraCea may agree to an exclusive arrangement. NutraCea
may terminate with agreement with 90 days written notice.
NUTRACEA
AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
Merger
with the RiceX Company
On
October 4, 2005, NutraCea merged with RiceX, with RiceX surviving the Merger
as
a wholly-owned subsidiary of NutraCea. Each share of RiceX common stock
outstanding was converted into the right to receive 0.76799 shares of NutraCea’s
common stock.
The
stockholders of RiceX received 28,272,064 shares of NutraCea common stock in
exchange for 100% of the shares of RiceX common stock, and NutraCea assumed
the
outstanding options and warrants to purchase 11,810,507 shares of RiceX common
stock.
Private
Placement
On
October 4, 2005, certain 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.
NutraCea
analyzed these instruments for derivative accounting consideration under SFAS
133 and EITF 00-19. NutraCea determined that derivative accounting is not
applicable for the Series B Convertible Preferred Stock.
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.
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. In 2005, we issued the final 97,000 shares, valued at $97,655,
to
Faraday to settle in full the executed Settlement Agreement.
NUTRACEA
AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
NOTE
10-
THE RICEX ACQUISITION
On
October 4, 2005, NutraCea merged with RiceX. The stockholders of RiceX received
28,272,064 shares of NutraCea common stock in exchange for 100% of the shares
of
RiceX common stock, and NutraCea assumed the outstanding options and warrants
to
purchase 11,810,507 shares of RiceX common stock.
On
October 4, 2005, certain investors purchased an aggregate of 7,850 shares of
Series B Convertible Preferred Stock at a price of $1,000 per share.
Additionally, 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. 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.
The
acquisition was accounted for using the purchase method of accounting. The
purchase price allocation included within these Consolidated Financial
Statements is based on a purchase price of $40,541,910 calculated as
follows:
|
NutraCea
shares issued
|
|
|
28,272,064
|
|
|
Price
per share (NutraCea closing price, October 4, 2005)
|
|
$
|
1.03
|
|
|
Aggregate
value of NutraCea common stock consideration
|
|
$
|
29,120,226
|
|
|
Value
of the RiceX warrants and options assumed
|
|
|
11,421,684
|
|
|
|
|
|
|
|
|
Total
consideration
|
|
$
|
40,541,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of identifiable net assets acquired:
|
|
|
|
|
|
Estimate
of fair value adjustment of property, plant and equipment
|
|
$
|
5,600,000
|
|
|
Acquired
other net tangibles assets
|
|
|
610,904
|
|
|
Estimate
of fair value adjustment of RiceX intellectual property
|
|
|
2,000,000
|
|
|
Goodwill
|
|
|
32,331,006
|
|
|
Total
|
|
$
|
40,541,910
|
|
The
purchase price allocation is based on estimates and assumptions, which are
preliminary. This information is presented for informational purposes only.
NUTRACEA
AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
The
accompanying unaudited pro forma condensed combined consolidated statement
of
operations for the year ended December 31, 2005 is presented for illustrative
purposes only and does 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 this unaudited pro forma condensed combined
consolidated statement of operations.
|
Unaudited
Pro Forma Condensed Combined Consolidated
|
|
|
Statement
of Operations
|
|
|
Year
Ended December 31, 2005
|
|
|
|
|
|
|
|
HISTORICAL
|
|
PRO
FORMA
|
|
|
|
|
NutraCea
|
|
RiceX
|
|
Adjustment
|
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
4,569,000
|
|
$
|
3,838,000
|
|
$
|
(325,000
|
)
|
|
(a)
|
|
$
|
8,082,000
|
|
|
Total
Revenues
|
|
|
4,569,000
|
|
|
3,838,000
|
|
|
(325,000
|
)
|
|
|
|
|
8,082,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COGS
|
|
|
2,523,000
|
|
|
1,533,000
|
|
|
(325,000
|
)
|
|
(b)
|
|
|
3,731,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
2,046,000
|
|
|
2,305,000
|
|
|
-
|
|
|
|
|
|
4,351,000,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales,
general and administrative
|
|
|
2,853,019
|
|
|
5,085,000
|
|
|
(55,000
|
)
|
|
(c)
|
|
|
7,883,019
|
|
|
Research
and development
|
|
|
262,000
|
|
|
267,000
|
|
|
|
|
|
|
|
|
529,000
|
|
|
Stock
option and warrant expense
|
|
|
1,511,000
|
|
|
-
|
|
|
|
|
|
|
|
|
1,511,000
|
|
|
Investor
relations
|
|
|
-
|
|
|
41,000
|
|
|
|
|
|
|
|
|
41,000
|
|
|
Professional
fees
|
|
|
109,000
|
|
|
914,029
|
|
|
|
|
|
|
|
|
1,023,029
|
|
|
Loss
From Operations
|
|
|
(2,689,019
|
)
|
|
(4,002,029
|
)
|
|
(55,000
|
)
|
|
|
|
|
(6,636,048
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Income
|
|
|
|
|
|
10,000
|
|
|
-
|
|
|
|
|
|
10,000
|
|
|
Interest
Expense
|
|
|
(878,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(878,000
|
)
|
|
Provision
for income tax
|
|
|
-
|
|
|
(2,000
|
)
|
|
|
|
|
|
|
|
(2,000
|
)
|
|
Total
other income (expense)
|
|
|
(878,000
|
)
|
|
8,000
|
|
|
-
|
|
|
|
|
|
(870,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
$
|
(3,567,019
|
)
|
$
|
(3,994,029
|
)
|
$
|
55,000
|
|
|
|
|
$
|
(7,506,048
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
Preferred dividends
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss Available to Common Shareholders
|
|
$
|
(3,567,019
|
)
|
$
|
(3,994,029
|
)
|
$
|
55,000
|
|
|
|
|
$
|
(7,506,048
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted Loss per share
|
|
$
|
(0.10
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
Shares Outstanding
|
|
|
38,830,015
|
|
|
|
|
|
28,272,064
|
|
|
(d)
|
|
|
67,102,079
|
|
(a)
Represents the elimination of intercompany sales
(b)
Represents the elimination of intercompany cost of sales
(c)
Represents the elimination of intercompany rent expense of sublease
(d)
Represents the net change in total combined common stock
outstanding
NUTRACEA
AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
NOTE
11 -
PREFERRED AND COMMON STOCK
Convertible,
Redeemable Series A Preferred Stock
The
Company’s Series A preferred stock was 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 either repurchased or converted under option
(ii) above.
During
the year ended December 31, 2004 the Company:
|
|
(1)
|
repurchased
130,000 shares of preferred stock for
$130,000;
|
|
|
(2)
|
converted
540,000 shares of preferred stock into 630,000 shares of common stock
valued at $348,351; and,
|
|
|
(3)
|
issued
5,759 shares of common stock in payment of preferred stock dividends
due
in the amount of $5,986.
|
Convertible,
Series B Preferred Stock
On
October 4, 2005, certain 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, valued
at $7,690,032. The warrants have a term of five years and are immediately
exercisable.
We
analyzed these instruments for derivative accounting consideration under SFAS
133 and EITF 00-19. We determined that derivative accounting is not applicable
for the Series B Convertible Preferred Stock.
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 valued at
$1,085,713
Common
Stock
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, 2005, the Company issued 30,000
shares of common stock valued at $12,600.
During
the year ended December 31, 2004, NutraCea:
|
|
(1)
|
issued
280,000 shares of common stock to two consultants in settlement of
contractual agreements valued at $477,816;
|
|
|
(2)
|
issued
5,500,000 shares of common stock valued at $8,360,000 to Patricia
McPeak,
NutraCea’s former Chief Executive Officer for services and cancellation of
indebtedness;
|
|
|
(3)
|
repurchased
344,956 shares of common stock valued at $230,000 from Patricia McPeak
the
former Chief Executive Officer of NutraCea pursuant to a repurchase
agreement;
|
|
|
(4)
|
converted
preferred dividends in the amount of $5,986 into 5,759 shares of
common
stock;
|
|
|
(5)
|
issued
3,767,950 shares of common stock to consultants for services rendered
valued at $2,542,300;
|
NUTRACEA AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
|
|
(6)
|
issued
640,000 shares of common stock to officers and directors for services
rendered valued at $927,800;
|
|
|
(7)
|
issued
168,626 shares of common stock to vendors in payment of accounts
payable
totaling $57,944;
|
|
|
(8)
|
issued
6,579,323 shares of common stock pursuant to the exercise of stock
options
for cash totaling $2,776,468; and
|
|
|
(9)
|
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.
|
On
September 8, 2004, NutraCea and Langley Park Investments PLC (“Langley”) signed
a Stock Purchase Agreement under which NutraCea sold 7,000,000 shares of its
common stock to Langley for 1,272,026 shares of Langley stock having a value
of
approximately $2,380,000 (the “Langley Shares”). NutraCea 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. Pursuant to the Purchase
Agreement, Langley 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, 2005 NutraCea:
|
|
(1)
|
issued
1,904,805 shares of common stock to seven consultants for services
rendered, valued at $906,759;
|
|
|
(2)
|
issued
70,000 shares of common stock to two officers and directors, valued
at
$30,100;
|
|
|
(3)
|
issued
a total of 30,000 shares of common stock to two consultants under
the
Patent Incentive Plan, valued at $12,600; and
|
|
|
(4)
|
issued
97,000 shares of common stock, valued at $97,655, to Faraday, which
was
the last required payment to Faraday under the Settlement Agreement
dated
December 10, 2003.
|
NOTE
12 - 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. As of December 31, 2005, 9,966,208 shares of common stock and
no
options have been granted under the 2003 Stock Compensation Plan.
