NUTRACEA (Form: 10-Q, Received: 05/12/2011 06:05:48)

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

x	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011

o	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number 0-32565

NutraCea

(Exact Name of Registrant as Specified in its Charter)

California (State or other jurisdiction of incorporation or organization)		87-0673375 (I.R.S. Employer Identification No.)

6720 North Scottsdale Road, Suite 390 Scottsdale, AZ (Address of Principal Executive Offices)		85253 (Zip Code)

Issuer’s telephone number, including area code: (602) 522-3000

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule l2b-2 of the Exchange Act). Yes o No x

As of April 30, 2011, 198,309,844 shares of the registrant’s common stock were outstanding.

NutraCea

I nde x

Form 10-Q

PART I. FINANCIAL INFORMATION		Page
	Item 1. Unaudited Financial Statements	3
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2011 and 2010	3
	Condensed Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010	4
	Condensed Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2011 and the Year Ended December 31, 2010	5
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010	6
	Notes to Condensed Consolidated Financial Statements	7
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	25
	Item 4. Controls and Procedures	25
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings	25
	Item 1A. Risk Factors	27
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	27
	Item 3. Defaults Upon Senior Securities	27
	Item 4. (Removed and Reserved)	27
	Item 5. Other Information	27
	Item 6. Exhibits	27
Signatures		29
Certificates

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NutraCea

Condensed Consolidated Statements of Operations

Three Months Ended March 31, 2011 and March 2010

(Unaudited) (in thousands, except per share amounts)

	2011			2010
Revenues	$	7,998		$	7,222
Cost of goods sold		5,783			5,490
Gross profit		2,215			1,732

Operating expenses:
Selling, general and administrative		3,374			4,016
Professional fees		802			457
Provision for (recovery of) doubtful accounts		(740	)		73
Research and development		52			122
Loss on disposal of trademarks, property, plant and equipment		-			376
Total operating expenses		3,488			5,044

Loss from operations		(1,273	)		(3,312	)

Other income (expense):
Interest income		13			18
Interest expense		(388	)		(281	)
Loss on equity method investments		(13	)		(11	)
Warrant liability income (expense)		(2,576	)		321
Other income		102			118
Other expense		(12	)		(30	)
Total other income (expense)		(2,874	)		135

Reorganization expenses - professional fees		-			337

Loss before income taxes		(4,147	)		(3,514	)
Income tax benefit		60			244
Net loss		(4,087	)		(3,270	)
Net loss attributable to noncontrolling interest in Nutra SA		28			-
Net loss attributable to NutraCea shareholders	$	(4,059	)	$	(3,270	)

Loss per share attributable to NutraCea shareholders
Basic	$	(0.02	)	$	(0.02	)
Diluted	$	(0.02	)	$	(0.02	)

Weighted average number of shares outstanding
Basic		195,358			192,992
Diluted		195,358			192,992

See Notes to Unaudited Condensed Consolidated Financial Statements

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NutraCea

Condensed Consolidated Balance She ets

March 31, 2011 and December 31, 2010

(Unaudited) (in thousands, except share amounts)

	March 31, 2011			December 31, 2010
ASSETS
Current assets:
Cash and cash equivalents	$	1,219		$	537
Restricted cash		2,118			1,917
Accounts receivable, net		3,056			3,502
Inventories		3,106			2,994
Notes receivable, current portion, net		1,200			1,200
Deferred tax asset		326			292
Deposits and other current assets		2,979			2,255
Assets held for sale - property, plant and equipment		-			3,598
Total current assets		14,004			16,295

Notes receivable, net of current portion		200			600
Property, plant and equipment, net		28,934			24,054
Intangible assets, net		6,002			6,296
Goodwill		5,941			5,835
Equity method investments		36			49
Other long-term assets		41			95
Total assets	$	55,158		$	53,224

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	2,141		$	2,573
Accrued expenses		4,046			4,266
Pre-petition liabilities		3,445			6,406
Long-term debt, current portion		2,653			3,235
Warrant liability, current portion		250			-
Total current liabilities		12,535			16,480