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 or no specific future
performance is required by the Company, the entire amount is recognized. The
unamortized portion of the expense to be recognized is recorded as deferred
compensation.
During
the year ended December 31, 2004, NutraCea:
|
|
(1)
|
issued
6,998,493 warrants with exercise prices between $0.001 and $5.00
per share
to consultants. The warrants, valued at $7,761,515, expire at varying
times between six months and five years;
|
|
|
(2)
|
issued
25,000 employee stock options, valued at $21,000, have an exercise
price
of $0.20, and expire in five years;
|
NUTRACEA AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
|
|
(3)
|
issued
8,000,000 stock options to two officers with an exercise price of
$0.30,
expiring in 10 years, valued at $800,000; and
|
|
|
(4)
|
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.
|
During
the year ended December 31, 2005, NutraCea:
|
|
(1)
|
assumed
11,810,507 options and warrants with exercise prices between $0.15
and
$1.66 per share relating to the acquisition of RiceX. The warrants,
valued
a $11,421,684, expire at varying times between 9 months and 10
years;
|
|
|
(2)
|
issued
1,305,000 options and warrants to purchase common stock to ten
consultants, valued at $349,449; The warrants expire from three-five
years, and have exercise prices between $0.30 and $1.275 per
share;
|
|
|
(3)
|
issued
1,099,000 warrants to purchase common stock, valued at $1,085,713,
for
commissions, relating to private placement of preferred stock. The
warrants have an exercise price of $0.50 and expire in five
years;
|
|
|
(4)
|
issued
7,850,000 warrants to purchase common stock to 17 investors in conjunction
with the preferred private placement, valued at $7,690,032, exercisable
for $0.70 and expiring in five
years;
|
|
|
(5)
|
issued
2,200,000 options to 3 employees, valued at $130,000, exercisable
between
$0.30 and $0.46 per share, expiring in ten
years;
|
|
|
(6)
|
exercised
531,000 options and warrants for common stock for cash in the amount
of
$105,432; and,
|
|
|
(7)
|
cashless
exercise of 100,000 options and warrants for 66,666 shares of common
stock.
|
NUTRACEA
AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
The
following tables summarize all of the Company’s stock option and warrant
transactions:
|
|
|
EMPLOYEES
|
|
|
|
|
Year
Ended
|
|
Year
Ended
|
|
|
|
|
December
31, 2005
|
|
December
31, 2004
|
|
|
|
|
Weighted
Average Exercise
Price
|
|
Number
of
Shares
|
|
Weighted
Average Exercise
Price
|
|
Number
of
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
Beginning of Period
|
|
$
|
0.34
|
|
|
8,289,700
|
|
$
|
0.56
|
|
|
764,700
|
|
|
Granted
|
|
|
0.31
|
|
|
2,200,000
|
|
|
0.30
|
|
|
8,025,000
|
|
|
Expired
|
|
|
0.00
|
|
|
0
|
|
|
0.00
|
|
|
0
|
|
|
Assumed
|
|
|
0.36
|
|
|
8,047,765
|
|
|
0.00
|
|
|
0
|
|
|
Exercised
|
|
|
0.00
|
|
|
0
|
|
|
0.01
|
|
|
(500,000
|
)
|
|
Outstanding,
End of Period
|
|
$
|
0.34
|
|
|
18,537,465
|
|
$
|
0.34
|
|
|
8,289,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable,
End of Period
|
|
$
|
0.35
|
|
|
16,837,465
|
|
$
|
0.34
|
|
|
8,289,700
|
|
|
|
|
CONSULTANTS
|
|
|
|
|
Year
Ended
|
|
Year
Ended
|
|
|
|
|
December
31, 2005
|
|
December
31, 2004
|
|
|
|
|
Weighted
Average Exercise
Price
|
|
Number
of
Shares
|
|
Weighted
Average Exercise
Price
|
|
Number
of
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
Beginning of Period
|
|
$
|
0.85
|
|
|
6,095,156
|
|
$
|
0.98
|
|
|
3,196,819
|
|
|
Granted
|
|
|
0.67
|
|
|
10,554,000
|
|
|
0.62
|
|
|
9,598,493
|
|
|
Expired
|
|
|
0.01
|
|
|
(135,004
|
)
|
|
4.94
|
|
|
(220,833
|
)
|
|
Assumed
|
|
|
0.69
|
|
|
3,762,742
|
|
|
0.00
|
|
|
0
|
|
|
Exercised
|
|
|
0.12
|
|
|
(531,000
|
)
|
|
0.43
|
|
|
(6,479,323
|
)
|
|
Outstanding,
End of Period
|
|
$
|
0.75
|
|
|
19,745,894
|
|
$
|
0.85
|
|
|
6,095,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable,
End of Period
|
|
$
|
0.74
|
|
|
19,115,894
|
|
$
|
0.85
|
|
|
5,845,156
|
|
Other
information regarding stock options and warrants outstanding at December 31,
2005 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.01-$0.18
|
|
.5-5
|
|
144,629
|
|
$0.15
|
|
144,629
|
|
$0.15
|
|
$0.20-$0.50
|
|
2-10
|
|
22,235,898
|
|
0.31
|
|
20,535,898
|
|
0.31
|
|
$0.60-$0.80
|
|
3-5
|
|
13,331,333
|
|
0.70
|
|
13,081,333
|
|
0.70
|
|
$1.00-$2.75
|
|
.5-5
|
|
2,170,467
|
|
1.26
|
|
1,790,467
|
|
1.26
|
|
$5.00
|
|
4-5
|
|
355,670
|
|
5.00
|
|
355,670
|
|
5.00
|
|
$10.00
|
|
10
|
|
45,362
|
|
10.00
|
|
45,362
|
|
10.00
|
|
|
|
|
|
38,283,359
|
|
|
|
35,953,359
|
|
|
The
weighted average fair value of the stock options granted during 2005 and 2004
was $0.54 and $.69 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 112%
to 166%, and (4) zero expected dividends.
NUTRACEA
AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
NOTE
13 -
RELATED PARTY TRANSACTIONS
In
November 2004, NutraCea purchased a new automobile valued at $73,096 for use
by
Patricia McPeak, the former Chief Executive Officer. Ms. McPeak waived a car
allowance in exchange for use of the automobile.
In
2004,
two directors received 100,000 shares of common stock each, to serve as the
Chairman of the Medical Advisory Board and the Corporate Medical Director.
Also,
in
2004, a director-owned partnership received 300,000 shares of common stock
and
options to purchase 300,000 shares of common stock, exercisable at $1.00, with
100,000 options vesting immediately and the remaining 200,000 options vesting
at
50,000 options per year.
In
the
first quarter of 2005, 70,000 shares of common stock, valued at $30,100, were
issued to two directors.
In
April
2005, a direct response marketing company agreed to compensate NutraCea’s former
Chief Executive Officer, Patricia McPeak, whereby she will receive a royalty
per
unit sold resulting from infomercials that will demonstrate specific products
of
NutraCea. Pursuant to this agreement, Ms. McPeak should have earned
approximately $270,000 in 2005 from this direct marketing company. The agreement
provides for royalty payments to be made over the next two years by the direct
response marketing company and are not the obligations of NutraCea.
NOTE
14 - 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 2005 and 2004, NutraCea made matching contributions of $40,750
and $16,064 respectively.
NOTE
15 - SUBSEQUENT EVENTS (UNAUDITED)
On
January 11, 2006, NutraCea issued 100,000 options to a consultant for past
services, with an exercise price of $1.00, expiring in 3 years, valued at
$34,087. An additional 100,000 options, with an exercise price of $1.00, and
expiring in 3 years were authorized with vesting as follows:
50,000
options, if contracts generated gross revenue of $5,000,000 over the next 24
months; and
50,000
options, if contracts generated gross revenue of $10,000,000 over the next
24
months.
In
addition, this consultant will be eligible to receive 10% of gross margins
on a
specified customer.
In
January 2006, two individuals exercised 120,000 options/warrants using their
cashless exercise provision for a total of 42,576 shares of common
stock.
In
the
first quarter of 2006, a total 15,967 S-8 shares of common stock were issued
to
one consultant for services rendered, valued at $15,000.
In
February and March 2006, six preferred series B stock holders converted 600
shares into 1,200,000 shares of NutraCea common stock. The preferred shares
converted at a conversion rate of 2,000 shares of common stock for each
preferred share.
In
February 2006, we issued 100,000 options to purchase common stock to a director.
The options expire in 5 years, have an exercise price of $1.00, and are valued
at $71,705.
In
January and February 2006, we issued a total of 80,000 options to purchase
common stock to three consultants. The options expire from 2.5 to 4 years,
have
exercise prices from $.50 to $1.00, and are valued at $62,602.
NUTRACEA
AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
|
March
31, 2006
|
|
December
31, 2005
|
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
Currant
assets:
|
|
|
|
|
|
|
Cash
|
|
$
|
2,970,436
|
|
$
|
3,490,556
|
|
|
Marketable
securities
|
|
|
141,082
|
|
|
144,947
|
|
|
Trade
accounts receivable
|
|
|
3,050,209
|
|
|
2,514,961
|
|
|
Inventories
|
|
|
698,813
|
|
|
594,614
|
|
|
Deposits
and other current assets
|
|
|
120,828
|
|
|
82,400
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
6,981,368
|
|
|
6,827,478
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
marketable securities
|
|
|
141,082
|
|
|
144,947
|
|
|
Property
and equipment, net
|
|
|
5,997,651
|
|
|
5,493,036
|
|
|
Patents
and trademarks, net
|
|
|
2,380,444
|
|
|
2,417,815
|
|
|
Goodwill
|
|
|
31,938,712
|
|
|
32,581,007
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
47,439,257
|
|
$
|
47,464,283
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
1,725,853
|
|
$
|
1,255,032
|
|
|
Notes
payable, current portion
|
|
|
5,563
|
|
|
6,069
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
1,731,416
|
|
|
1,261,101
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
|
|
|
|
|
Notes
payable, net of current portion
|
|
|
7,894
|
|
|
8,906
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
1,739,310
|
|
|
1,270,007
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
Convertible,
series B preferred stock, no par value, $1000 stated value 20,000,000
shares authorized, 6,475 and 7,850 shares issued and outstanding
in 2006
and 2005, respectively
|
|
|
5,925,500
|
|
|
7,300,500
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
|
|
|
|
|
|
|
Common
stock, no par value 200,000,000 shares authorized, 71,055,159 and
67,102,079 shares issued and outstanding in 2006 and 2005,
respectively
|
|
|
90,905,788
|
|
|
89,783,817
|
|
|
Accumulated
deficit
|
|
|
(49,033,505
|
)
|
|
(48,799,935
|
)
|
|
Accumulated
other comprehensive income, unrealized loss on marketable
securities
|
|
|
(2,097,836
|
)
|
|
(2,090,106
|
)
|
|
Total
shareholders’ equity
|
|
|
45,699,947
|
|
|
46,194,276
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
47,439,257
|
|
$
|
47,464,283
|
|
The
accompanying notes are an integral part of these financials.
NUTRACEA
AND SUBSIDIARIES
CONSOLIDA
TED
STATEMENTS OF OPERATIONS
(Unaudited)
|
|
|
Quarters
ended
|
|
|
|
|
March
31, 2006
|
|
March
31, 2005
|
|
|
Revenues
|
|
|
|
|
|
|
Net
product sales
|
|
$
|
3,772,537
|
|
$
|
459,314
|
|
|
Royalty
|
|
|
9,006
|
|
|
-
|
|
|
Total
revenue
|
|
|
3,781,543
|
|
|
459,314
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
2,099,989
|
|
|
281,185
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Margin
|
|
|
1,681,554
|
|
|
178,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development expenses
|
|
|
97,799
|
|
|
21,017
|
|
|
Selling,
general and administrative expenses
|
|
|
1,277,561
|
|
|
336,317
|
|
|
Professional
fees
|
|
|
176,602
|
|
|
305,688
|
|
|
Stock-based
compensation
|
|
|
389,267
|
|
|
146,855
|
|
|
Total
operating expenses
|
|
|
1,941,229
|
|
|
809,877
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(259,675
|
)
|
|
(631,748
|
)
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
Interest
and other income
|
|
|
26,105
|
|
|
2,811
|
|
|
Interest
expense
|
|
|
-
|
|
|
(235,756
|
)
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(233,570
|
)
|
$
|
(864,693
|
)
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted earnings per share:
|
|
|
|
|
|
|
|
|
Net
loss per share
|
|
$
|
(0.00
|
)
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding
|
|
|
67,119,444
|
|
|
36,170,129
|
|
The
accompanying notes are an integral part of these financials.
NUTRACEA
AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
|
|
|
Quarters
ended
|
|
|
|
|
March
31, 2006
|
|
March
31, 2005
|
|
|
|
|
|
|
|
|
|
Net
loss available to common shareholders
|
|
$
|
(233,570
|
)
|
$
|
(864,693
|
)
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive loss:
|
|
|
|
|
|
|
|
|
Unrealized
gain (loss) on marketable securities
|
|
|
(7,731
|
)
|
|
(3,106
|
)
|
|
|
|
|
|
|
|
|
|
|
Net
and comprehensive loss
|
|
$
|
(241,301
|
)
|
$
|
(867,799
|
)
|
The
accompanying notes are an integral part of these financials.
NUTRACEA
AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
Quarters
ended
|
|
|
|
|
March
31, 2006
|
|
March
31, 2005
|
|
|
Cash
flow from operating activities:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(233,570
|
)
|
$
|
(864,693
|
)
|
|
Adjustments
to reconcile net loss to net cash from operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
263,272
|
|
|
229,175
|
|
|
Stock-based
compensation
|
|
|
389,267
|
|
|
146,855
|
|
|
|
|
|
|
|
|
|
|
|
Net
changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Trade
accounts receivable
|
|
|
(540,779
|
)
|
|
(250,752
|
)
|
|
Inventories
|
|
|
(104,199
|
)
|
|
19,928
|
|
|
Deposits
and other current assets
|
|
|
(32,899
|
)
|
|
1,911
|
|
|
Accounts
payable, accrued liabilities
|
|
|
470,821
|
|
|
72,283
|
|
|
Net
cash provided from operating activities
|
|
|
211,913
|
|
|
(645,293
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment, and other assets
|
|
|
(730,515
|
)
|
|
(9,103
|
)
|
|
Net
cash used from investing activities
|
|
|
(730,515
|
)
|
|
(9,103
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
Payments
on long-term debt
|
|
|
(1,518
|
)
|
|
-
|
|
|
Proceeds
from exercise of common stock options
|
|
|
-
|
|
|
432
|
|
|
Net
cash used from financing activities
|
|
|
(1,518
|
)
|
|
432
|
|
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash
|
|
|
(520,120
|
)
|
|
(653,964
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash,
beginning of period
|
|
|
3,490,556
|
|
|
1,928,281
|
|
|
|
|
|
|
|
|
|
|
|
Cash,
end of period
|
|
$
|
2,970,436
|
|
$
|
1,274,317
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
195
|
|
$
|
-
|
|
|
Cash
paid for income taxes
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
disclosures:
|
|
|
|
|
|
|
|
|
Conversion
of preferred stock to common stock
|
|
$
|
1,375,000
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these financials.
NUTRACEA
AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 disclosures contained in the audited financial statements for 2005 as
reported in the 10-KSB have been omitted.
|
2.
|
STOCK-BASED
COMPENSATION
|
On
January 1, 2006, NutraCea adopted SFAS No. 123(R), “Share-Based Payment” (“SFAS
123(R)”). SFAS 123(R) replaced SFAS No. 123 and supersedes APB Opinion No. 25.
SFAS 123(R) requires all share-based payments to employees, including grants
of
employee stock options, to be recognized in the financial statements based
on
their fair values. The pro forma disclosures previously permitted under SFAS
123
are no longer an alternative to financial statement recognition. NutraCea
adopted SFAS 123(R) using the modified prospective method which requires the
application of the accounting standard as of January 1, 2006. The consolidated
financial statements as of and for the quarter ended March 31, 2006 reflect
the
impact of adopting SFAS 123(R). In accordance with the modified prospective
method, the consolidated financial statements for prior periods have not been
restated to reflect, and do not include, the impact of SFAS 123(R).
Prior
to
2006, compensation was 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. Had NutraCea recorded compensation expense for
stock-based compensation grants to employees based on their estimated fair
value
at their grant date, NutraCea’s net loss and net loss per share would have been
as follows:
|
|
|
For
the three months
Ended
March 31, 2005
|
|
|
Net
loss available to common shareholders
|
|
|
|
|
|
As
reported
|
|
$
|
(864,693
|
)
|
|
Plus:
compensation expense charged to income
|
|
|
65,000
|
|
|
Less:
proforma compensation
|
|
|
(502,278
|
)
|
|
|
|
|
|
|
|
Pro
forma net loss available to common shareholders
|
|
$
|
(1,301,971
|
)
|
|
|
|
|
|
|
|
Basic
and diluted loss per common share:
|
|
|
|
|
|
As
reported
|
|
$
|
(0.02
|
)
|
|
Pro
forma
|
|
$
|
(0.04
|
)
|
The
weighted average fair value of the stock options granted during the three months
ended March 31, 2006 and 2005 was $1.02 and $0.42, respectively. Variables
used
in the Black-Scholes option-pricing model include (1) risk-free interest rates
of 4.6% and 2.0%, (2) expected option life is the actual remaining life of
the
options as of each period end, (3) expected volatility is 191.99% to 124.73%
and
(4) zero expected dividends.
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 with Langley, 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 ending October 7, 2006. 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.
NUTRACEA
AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
As
of
March 31, 2006, the NutraCea shares have not lost any value. However, the
Langley shares are marked down to their fair market value of $282,164, with
one-half or $141,082 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.