Long-term liabilities:
Long-term debt, net of current portion		6,902			7,365
Deferred tax liability		4,288			4,361
Warrant liability, net of current portion		3,954			1,628
Other long-term liabilities		1,000			1,000
Total liabilities		28,679			30,834

Commitments and contingencies

Redeemable noncontrolling interest in Nutra SA		7,697			-

Equity:
Equity attributable to NutraCea shareholders:
Preferred Stock, 20,000,000 authorized and none issued		-			-
Common stock, no par value, 350,000,000 shares authorized, 195,717,735 and 195,359,109 shares issued and outstanding		207,631			207,432
Accumulated deficit		(188,871	)		(184,812	)
Accumulated other comprehensive income (loss)		178			(74	)
Total equity attributable to NutraCea shareholders		18,938			22,546
Noncontrolling interest in Rice Science		(156	)		(156	)
Total equity		18,782			22,390
Total liabilities and equity	$	55,158		$	53,224

See Notes to Unaudited Condensed Consolidated Financial Statements

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NutraCea

Condensed Consolidated Statements of Changes in Equity

Three Months Ended March 31, 2011 and Year Ended December 31, 2010

(Unaudited) (in thousands, except shares)

	NutraCea Shareholders
	Common Stock						Accumulated Deficit			Accumulated Other Comp-rehensive Income (Loss)			Non- controlling Interest in Rice Science			Total Equity
	Shares			Amount			Accumulated Deficit			Accumulated Other Comp-rehensive Income (Loss)			Non- controlling Interest in Rice Science			Total Equity

Balance, January 1, 2010		192,967,680		$	205,291		$	(169,144	)	$	(467	)	$	(156	)	$	35,524

Share-based employee and director compensation - options		-			1,632			-			-			-			1,632
Share-based consultant compensation - options		-			37			-			-			-			37
Share-based compensation for vendor services		2,391,429			472												472
Foreign currency translation		-			-			-			393			-			393
Net loss		-			-			(15,668	)		-			-			(15,668	)
Balance, December 31, 2010		195,359,109			207,432			(184,812			(74	)		(156	)		22,390

Cancelled shares and options - settlement with former officer		(35,000	)		(278	)											(278	)
Share-based employee and director compensation - options		-			36			-			-			-			36
Share-based consultant compensation - options		-			2			-			-			-			2
Share-based compensation for vendor services		393,626			170			-			-			-			170
Beneficial conversion feature of convertible note		-			140			-			-			-			140
Issuance of warrants for convertible note		-			129			-			-			-			129
Foreign currency translation		-			-			-			252			-			252
Net loss		-			-			(4,059			-			-			(4,059	)
Balance, March 31, 2011		195,717,735		$	207,631		$	(188,871	)	$	178		$	(156	)	$	18,782

See Notes to Unaudited Condensed Consolidated Financial Statements

Index

NutraCea

Condensed Consolidated Statements of Cash Flows

Three Months Ended March 31, 2011 and 2010

(Unaudited) (in thousands)

	2011			2010
Cash flows from operating activities:
Net loss	$	(4,087	)	$	(3,270	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,186			1,139
Provision for doubtful accounts		60			73
Loss on disposal of property, plant and equipment		-			376
Share-based compensation		208			174
Warrant liability expense (income)		2,576			(321	)
Deferred tax benefit		(175	)		(244	)
Reorganization expenses		-			337
Loss on equity method investments		13			11
Changes in operating assets and liabilities:
Accounts receivable		510			(250	)
Inventories		(70	)		(882	)
Other current assets		(916	)		454
Accounts payable and accrued expenses		(122	)		255
Pre-petition liabilities		(3,531	)		-
Net cash used in operating activities, before reorganization items		(4,348	)		(2,148	)