At
March
31, 2006, inventories are composed of $541,622 of finished goods and $157,191
of
packaging supplies. At December 31, 2005, inventories are composed of $509,278
of finished goods and $85,336 of packaging supplies.
|
5.
|
PROPERTY
AND EQUIPMENT
|
Land,
property and equipment consists of the following:
|
|
|
March
31,
|
|
December
31,
|
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
5,000
|
|
$
|
5,000
|
|
|
Furniture
and fixtures
|
|
|
700,729
|
|
|
698,570
|
|
|
Vehicles
|
|
|
73,096
|
|
|
73,096
|
|
|
Software
|
|
|
369,111
|
|
|
366,664
|
|
|
Leasehold
improvements
|
|
|
395,871
|
|
|
395,871
|
|
|
Property,
plant and equipment
|
|
|
5,224,393
|
|
|
4,510,000
|
|
|
|
|
|
6,768,200
|
|
|
6,049,201
|
|
|
Less
accumulated depreciation
|
|
|
(770,549
|
)
|
|
(556,165
|
)
|
|
|
|
$
|
5,997,651
|
|
$
|
5,493,036
|
|
|
6.
|
ACCOUNTS
PAYABLE AND ACCRUED
LIABILITIES
|
Accounts
payable, accrued and other liabilities consist of the following:
|
|
|
March
31,
|
|
December
31,
|
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Trade
accounts payable
|
|
$
|
1,438,247
|
|
$
|
998,706
|
|
|
Accrued
and other liabilities
|
|
|
293,169
|
|
|
262,395
|
|
|
|
|
$
|
1,731,416
|
|
$
|
1,261,101
|
|
NUTRACEA
AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
7.
|
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.
|
8.
|
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
three months ended March 31, 2006, four customers accounted for 80% of sales,
69%, 4%, 4%, and 3% respectively. At March 31, 2006, accounts receivable due
from these four customers were 76%, 1%, 1%, and 4%, respectively, of the total
aged outstanding accounts receivable.
|
9.
|
COMMITMENTS
AND CONTINGENCIES
|
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.
Employment
Agreements
In
the
first quarter of 2006, we entered into three employment contracts for a Chief
Science Officer, a Senior Vice-President of Sales, and an Animal Nutrition
Sales
Manager. All contracts are for a period of two years, with an aggregate of
630,000 options issued and vesting periods ranging from immediately to 2 years.
The aggregate cash compensation commitment under these employment agreements
total $322,000 per year.
Common
Stock
Eight
stockholders converted 1,375 shares of Series B Convertible Preferred Stock
into
2,750,000 shares of NutraCea common stock. The preferred shares converted at
a
conversion rate of 2,000 shares of common stock for each preferred
share.
Four
individuals exercised options or warrants pursuant to net exercise provisions
and received a total of 1,187,113 shares of common stock.
Options
and Warrants
NutraCea
issued to three employees options to purchase a total of 630,000 shares of
common stock, with vesting periods ranging from zero to two years. The options
expire in 10 years and have exercise prices per share of $1.00. Stock option
and
warrant expense of $157,100 was charged for those options that vested during
the
period ended March 31, 2006.
NutraCea
issued to three consultants four warrants to purchase a total of 265,000 shares
of common stock, with vesting periods ranging from zero to two years. These
warrants expire from 3 years to 5 years and have exercise prices per share
from
$1.00 to $1.13. The vesting of all 100,000 warrant shares underlying one of
these warrants is contingent on the generation of gross revenue targets over
the
next 24 months. Therefore, no book entry was made with respect to this warrant.
The other three warrants were expensed at $116,636.
In
February 2006, NutraCea issued a warrant to purchase 100,000 shares of common
stock to Steven Saunders, a member of our Board of Directors, for services
rendered. The warrant expires in 5 years, has an exercise price of $1.00 per
share, and was charged to stock, stock option and warrant expense in the amount
of $100,530.
Expense
for stock options and warrants issued to consultants and employees are
calculated at fair value using the Black-Scholes valuation method.
NUTRACEA
AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In
April
2006, we issued 4,505 shares of common stock to a consultant for services
rendered, valued at $5,000. The shares were issued pursuant to a registration
statement on Form S-8.
During
the month of April 2006, one holder of our Series B Convertible Preferred Stock
converted 175 shares of preferred stock into 350,000 shares of NutraCea common
stock. The preferred shares converted at a conversion rate of 2,000 shares
of
common stock for each preferred share.
Private
Placement
On
May
12, 2006, 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
accredited investors for aggregate gross proceeds of approximately $17,560,000
million (approximately $16,180,000 million after estimated offering expenses).
Pursuant to the Purchase Agreement, the investors purchased an aggregate of
17,560 shares of Series C Convertible Preferred Stock of the Company (the
“Preferred Shares”) at a price of $1,000.00 per share. The Preferred Shares can
be converted to shares of NutraCea common stock at a conversion rate of
approximately 1,176 shares of common stock for each Preferred Share issued
in
the transaction. The Preferred Shares are subject to the terms and conditions
of
the Certificate of Determination, Preferences and Rights of Series C Convertible
Preferred Stock. Additionally, the investors were issued warrants (the
“Warrants”) to purchase an aggregate of 10,329,412 shares of NutraCea common
stock at an exercise price of $1.35 per share. The Warrants have a term of
five
years and are immediately exercisable.
Pursuant
to the Registration Rights Agreement, the Company is obligated to file a
registration statement with the Securities and Exchange Commission within 30
days of the closing of the transaction covering the possible resale from time
to
time in the future of the shares of common stock underlying the Preferred Shares
and the Warrants. The Registration Rights Agreement provides for certain
payments by the Company to the investors if the registration statement is not
filed or does not become effective before dates specified in that agreement.
Each of the Company and the investors has agreed to indemnify the other party
and certain affiliates against certain liability related to the registration
statement.
Halpern
Capital, Inc. acted as advisor and placement agent for the financing and
received a customary fee based on aggregate gross proceeds received from the
investors and a warrant to purchase 500,000 shares of the Company’s common stock
at an exercise price per share of $1.35.
NUTRACEA
AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
11.
|
THE
RICEX ACQUISITION
|
|
NUTRACEA
|
|
|
Unaudited
Pro Forma Condensed Combined Consolidated
|
|
|
Statement
of Operations
|
|
|
Three
Months Ended March 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HISTORICAL
|
|
PRO
FORMA
|
|
|
Income
Statement
|
|
NutraCea
|
|
RiceX
|
|
Adjustment
|
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
product sales
|
|
$
|
459,314
|
|
$
|
922,606
|
|
$
|
(78,000
|
)
|
|
(a)
|
|
$
|
1,303,920
|
|
|
Royalties
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Revenues
|
|
$
|
459,314
|
|
$
|
922,606
|
|
$
|
(78,000
|
)
|
|
|
|
$
|
1,303,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COGS
|
|
$
|
281,185
|
|
$
|
457,144
|
|
$
|
(78,000
|
)
|
|
(a)
|
|
$
|
660,329
|
|
|
Depreciation
|
|
|
|
|
|
|
|
$
|
70,000
|
|
|
(b)
|
|
$
|
70,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
$
|
178,129
|
|
$
|
465,462
|
|
$
|
(70,000
|
)
|
|
|
|
$
|
573,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expense
|
|
$
|
809,877
|
|
$
|
706,427
|
|
$
|
-
|
|
|
|
|
$
|
1,516,304
|
|
|
Amortization
|
|
|
|
|
|
|
|
$
|
50,000
|
|
|
(b)
|
|
$
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
From Operations
|
|
$
|
(631,748
|
)
|
$
|
(240,965
|
)
|
$
|
(120,000
|
)
|
|
|
|
$
|
(992,713
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and other income
|
|
$
|
2,811
|
|
$
|
3,503
|
|
$
|
-
|
|
|
|
|
$
|
6,314
|
|
|
Interest
expense
|
|
$
|
(235,756
|
)
|
$
|
-
|
|
$
|
-
|
|
|
|
|
$
|
(235,756
|
)
|
|
Total
other income (expense)
|
|
$
|
(232,945
|
)
|
$
|
3,503
|
|
$
|
-
|
|
|
|
|
$
|
(229,442
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
$
|
(864,693
|
)
|
$
|
(237,462
|
)
|
$
|
(120,000
|
)
|
|
|
|
$
|
(1,222,155
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
Preferred dividends
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss Available to Common Shareholders
|
|
$
|
(864,693
|
)
|
$
|
(237,462
|
)
|
$
|
(120,000
|
)
|
|
|
|
$
|
(1,222,155
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted Loss Available to Common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders
per share
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted Weighted-Average Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
36,170,129
|
|
|
|
|
|
28,272,064
|
|
|
(c)
|
|
|
64,442,193
|
|
(a)
Represents the elimination of intercompany sales
(b)
Represents additional depreciation and amortization on the assets
acquired
(c)
Represents the net change in total combined common stock
outstanding
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 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 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 2004 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The RiceX Company
as
of December 31, 2004, and the consolidated results of their 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
THE
RICEX COMPANY
CONSOLIDATED
BALANCE SHEET
ASSETS
|
|
|
DECEMBER
31, 2004
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,034,913
|
|
|
Trade
accounts receivable, net of allowance for doubtful accounts,
$20,000
|
|
|
499,413
|
|
|
Inventories
|
|
|
401,554
|
|
|
Deposits
and other current assets
|
|
|
91,978
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
2,027,858
|
|
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT, net
|
|
|
542,576
|
|
|
OTHER
ASSETS, net
|
|
|
27,186
|
|
|
|
|
|
|
|
|
|
|
$
|
2,597,620
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
811,055
|
|
|
Deferred
revenue
|
|
|
2,959
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
814,014
|
|
|
|
|
|
|
|
|
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
|
|
|
36,714
|
|
|
Additional
paid-in capital
|
|
|
28,900,767
|
|
|
Accumulated
deficit
|
|
|
(27,153,875
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
shareholders’ equity
|
|
|
1,783,606
|
|
|
|
|
|
|
|
|
|
|
$
|
2,597,620
|
|
The
accompanying notes are an integral part of these statements.