Reorganization items:
Reorganization expenses		-			(337	)
Change in accounts payable for reorganization items		-			178
Net cash used for reorganization items		-			(159	)
Net cash used in operating activities		(4,348	)		(2,307	)

Cash flows from investing activities:
Receipts on notes receivable		400			300
Restricted cash		(201	)		-
Purchases of property, plant and equipment		(1,853	)		(61	)
Proceeds from sale of property, plant and equipment		-			3,715
Other		43			(7	)
Net cash provided by (used in) investing activities		(1,611	)		3,947

Cash flows from financing activities:
Proceeds from sale of membership interest in Nutra SA, net of costs		7,725			-
Proceeds from issuance of warrants and convertible note conversion feature		269			-
Payment on debt, net		(1,335	)		(1,698	)
Net cash provided by (used) in financing activities		6,659			(1,698	)

Effect of exchange rate changes on cash and cash equivalents		(18	)		3
Net change in cash and cash equivalents		682			(55	)
Cash and cash equivalents, beginning of period		537			952
Cash and cash equivalents, end of period	$	1,219		$	897

Supplemental disclosures:
Cash paid for interest	$	206		$	234
Cash paid for taxes		-			-

See Notes to Unaudited Condensed Consolidated Financial Statements

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NutraCea

Not es to Unaudited Condensed Consolidated Financial Statements

NOTE 1. BASIS OF PRESENTATION

In the opinion of management, the accompanying unaudited condensed consolidated financial statements of NutraCea and subsidiaries (“we”, “us”, “our” or the “Company”) were prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and the rules and regulations of the Securities and Exchange Commission (SEC) for reporting on Form 10-Q; therefore, as permitted under these rules, certain footnotes and other financial information included in audited financial statements were condensed or omitted. The Interim Financial Statements contain all adjustments necessary to present fairly the interim results of operations, financial position and cash flows for the periods presented.

These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2010.

The interim results of operations and interim cash flows for the three months ended March 31, 2011, are not necessarily indicative of the results to be expected for the full fiscal year or any other future period and have been prepared assuming we will continue as a going concern based on the realization of assets and the satisfaction of liabilities in the normal course of business. We have experienced recurring losses and negative cash flows from operations. In the past we have turned to the equity markets for additional liquidity. This was not a significant source of funds during 2011 and 2010 due to our financial position, the state of the equity markets and the bankruptcy filing discussed below. However, exiting bankruptcy on November 30, 2010, combined with improving financial performance and equity market conditions, may allow us to raise equity funds. We intend to provide the necessary cash to continue operations through the monetization of certain assets, growth of sales, and possible equity financing transactions.

Certain reclassifications have been made to amounts reported for the prior year to achieve consistent presentation with the current year.

NOTE 2. CHAPTER 11 REORGANIZATION, LIQUIDITY AND MANAGEMENT’S PLAN

Chapter 11 Reorganization

On November 10, 2009, NutraCea (Parent Company) filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code (Bankruptcy Code) in the United States Bankruptcy Court for the District of Arizona (Bankruptcy Court), in the proceeding entitled In re: NutraCea, Case No. 2:09-bk-28817-CGC (Chapter 11 Reorganization). None of the Parent Company’s subsidiaries, including its Brazilian rice oil operation, were included in the bankruptcy filing. The Parent Company continued to manage its assets and operate its business as “debtor-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code. Under the Bankruptcy Code, certain claims against the Parent Company in existence prior to the filing of the bankruptcy petition were stayed during the pendency of the Chapter 11 Reorganization.

On August 10, 2010, the Parent Company and the official unsecured creditors committee filed with the Bankruptcy Court an amended plan of reorganization (Amended Plan) in accordance with the Bankruptcy Code. The Amended Plan called for the payment in full of all allowed claims. Creditors voted overwhelmingly in favor of the Amended Plan and, on October 27, 2010, the Bankruptcy Court entered its order confirming the Amended Plan. The confirmation order became final on November 10, 2010, and the Amended Plan became effective on November 30, 2010.