THE
RICEX COMPANY
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
YEAR
ENDED
DECEMBER
31, 2004
|
|
|
|
|
|
|
|
REVENUES:
|
|
|
|
|
Sales
|
|
$
|
4,010,186
|
|
|
|
|
|
|
|
|
TOTAL
REVENUES
|
|
|
4,010,186
|
|
|
|
|
|
|
|
|
COST
OF SALES
|
|
|
1,655,940
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
|
2,354,246
|
|
|
|
|
|
|
|
|
RESEARCH
AND DEVELOPMENT EXPENSES
|
|
|
223,685
|
|
|
SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES
|
|
|
2,465,380
|
|
|
STOCK
OPTION AND WARRANT EXPENSE
|
|
|
15,000
|
|
|
INVESTOR
RELATIONS
|
|
|
61,948
|
|
|
PROFESSIONAL
FEES
|
|
|
502,207
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(913,974
|
)
|
|
|
|
|
|
|
|
OTHER
INCOME
|
|
|
|
|
|
Interest
and other income
|
|
|
33,070
|
|
|
|
|
|
|
|
|
Loss
before income taxes
|
|
|
(880,904
|
)
|
|
|
|
|
|
|
|
INCOME
TAX EXPENSE
|
|
|
1,650
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(882,554
|
)
|
|
|
|
|
|
|
|
BASIC
AND DILUTED EARNINGS PER SHARE,
|
|
|
|
|
|
Net
loss per share
|
|
$
|
(.02
|
)
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF SHARES OUTSTANDING
|
|
|
37,061,240
|
|
The
accompanying notes are an integral part of these statements.
THE
RICEX COMPANY
CONSOLIDATED
STATEMENT OF SHAREHOLDERS’ EQUITY
YEAR
ENDED DECEMBER 31, 2004
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
Total
|
|
|
|
|
|
|
|
|
Additional
|
|
Accumu-
|
|
Related
to
|
|
Share-
|
|
|
|
|
Common
Stock
|
|
Paid-In
|
|
lated
|
|
Equity
|
|
holders’
|
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Issuance
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2004
|
|
|
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.
THE
RICEX COMPANY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
YEAR
ENDED DECEMBER 31, 2004
|
|
|
|
|
|
|
|
CASH
FLOW FROM OPERATING ACTIVITIES:
|
|
|
|
|
Net
loss
|
|
$
|
(882,554
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
230,475
|
|
|
Amortization
of shares and warrants issued for services, prepaid interest, and
debt
issuance cost
|
|
|
15,000
|
|
|
Net
changes in operating assets and liabilities:
|
|
|
|
|
|
Trade
accounts receivable
|
|
|
179,830
|
|
|
Inventories
|
|
|
(61,041
|
)
|
|
Deposits
and other current assets
|
|
|
(15,764
|
)
|
|
Accounts
payable and accrued liabilities
|
|
|
203,313
|
|
|
Deferred
revenue
|
|
|
(536,940
|
)
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(867,681
|
)
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
Purchases
of property and equipment, and other assets
|
|
|
(46,490
|
)
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
Repurchase
of common stock and warrants
|
|
|
(270,007
|
)
|
|
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
(1,184,178
|
)
|
|
CASH
AND CASH EQUIVALENTS, beginning of year
|
|
|
2,219,091
|
|
|
CASH
AND CASH EQUIVALENTS, end of year
|
|
$
|
1,034,913
|
|
The
accompanying notes are an integral part of these statements.
THE
RICEX COMPANY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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 in 2004 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.
THE
RICEX COMPANY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE
1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
|
|
DECEMBER
31, 2004
|
|
|
|
|
|
|
|
Net
loss, as reported
|
|
$
|
(882,554
|
)
|
|
Deduct:
Total stock-based employee compensation expense determined under
fair
value based method for all awards
|
|
|
(73,100
|
)
|
|
|
|
|
|
|
|
Pro
forma net loss
|
|
$
|
(955,654
|
)
|
|
Loss
per share:
|
|
|
|
|
|
Basic
and diluted net loss per share - as reported
|
|
$
|
(.02
|
)
|
|
Basic
and diluted net loss per share - pro forma
|
|
$
|
(.03
|
)
|
|
|
|
|
|
|
|
Weighted
average fair value of options granted to employees during the
year
|
|
$
|
.21
|
|
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 year ended December 31, 2004 there
is
no difference 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.
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.
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 Instruments and 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.
THE
RICEX COMPANY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE
2 - INVENTORY
Inventory
consists of the following:
|
|
|
DECEMBER,
31, 2004
|
|
|
Finished
goods
|
|
$
|
307,456
|
|
|
Packaging
|
|
|
94,098
|
|
|
|
|
$
|
401,554
|
|
NOTE
3 - PROPERTY AND EQUIPMENT
Property
and equipment consists of the following:
|
|
|
DECEMBER
31, 2004
|
|
|
|
|
|
|
|
Land
and buildings
|
|
$
|
380,154
|
|
|
Equipment
|
|
|
4,619,726
|
|
|
Leasehold
improvements
|
|
|
381,642
|
|
|
Furniture
and fixtures
|
|
|
228,071
|
|
|
|
|
|
5,609,593
|
|
|
|
|
|
|
|
|
Less
accumulated depreciation and amortization
|
|
|
(5,067,017
|
)
|
|
|
|
|
|
|
|
|
|
$
|
542,576
|
|
NOTE
4 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts
payable and accrued liabilities consist of the following:
|
|
|
DECEMBER
31, 2004
|
|
|
|
|
|
|
|
Trade
accounts payable
|
|
$
|
287,751
|
|
|
Other
accrued liabilities
|
|
|
523,304
|
|
|
Deferred
revenue
|
|
|
2,959
|
|
|
|
|
|
|
|
|
|
|
$
|
814,014
|
|
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 for 2004.
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 Ended
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.
|
Repurchase
of common stock.
|
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. The Company paid $270,007 for the shares and
warrants at an average cost of $0.20 per share.
THE
RICEX COMPANY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE
6 - SHAREHOLDERS’ EQUITY
(CONTINUED)
|
C.
|
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, 2004
|
|
|
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
balance outstanding at December 31, 2004 includes incentive warrants to purchase
6,030,582, which are restricted from sale and or transfer until such time when
certain sales targets are achieved.
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, 2004
|
|
|
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
|
|
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 was
$0.21.
|
|
|
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
|
|
Expected
life (years)
|
3
|
|
Expected
volatility
|
104%
|
|
Risk-free
interest rate
|
2.06%
|
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.
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 during 2004.
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.
NOTE
9 - INCOME TAXES
The
provision for income taxes on the statements of income consists of $1,650 for
the year ended December 31, 2004.
Deferred
tax assets (liabilities) are comprised of the following:
|
|
|
DECEMBER
31, 2004
|
|
|
|
|
|
|
|
Net
operating loss carryforward
|
|
$
|
5,562,000
|
|
|
Options
and warrants
|
|
|
-
|
|
|
Accrued
reserves
|
|
|
64,000
|
|
|
Research
costs
|
|
|
714,000
|
|
|
Fixed
assets
|
|
|
124,000
|
|
|
Other
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
6,464,000
|
|
|
Less
valuation allowance
|
|
|
(6,464,000
|
)
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
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, 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) to income before taxes as
follows:
|
|
|
DECEMBER
31, 2004
|
|
|
|
|
|
|
|
Computed
expected tax
|
|
$
|
(300,069
|
)
|
|
Change
in valuation allowance
|
|
|
372,000
|
|
|
Change
in carryovers and tax attributes
|
|
|
(70,281
|
)
|
|
|
|
|
|
|
|
|
|
$
|
1,650
|
|
NOTE
10 - SUPPLEMENTAL CASH FLOW INFORMATION
|
|
|
YEAR
ENDED DECEMBER 31, 2004
|
|
|
|
|
|
|
|
Non
cash activities:
|
|
|
|
|
|
Amortization/issuance
of common stock and warrants for services
|
|
$
|
15,000
|
|
NOTE
11 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The
fair
value of the Company’s financial instruments approximated carrying value at
December 31, 2004. 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.
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 --
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
|
)
|
|
O
ther
income
:
|
|
|
|
|
|
|
|
|
Interest
and other income
|
|
|
9,119
|
|
|
28,547
|
|
|
Loss
before provision for income taxes
|
|
|
(3,703,201
|
)
|
|
(525,963
|
)
|
|
Provi
sion
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 -
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 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 asset
s
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
|
)
|
|
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 --
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.
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.
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
|
|
|
4.
|
ACCOUNTS
PAYABLE AND ACCRUED
LIABILITIES.
|
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.
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.
|
|
|
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.
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.