The Parent Company intends to discharge its obligation to pay the pre-petition liabilities by selling non-core assets, equity financing transactions, collecting outstanding receivables, and borrowing on a secured basis. To secure a portion of these payment obligations, unsecured creditors were granted a lien in all of the Parent Company’s assets. The lien is administered and may be enforced by a plan agent, who was jointly selected by the Parent Company and the Official Unsecured Creditors Committee. The plan agent may, among other things, sell specified assets if the payment benchmarks set forth in the Amended Plan are not met.

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NutraCea

Notes to Unaudited Condensed Consolidated Financial Statements

Under the Amended Plan, if we fail to meet certain benchmarks for payment to our general unsecured creditors as described in the Amended Plan, the plan agent may direct and control the sale of pledged assets as follows:


		Pledged Assets Subject to
	Required Cumulative	Sale by Plan Agent, if	Net Proceeds Plan Agent Retains for the
Benchmark Date	Payment	Benchmark Not Met	General Unsecured Creditors
July 15, 2011	50%	Dillon, Montana facility and all loose equipment	75% of proceeds from the sale of the facility and up to 100% of the proceeds from the sale of loose equipment

October 15, 2011	75%	Dillon, Montana facility and all loose equipment	75% of proceeds from the sale of the facility and up to 100% of the proceeds from the sale of loose equipment

January 15, 2012	100%	Lake Charles, Louisiana facility and any remaining pledged assets	Up to 100% of net proceeds from the sale

Since we will not be able to control the sale of the above assets if we do not meet the payment benchmarks, we cannot guarantee that the assets will be sold at a value satisfactory to us. As of March 31, 2011, we have made distributions to the general unsecured creditors totaling $3.1 million, or approximately 44% of the amount owed, plus accrued interest. Interest accrues on the unpaid prepetition liabilities at an annual rate of 8.25% beginning in December 2010.

Under the Amended Plan, the following must be paid to the general unsecured creditors, if and when received:

75% of the net proceeds from the sale of the Dillon, Montana facility;

the greater of (i) $2.2 million or (ii) 40% of the first $5.0 million in net proceeds we receive from the monetization of our interest in Nutra SA, LLC (Nutra SA) plus 50% of any net proceeds over $5.0 million;

50% of the net proceeds from the sale of our interest in Rice Science, LLC or Rice Rx LLC;

100% of the net proceeds from the sale of any loose (uninstalled) equipment;

75% of any prepayments received on the note receivable from Ceautamed Worldwide, LLC (Ceautamed), if any, and all receipts on the note beginning April 1, 2011;

75% of the net proceeds from the sale or monetization of the Lake Charles, Louisiana improvements or Mermentau, Louisiana facility, after payment of professional fees;

75% of the net proceeds from the sale or monetization of any other pledged assets;

100% of any recoveries from avoidance actions or actions against former officers and directors.

Liquidity and Management’s Plans

Although we have made significant improvement, we continue to experience losses and negative cash flows from operations which raises substantial doubt about our ability to continue as a going concern.

We have taken steps in 2010 and 2009 to improve profitability and liquidity by reducing our U.S. based employee headcount at both the corporate and plant operations level. In the ongoing effort to improve profitability, significant emphasis will be placed on growing sales. The growth of revenues is expected to include the following:

·	growing sales in existing markets, including bulk processed rice bran (SRB) and rice oil;

·	aligning with strategic partners who can provide channels for additional sales of our products including rice oil extraction; and

·	price increases.

Equity markets have not been a significant source of funds during 2011 and 2010 due to our financial position, the state of the equity markets and the bankruptcy filing. However, exiting bankruptcy on November 30, 2010, combined with improving financial performance and equity market conditions, may allow us to raise equity funds. We intend to provide the necessary cash to continue operations through the monetization of certain assets, growth of sales, and equity financing transactions. Asset monetization may include some or all of the following:

·	sale or a sale-lease back of certain facilities;

·	sale of a noncontrolling interest in one or more subsidiaries; or

·	sale of surplus equipment.

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NutraCea

Notes to Unaudited Condensed Consolidated Financial Statements

Some of these sales could result in additional impairment of asset values. Although we believe that we will be able to obtain the funds necessary to continue as a going concern there can be no assurances that our efforts will prove successful. The accompanying consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

NOTE 3. GENERAL BUSINESS

We are a food ingredient and health company focused on the procurement, processing and refinement of rice bran and derivative products. We have proprietary intellectual property that allows us to process and convert rice bran, one of the world’s most underutilized food resources, into a highly nutritious ingredient, SRB, that has applications in various food products. Our target markets are food manufacturers, nutraceuticals and animal nutrition. SRB is also used as a stand-alone product that can be sold through non-related entities with distribution into the market place, both domestically and internationally. These products include food supplements and nutraceuticals which provide health benefits for humans and animals based on SRB and SRB derivatives. We believe that SRB products can deliver beneficial physiological effects. We are continuing to pursue ongoing clinical trials and third party analyses in order to further support the uses for and effectiveness of our products. In addition, NutraCea has developed a bio-refining approach to processing rice bran into various value added constituents such as rice oil, defatted rice bran (DRB) and a variety of other valuable derivatives of rice bran.

We have three reportable business segments: (1) Corporate; (2) SRB, which manufactures and distributes SRB in various granulations along with products derived from bran via patented enzyme treatment processes including a fat and protein rich water soluble fraction and a fiber rich insoluble fraction; and (3) Bio-Refining, which separates rice bran into rice oil and defatted rice bran which are then further processed into a number of valuable food and feed products. Bio-Refining operations consist of our operations in Brazil. The Corporate segment includes selling, general and administrative expenses, litigation settlements, amortization of intangible assets, and other expenses not directly attributable to other segments. No corporate allocations are made to the other segments. Interest is not allocated.

NOTE 4. LOSS PER SHARE (EPS)

Basic EPS is computed by dividing net loss attributable to NutraCea shareholders by the weighted average number of common shares outstanding during all periods presented. Options, warrants and shares issuable upon conversion of convertible notes payable are excluded from the basic EPS calculation and are considered in calculating the diluted EPS.

Diluted EPS is computed by dividing net loss attributable to NutraCea shareholders by the weighted average number of shares outstanding during the period increased by the number of additional shares that would have been outstanding if the impact of assumed exercises and conversions is dilutive. The dilutive effect of outstanding options and warrants is calculated using the treasury stock method. The dilutive effect of outstanding convertible notes payable is calculated using the “if converted” method.

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NutraCea

Notes to Unaudited Condensed Consolidated Financial Statements

Reconciliations of the numerators and denominators in the EPS computations for the three months ended March 31 follow:

	2011			2010
NUMERATOR (in thousands):
Basic and diluted - net loss attributable to NutraCea	$	(4,059	)	$	(3,270	)

DENOMINATOR:
Basic EPS - weighted average number of shares outstanding		195,358,442			192,991,680
Effect of dilutive securities outstanding		-			-
Diluted EPS - weighted average number of shares outstanding		195,358,442			192,991,680

Number of shares of common stock which could be purchased with weighted average outstanding securities not included in diluted EPS because effect would be antidilutive-
Stock options (average exercise price of $0.30 and $0.45 )		42,735,539			26,630,425
Warrants (average exercise price of $1.24 and $1.27)		40,994,431			39,845,173
Convertible note payable		1,000,000			-

The impact of potentially dilutive securities outstanding at March 31, 2011 and 2010, were not included in the calculation of diluted EPS in 2011 and 2010, because to do so would be antidilutive. Those securities which were antidilutive in 2011 and 2010 could potentially dilute EPS in the future.