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.
|
|
(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.
|
|
(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)
|
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.
|
|
(t)
|
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.
|
|
(u)
|
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.
|
|
(v)
|
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.
|
|
(w)
|
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.
|
|
(x)
|
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.
|
|
(y)
|
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.
|
|
(z)
|
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.
|
|
(aa)
|
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.
|
|
(bb)
|
During
the year ended December 31, 2005,
we:
|
|
|
·
|
issued
70,000 shares of common stock to two officers and directors, valued
at
$30,100;
|
|
|
·
|
issued
a total of 30,000 shares of common stock to two consultants under
the
Patent Incentive Plan, valued at
$12,600;
|
|
|
·
|
issued
97,000 shares of common stock, valued at $97,655, to Faraday, which
was
the last required payment to Faraday under the Settlement Agreement
dated
December 10, 2003; and
|
|
|
·
|
issued
33,000 shares of common stock to three consultants, valued at
$21,800.
|
|
(cc)
|
During
2005, we issued options and warrants to purchase an aggregate of
700,000
shares of our common stock to seven consultants, valued at
$301,598.
|
|
(dd)
|
During
2005, we issued options to purchase an aggregate of 2,200,000 shares
of
our common stock to three employees, valued at $130,000 and exercisable
at
between $0.30 and $0.46 per share. These options expire in ten
years.
|
|
(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 359,183 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.
|
|
(gg)
|
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.
|
|
(hh)
|
In
January and February 2006, we issued options to purchase and aggregate
of
410,000 shares of our common stock to four consultants and one director,
valued at $168,394.
|
|
(ii)
|
In
February 2006, we issued options to purchase an aggregate of 530,000
shares of our common stock to two employees valued at
$10,000.
|
|
(jj)
|
On
May 12, 2006, NutraCea completed a private placement of its securities
to
certain investors for aggregate gross proceeds of approximately
$17,560,000. NutraCea issued an aggregate of 17,560 shares of Series
C
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
approximately 1,176 shares of commons stock for each Preferred Share.
Additionally, NutraCea issued warrants to purchase an aggregate of
10,329,412 share of NutraCea common stock at an exercise price of
$1.35
per share. The placement agent for the transaction, Halpern Capital,
Inc.,
was paid a commission consisting of $____ and warrants to purchases
up to
an aggregate of 500,000 shares of NutraCea common stock at an exercise
price of $1.35 per share.
|
|
(kk)
|
In
May 2006, NutraCea entered into a Supply Agreement and Asset Purchase
Agreement (collectively, the “Agreements”) with Natural Glo Investors,
L.P. In connection with the Agreement, NutraCea issued to certain
affiliates of Natural Glo Investors, L.P. 369,761 shares, some of
which
are subject to forfeiture.
|
The
following issuances of stock were made without any public solicitation upon
exercise of options and 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 4,583,480 shares of our common
stock
upon exercise of outstanding options and
warrants.
|
|
(b)
|
During
2004, we issued an aggregate of 509,323 shares of our common stock
upon
exercise of outstanding options and
warrants.
|
|
(c)
|
During
2005, we issued an aggregate of 531,000 shares of our common stock
upon
exercise of outstanding options and
warrants.
|
|
(d)
|
From
January 1, 2006 to March 3, 2006, we issued 42,576 shares of our
common
stock upon the cashless exercise of outstanding options and
warrants.
|
|
(e)
|
From
March 4, 2006 to May 23, 2006, we issued 1,214,051 shares of our
common
stock upon the cashless exercise of outstanding options and
warrants.
|
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.
|
|
|
(e)
|
In
February of to March 3, 2006, we issued a total of 1,200,000 shares
of our
common stock upon conversion our 600 shares of our Series B Convertible
Preferred Stock. From March 4, 2006 to May 23, 2006, we issued a
total of
2,250,000 shares of our common stock upon conversion our 1,125 shares
of
our Series B Convertible 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 28,272,064 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.
|
|
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.
|
|
|
|
|
|
3.01.1(3)
|
|
Restated
and Amended Articles of Incorporation as filed with the Secretary
of State
of California on December 13, 2001.
|
|
|
|
|
|
3.01.2(4)
|
|
Certificate
of Amendment of Articles of Incorporation as filed with the Secretary
of
State of California on August 4, 2003.
|
|
|
|
|
|
3.01.3(5)
|
|
Certificate
of Amendment of Articles of Incorporation as filed with the Secretary
of
State of California on October 31, 2003.
|
|
|
|
|
|
3.01.4(4)
|
|
Certificate
of Amendment of Articles of Incorporation as filed with the Secretary
of
State of California on September 29, 2005
|
|
|
|
|
|
3.02(6)
|
|
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.
|
|
|
|
|
|
3.03(7)
|
|
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.
|
|
|
|
|
|
3.04(8)
|
|
Certificate
of Determination, Preferences and Rights of Series C Convertible
Preferred
Stock as filed with the Secretary of State of California on May 10,
2006.
|
|
|
|
|
|
3.05
|
|
Bylaws
of NutraCea, as amended effective May 31, 2006.
|
|
|
|
|
|
4.01(7)
|
|
Form
of warrant issued to subscribers in connection with NutraCea’s October
2005 private placement.
|
|
|
|
|
|
4.02(8)
|
|
Form
of warrant issued to subscribers in connection with NutraCea’s May 2006
private placement.
|
|
|
|
|
|
5.1
|
|
Opinion
of Weintraub Genshlea Chediak Law Corporation.
|
|
|
|
|
|
10.01(9)
|
|
NutraCea
2003 Stock Compensation Plan
|
|
|
|
|
|
10.02(4)
|
|
NutraCea
2005 Equity Incentive Plan
|
|
|
|
|
|
10.03(7)
|
|
Securities
Purchase Agreement, dated September 28, 2005, by and among NutraCea
and
the investors named therein.
|
|
|
|
|
|
10.04(7)
|
|
Registration
Rights Agreement, dated September 28, 2005, by and among NutraCea
and the
investors named therein.
|
|
|
|
|
|
10.05(8)
|
|
Securities
Purchase Agreement, dated May 12, 2006, by and among NutraCea and
the
investors named therein.
|
|
|
|
|
|
10.06(8)
|
|
Registration
Rights Agreement, dated May 12, 2006, by and among NutraCea and the
investors named therein.
|
|
|
|
|
|
10.07(10)+
|
|
Private
Label Supply Agreement and Strategic Alliance between NutraCea and
ITV Global.
|
|
|
|
|
|
10.08(4)
|
|
Employment
Agreement between NutraCea and Patricia
McPeak.
|
|
10.09(4)
|
|
Restricted
Stock Agreement between NutraCea and Patricia McPeak
|
|
|
|
|
|
10.10(11)
|
|
Executive
Employment Agreement between NutraCea and Bradley D.
Edson.
|
|
|
|
|
|
10.11(11)
|
|
Executive
Employment Agreement between NutraCea and Margie D.
Adelman.
|
|
|
|
|
|
10.12(4)
|
|
Executive
Employment Agreement between The RiceX Company and Todd C.
Crow.
|
|
|
|
|
|
10.13(4)
|
|
Amendment
No. 1 to Employment Agreement between NutraCea, Todd C. Crow and
The RiceX
Company.
|
|
|
|
|
|
10.14(4)
|
|
Executive
Employment Agreement between The RiceX Company and Ike E.
Lynch.
|
|
|
|
|
|
10.15(4)
|
|
Amendment
No. 1 to Employment Agreement between NutraCea, Ike E. Lynch and
The RiceX
Company.
|
|
|
|
|
|
10.16(12)
|
|
Form
of Affiliate Agreement between certain affiliates of RiceX and NutraCea
dated April 4, 2005
|
|
|
|
|
|
10.17(11)±
|
|
W.F.
Young Distribution Agreement.
|
|
|
|
|
|
10.18(11)±
|
|
W.F.
Young Technology Agreement.
|
|
|
|
|
|
10.19(13)
|
|
Stock
Purchase Agreement between NutraCea and Langley Park Investments
PLC
|
|
|
|
|
|
10.20(4)±
|
|
Production
Facility Development and Rice Bran Supply and Purchase Agreement
dated
September 13, 2005 between NutraCea and Food Trading Company Dominicana,
S.A.
|
|
|
|
|
|
10.21(4)±
|
|
Assignment
dated April 12, 2005 from W.F. Young, Inc. to NutraCea
|
|
|
|
|
|
10.22(4)±
|
|
Distribution
Agreement dated April 12, 2005 between W.F. Young, Inc. and
NutraCea
|
|
|
|
|
|
10.23(4)
|
|
Manufacturing
Agreement dated April 12, 2005 between W.F. Young, Inc. and
NutraCea
|
|
|
|
|
|
10.24(4)±
|
|
Supply
and Distribution Agreement dated November 4, 2005 between NutraCea
and T.
Geddes Grant.
|
|
|
|
|
|
10.25(14)
|
|
Commercial
Lease and Deposit Receipt between Roebbelen Land Company and The
RiceX
Company dated December 23, 1991.
|
|
|
|
|
|
10.26(14)
|
|
First
Amendment of Lease between Roebbelen Land Company and The RiceX Company
dated January 19, 1994.
|
|
|
|
|
|
10.27(14)
|
|
Second
Amendment of Lease between Roebbelen Land Company and The RiceX Company
dated July 11, 1996.
|
|
|
|
|
|
10.28(14)
|
|
Third
Amendment of Lease Agreement between Roebbelen Land Company and The
RiceX
Company dated February 1, 1998.
|
|
|
|
|
|
10.29(14)
|
|
Lease
Agreement between Roebbelen Land Company and The RiceX Company dated
July
11, 1996.
|
|
|
|
|
|
10.30(14)
|
|
First
Amendment of Lease between Roebbelen Land Company and The RiceX Company
dated September 1996.
|
|
|
|
|
|
10.31(14)
|
|
Second
Amendment of Lease Agreement between Roebbelen Land Company and The
RiceX
Company dated February 1, 1998.
|
|
|
|
|
|
10.32(15)
|
|
Agreement
on Exclusive Distribution in Europe between The RiceX Company and
KREGLINGER EUROPE N.V. dated October 1, 2002
.
|
|
|
|
|
|
10.33(16)±
|
|
Stabilized
Rice Bran Processing, Sales, and Marketing Agreement between Farmers'
Rice
Cooperative and The RiceX Company dated May 1, 2002.
|
|
|
|
|
|
10.34(17)
|
|
The
RiceX Company 1997 Stock Option
Plan
|
|
10.35(14)
|
|
Form
of Directors Stock Option Agreement for The RiceX Company.
|
|
|
|
|
|
10.36(14)
|
|
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.
|
|
|
|
|
|
10.37(18)
|
|
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.
|
|
|
|
|
|
10.37(18)
|
|
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.
|
|
|
|
|
|
10.39(19)
|
|
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.
|
|
|
|
|
|
10.40(16)
|
|
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.
|
|
|
|
|
|
10.41(20)
|
|
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.
|
|
|
|
|
|
10.42(20)
|
|
Form
of Non-statutory Stock Option Agreement issued July 1, 2004 between
The
RiceX Company and Edward McMillan.
|
|
|
|
|
|
10.43(21)
|
|
Form
of Non-statutory Stock Option Agreement issued October 18, 2004 between
The
RiceX Company
and two members of
The
RiceX Company
Board Directors.
|
|
|
|
|
|
10.44(22)
|
|
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.
|
|
|
|
|
|
10.45(22)
|
|
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.
|
|
|
|
|
|
10.46(4)
|
|
Form
of Option Assumption Agreement between NutraCea and Option Holders
relating to assumed Options granted under The RiceX Company 1997
Stock
Option Plan.
|
|
|
|
|
|
10.47(4)
|
|
Form
of Option Assumption Agreement between NutraCea and Option Holders
relating to assumed non-plan RiceX Options.
|
|
|
|
|
|
10.48(4)
|
|
Form
of Option Assumption Agreement between NutraCea and former Directors
of
The RiceX Company.
|
|
|
|
|
|
10.49(4)
|
|
Form
of Resale Restriction Agreement entered into between NutraCea and
each of
Todd C. Crow and Ike E. Lynch.
|
|
|
|
|
|
10.50(4)
|
|
Form
of Resale Restriction Agreement entered into between NutraCea and
each of
James Lintzenich, Edward McMillan and Steven Saunders.
|
|
|
|
|
|
10.51(4)
|
|
Form
of Resale Restriction Agreement entered into between NutraCea and
each of
Bradley Edson, Patricia McPeak, Margie Adelman, Eliot Drell and David
Bensol.
|
|
|
|
|
|
10.52(10)
|
|
Warrant
Agreement between NutraCea and Steven Saunders dated February 27,
2006.
|
|
|
|
|
|
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 Registered Public Accounting
Firm.
|
|
|
|
|
|
24.1
|
|
Power
of Attorney (See signature page.)
|
__________
|
+
|
Confidential
treatment has been requested as to certain
portions.
|
|
±
|
Confidential
treatment granted 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
Registration Statement on Form SB-2, filed on November 18,
2005.
|
|
(5)
|
incorporated
herein by reference to exhibits previously filed on Registrant’s Quarterly
Report on Form 10-QSB, filed on November 19,
2003.
|
|
(6)
|
incorporated
herein by reference to exhibits previously filed on Registrant’s
Registration Statement on Form SB-2, filed on June 4,
2002.
|
|
(7)
|
incorporated
herein by reference to exhibits previously filed on Registrant’s Current
Report on Form 8-K, filed on October 4,
2005.
|
|
(8)
|
incorporated
herein by reference to exhibits previously filed on Registrant’s Current
Report on Form 8-K, filed on May 15,
2006.
|
|
(9)
|
incorporated
herein by reference to exhibits previously filed on Registrant’s
Registration Statement on Form S-8, filed on November 18,
2003.
|
|
(10)
|
incorporated
herein by reference to exhibits previously filed on Registrant’s Quarterly
Report on Form 10-QSB, filed on May 15,
2006.
|
|
(11)
|
incorporated
herein by reference to exhibits previously filed on Registrant’s Annual
Report on Form 10-KSB, filed on March 31,
2005.
|
|
(12)
|
incorporated
herein by reference to exhibits previously filed on The RiceX Company’s
Report on Form 8-K, filed on April 4,
2005.
|
|
(13)
|
incorporated
herein by reference to exhibits previously filed on Registrant’s Current
Report on Form 8-K, filed on September 14,
2004.
|
|
(14)
|
incorporated
herein by reference to exhibits previously filed on The RiceX Company’s
Registration 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 31,
2003.
|
|
(16)
|
incorporated
herein by reference to exhibits previously filed on The RiceX Company’s
Report on Form 10-QSB, filed on August 12,
2002.
|
|
(17)
|
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.
|
|
(18)
|
incorporated
herein by reference to exhibits previously filed on The RiceX Company’s
Report on Form 10-KSB, filed on March 30,
2000.
|
|
(19)
|
incorporated
herein by reference to exhibits previously filed on The RiceX Company’s
Report on Form 10-QSB, filed on August 10,
2001.
|
|
(20)
|
incorporated
herein by reference to exhibits previously filed on The RiceX Company’s
Report on Form 10-QSB, filed on November 15,
2003.
|
|
(21)
|
incorporated
herein by reference to exhibits previously filed on The RiceX Company’s
Report on Form 10-KSB, filed on March 30,
2005.
|
|
(22)
|
incorporated
herein by reference to exhibits previously filed on The RiceX Company’s
Report on Form 10-QSB, filed on May 16,
2005.
|
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.
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 12th day of June, 2006.
|
|
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
|
|
June
12, 2006
|
|
Bradley
D. Edson
|
|
and
Director
|
|
|
|
|
|
|
|
|
|
Principal
Financial Officer
and
Principal Accounting Officer:
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Todd C. Crow
|
|
Chief
Financial Officer
|
|
June
12, 2006
|
|
Todd
C. Crow
|
|
|
|
|
|
|
|
|
|
|
|
Additional
Directors:
|
|
|
|
|
|
|
|
|
|
|
|
/s/
David Bensol
|
|
Director
|
|
June
12, 2006
|
|
David
Bensol
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Eliot Drell
|
|
Director
|
|
June
12, 2006
|
|
Eliot
Drell
|
|
|
|
|
|
|
|
|
|
|
|
/s/
James C. Lintzenich
|
|
Director
|
|
June
12, 2006
|
|
James
C. Lintzenich
|
|
|
|
|
|
/s/
Edward L. McMillan
|
|
Director
|
|
June
12, 2006
|
|
Edward
L. McMillan
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Patricia McPeak
|
|
Director
|
|
June
12, 2006
|
|
Patricia
McPeak
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Steven W. Saunders
|
|
Director
|
|
June
12, 2006
|
|
Steven
W. Saunders
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Kenneth L. Shrosphire
|
|
Director
|
|
June
12, 2006
|
|
Kenneth
L. Shropshire
|
|
|
|
|
|
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.
|
|
|
|
|
|
3.01.1(3)
|
|
Restated
and Amended Articles of Incorporation as filed with the Secretary
of State
of California on December 13, 2001.
|
|
|
|
|
|
3.01.2(4)
|
|
Certificate
of Amendment of Articles of Incorporation as filed with the Secretary
of
State of California on August 4, 2003.
|
|
|
|
|
|
3.01.3(5)
|
|
Certificate
of Amendment of Articles of Incorporation as filed with the Secretary
of
State of California on October 31, 2003.
|
|
|
|
|
|
3.01.4(4)
|
|
Certificate
of Amendment of Articles of Incorporation as filed with the Secretary
of
State of California on September 29, 2005
|
|
|
|
|
|
3.02(6)
|
|
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.
|
|
|
|
|
|
3.03(7)
|
|
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.
|
|
|
|
|
|
3.04(8)
|
|
Certificate
of Determination, Preferences and Rights of Series C Convertible
Preferred
Stock as filed with the Secretary of State of California on May 10,
2006.
|
|
|
|
|
|
|
|
Bylaws
of NutraCea, as amended effective May 31, 2006.
|
|
|
|
|
|
4.01(7)
|
|
Form
of warrant issued to subscribers in connection with NutraCea’s October
2005 private placement.
|
|
|
|
|
|
4.02(8)
|
|
Form
of warrant issued to subscribers in connection with NutraCea’s May 2006
private placement.
|
|
|
|
|
|
|
|
Opinion
of Weintraub Genshlea Chediak Law Corporation.
|
|
|
|
|
|
10.01(9)
|
|
NutraCea
2003 Stock Compensation Plan
|
|
|
|
|
|
10.02(4)
|
|
NutraCea
2005 Equity Incentive Plan
|
|
|
|
|
|
10.03(7)
|
|
Securities
Purchase Agreement, dated September 28, 2005, by and among NutraCea
and
the investors named therein.
|
|
|
|
|
|
10.04(7)
|
|
Registration
Rights Agreement, dated September 28, 2005, by and among NutraCea
and the
investors named therein.
|
|
|
|
|
|
10.05(8)
|
|
Securities
Purchase Agreement, dated May 12, 2006, by and among NutraCea and
the
investors named therein.
|
|
|
|
|
|
10.06(8)
|
|
Registration
Rights Agreement, dated May 12, 2006, by and among NutraCea and the
investors named therein.
|
|
|
|
|
|
10.07(10)+
|
|
Private
Label Supply Agreement and Strategic Alliance between NutraCea and
ITV Global.
|
|
|
|
|
|
10.08(4)
|
|
Employment
Agreement between NutraCea and Patricia McPeak.
|
|
|
|
|
|
10.09(4)
|
|
Restricted
Stock Agreement between NutraCea and Patricia
McPeak
|
|
10.10(11)
|
|
Executive
Employment Agreement between NutraCea and Bradley D.
Edson.
|
|
|
|
|
|
10.11(11)
|
|
Executive
Employment Agreement between NutraCea and Margie D.
Adelman.
|
|
|
|
|
|
10.12(4)
|
|
Executive
Employment Agreement between The RiceX Company and Todd C.
Crow.
|
|
|
|
|
|
10.13(4)
|
|
Amendment
No. 1 to Employment Agreement between NutraCea, Todd C. Crow and
The RiceX
Company.
|
|
|
|
|
|
10.14(4)
|
|
Executive
Employment Agreement between The RiceX Company and Ike E.
Lynch.
|
|
|
|
|
|
10.15(4)
|
|
Amendment
No. 1 to Employment Agreement between NutraCea, Ike E. Lynch and
The RiceX
Company.
|
|
|
|
|
|
10.16(12)
|
|
Form
of Affiliate Agreement between certain affiliates of RiceX and NutraCea
dated April 4, 2005
|
|
|
|
|
|
10.17(11)±
|
|
W.F.
Young Distribution Agreement.
|
|
|
|
|
|
10.18(11)±
|
|
W.F.
Young Technology Agreement.
|
|
|
|
|
|
10.19(13)
|
|
Stock
Purchase Agreement between NutraCea and Langley Park Investments
PLC
|
|
|
|
|
|
10.20(4)±
|
|
Production
Facility Development and Rice Bran Supply and Purchase Agreement
dated
September 13, 2005 between NutraCea and Food Trading Company Dominicana,
S.A.
|
|
|
|
|
|
10.21(4)±
|
|
Assignment
dated April 12, 2005 from W.F. Young, Inc. to NutraCea
|
|
|
|
|
|
10.22(4)±
|
|
Distribution
Agreement dated April 12, 2005 between W.F. Young, Inc. and
NutraCea
|
|
|
|
|
|
10.23(4)
|
|
Manufacturing
Agreement dated April 12, 2005 between W.F. Young, Inc. and
NutraCea
|
|
|
|
|
|
10.24(4)±
|
|
Supply
and Distribution Agreement dated November 4, 2005 between NutraCea
and T.
Geddes Grant.
|
|
|
|
|
|
10.25(14)
|
|
Commercial
Lease and Deposit Receipt between Roebbelen Land Company and The
RiceX
Company dated December 23, 1991.
|
|
|
|
|
|
10.26(14)
|
|
First
Amendment of Lease between Roebbelen Land Company and The RiceX Company
dated January 19, 1994.
|
|
|
|
|
|
10.27(14)
|
|
Second
Amendment of Lease between Roebbelen Land Company and The RiceX Company
dated July 11, 1996.
|
|
|
|
|
|
10.28(14)
|
|
Third
Amendment of Lease Agreement between Roebbelen Land Company and The
RiceX
Company dated February 1, 1998.
|
|
|
|
|
|
10.29(14)
|
|
Lease
Agreement between Roebbelen Land Company and The RiceX Company dated
July
11, 1996.
|
|
|
|
|
|
10.30(14)
|
|
First
Amendment of Lease between Roebbelen Land Company and The RiceX Company
dated September 1996.
|
|
|
|
|
|
10.31(14)
|
|
Second
Amendment of Lease Agreement between Roebbelen Land Company and The
RiceX
Company dated February 1, 1998.
|
|
|
|
|
|
10.32(15)
|
|
Agreement
on Exclusive Distribution in Europe between The RiceX Company and
KREGLINGER EUROPE N.V. dated October 1, 2002
.
|
|
|
|
|
|
10.33(16)±
|
|
Stabilized
Rice Bran Processing, Sales, and Marketing Agreement between Farmers'
Rice
Cooperative and The RiceX Company dated May 1, 2002.
|
|
|
|
|
|
10.34(17)
|
|
The
RiceX Company 1997 Stock Option
Plan
|
|
10.35(14)
|
|
Form
of Directors Stock Option Agreement for The RiceX Company.
|
|
|
|
|
|
10.36(14)
|
|
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.
|
|
|
|
|
|
10.37(18)
|
|
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.
|
|
|
|
|
|
10.37(18)
|
|
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.
|
|
|
|
|
|
10.39(19)
|
|
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.
|
|
|
|
|
|
10.40(16)
|
|
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.
|
|
|
|
|
|
10.41(20)
|
|
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.
|
|
|
|
|
|
10.42(20)
|
|
Form
of Non-statutory Stock Option Agreement issued July 1, 2004 between
The
RiceX Company and Edward McMillan.
|
|
|
|
|
|
10.43(21)
|
|
Form
of Non-statutory Stock Option Agreement issued October 18, 2004 between
The
RiceX Company
and two members of
The
RiceX Company
Board Directors.
|
|
|
|
|
|
10.44(22)
|
|
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.
|
|
|
|
|
|
10.45(22)
|
|
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.
|
|
|
|
|
|
10.46(4)
|
|
Form
of Option Assumption Agreement between NutraCea and Option Holders
relating to assumed Options granted under The RiceX Company 1997
Stock
Option Plan.
|
|
|
|
|
|
10.47(4)
|
|
Form
of Option Assumption Agreement between NutraCea and Option Holders
relating to assumed non-plan RiceX Options.
|
|
|
|
|
|
10.48(4)
|
|
Form
of Option Assumption Agreement between NutraCea and former Directors
of
The RiceX Company.
|
|
|
|
|
|
10.49(4)
|
|
Form
of Resale Restriction Agreement entered into between NutraCea and
each of
Todd C. Crow and Ike E. Lynch.
|
|
|
|
|
|
10.50(4)
|
|
Form
of Resale Restriction Agreement entered into between NutraCea and
each of
James Lintzenich, Edward McMillan and Steven Saunders.
|
|
|
|
|
|
10.51(4)
|
|
Form
of Resale Restriction Agreement entered into between NutraCea and
each of
Bradley Edson, Patricia McPeak, Margie Adelman, Eliot Drell and David
Bensol.
|
|
|
|
|
|
10.52(10)
|
|
Warrant
Agreement between NutraCea and Steven Saunders dated February 27,
2006.
|
|
|
|
|
|
|
|
List
of subsidiaries.
|
|
|
|
|
|
|
|
Consent
of Malone & Bailey, PC, Independent Registered Public Accounting
Firm.
|
|
|
|
|
|
|
|
Consent
of Perry-Smith LLP, Independent Registered Public Accounting
Firm.
|
|
24.1
|
|
Power
of Attorney (See signature page.)
|
__________
|
+
|
Confidential
treatment has been requested as to certain
portions.
|
|
±
|
Confidential
treatment granted 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
Registration Statement on Form SB-2, filed on November 18,
2005.
|
|
(5)
|
incorporated
herein by reference to exhibits previously filed on Registrant’s Quarterly
Report on Form 10-QSB, filed on November 19,
2003.
|
|
(6)
|
incorporated
herein by reference to exhibits previously filed on Registrant’s
Registration Statement on Form SB-2, filed on June 4,
2002.
|
|
(7)
|
incorporated
herein by reference to exhibits previously filed on Registrant’s Current
Report on Form 8-K, filed on October 4,
2005.
|
|
(8)
|
incorporated
herein by reference to exhibits previously filed on Registrant’s Current
Report on Form 8-K, filed on May 15,
2006.
|
|
(9)
|
incorporated
herein by reference to exhibits previously filed on Registrant’s
Registration Statement on Form S-8, filed on November 18,
2003.
|
|
(10)
|
incorporated
herein by reference to exhibits previously filed on Registrant’s Quarterly
Report on Form 10-QSB, filed on May 15,
2006.
|
|
(11)
|
incorporated
herein by reference to exhibits previously filed on Registrant’s Annual
Report on Form 10-KSB, filed on March 31,
2005.
|
|
(12)
|
incorporated
herein by reference to exhibits previously filed on The RiceX Company’s
Report on Form 8-K, filed on April 4,
2005.
|
|
(13)
|
incorporated
herein by reference to exhibits previously filed on Registrant’s Current
Report on Form 8-K, filed on September 14,
2004.
|
|
(14)
|
incorporated
herein by reference to exhibits previously filed on The RiceX Company’s
Registration 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 31,
2003.
|
|
(16)
|
incorporated
herein by reference to exhibits previously filed on The RiceX Company’s
Report on Form 10-QSB, filed on August 12,
2002.
|
|
(17)
|
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.
|
|
(18)
|
incorporated
herein by reference to exhibits previously filed on The RiceX Company’s
Report on Form 10-KSB, filed on March 30,
2000.
|
|
(19)
|
incorporated
herein by reference to exhibits previously filed on The RiceX Company’s
Report on Form 10-QSB, filed on August 10,
2001.
|
|
(20)
|
incorporated
herein by reference to exhibits previously filed on The RiceX Company’s
Report on Form 10-QSB, filed on November 15,
2003.
|
|
(21)
|
incorporated
herein by reference to exhibits previously filed on The RiceX Company’s
Report on Form 10-KSB, filed on March 30,
2005.
|
|
(22)
|
incorporated
herein by reference to exhibits previously filed on The RiceX Company’s
Report on Form 10-QSB, filed on May 16,
2005.
|