NOTE 5. COMPREHENSIVE LOSS

Comprehensive loss consists of the following for the three months ended March 31 (in thousands):

	2011			2010
Net loss	$	(4,087	)	$	(3,270	)
Other comprehensive loss - foreign currency translation, net of tax		252			(407	)
Comprehensive loss, net of tax		(3,835	)		(3,677	)
Comprehensive loss attributable to the noncontrolling interest, net of tax		28			-
Total comprehensive loss attribibutable to NutraCea shareholders	$	(3,807	)	$	(3,677	)

NOTE 6. REDEEMABLE NONCONTROLLING INTEREST IN NUTRA SA

In December 2010, we entered into a membership interest purchase agreement with AF Bran Holdings-NL LLC and AF Bran Holdings LLC (Investors). The transaction closed in January 2011. The Investors agreed to purchase units in Nutra SA for an aggregate purchase price of $7.7 million. Prior to the transaction, Nutra SA was a wholly owned subsidiary. Nutra SA owns 100% of Irgovel Industria Riograndense De Oleos (Irgovel). Initially after the closing, effective in January 2011, we owned a 64.4% interest in Nutra SA, and the Investors owned a 35.6% interest in Nutra SA. The Parent Company received $4.0 million of the proceeds. The remaining $3.7 million, less $0.5 million retained by Nutra SA for administrative expenses, was invested in Irgovel for capital improvements and working capital needs.

The Parent Company agreed to use $2.2 million of the funds received from the January 2011 transaction closing (Closing) to repay amounts owed to the general unsecured creditors in accordance with the Amended Plan. The remaining $1.8 million was used for general corporate purposes, unsecured creditor claims and administrative expenses associated with the Chapter 11 Reorganization.

We are restricted from competing with Nutra SA and Irgovel in Brazil as further described in the membership interest purchase agreement. In addition, upon the occurrence of certain events and conditions as described in the purchase agreement, the Investors may be required to purchase a number of units of Nutra SA from the Parent Company, at $2.00 per unit, resulting in the Investors holding up to a 49.0% interest in Nutra SA.

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NutraCea

Notes to Unaudited Condensed Consolidated Financial Statements

We have determined that we control Nutra SA after the transaction and therefore we continue to consolidate Nutra SA. Under the limited liability company agreement for Nutra SA, LLC (LLC agreement), the business of Nutra SA is to be conducted by the manager, NutraCea’s CEO, subject to the oversight of the management committee. The management committee is initially comprised of three NutraCea representatives and two Investors’ representatives. Upon an event of default, the management committee will no longer be controlled by NutraCea, and will include three Investors’ representatives and two NutraCea representatives. In addition, following an event of default, a majority of the members of the management committee may replace the manager of Nutra SA.

Events of default, as defined in the membership purchase interest, are:

A Nutra SA business plan deviation, defined as the occurrence, in either 2012, 2013 or 2014, of a 20% unfavorable variation in two out of three of the following: (i) revenue, (ii) earnings before interest, taxes, depreciation and amortization (EBITDA) or (iii) debt,

A Nutra SA EBITDA default, which is defined as the failure to achieve 85% of planned EBITDA for three consecutive quarters, beginning with the quarter ended March 31, 2011, or

A material problem, which is defined as a material problem in a facility (unrelated to changes in law, weather, etc.) likely to cause a Nutra SA business plan deviation or Nutra SA EBITDA default, which results in damages not at least 80% covered by insurance proceeds.

As of March 31, 2011, there have been no events of default.

In evaluating whether we maintain control over Nutra SA, we considered the matters which could be put to a vote of the members. Until there is an event of default, the Investors’ rights and abilities, individually or in the aggregate, do not allow them to substantively participate in the operations of Nutra SA. The Investors do not currently have the ability to dissolve Nutra SA or otherwise force the sale of all its assets. They do have such rights in the future (Drag Along Rights as described below). We will continue to evaluate our ability to control Nutra SA each reporting period.

The Investors have certain rights, summarized below, under an investor rights agreement and the limited liability company agreement, as further defined in the agreements.

Conversion Rights – The Investors may exchange units in Nutra SA for equity interests in Irgovel beginning in July 2011. After any exchange, the Investors would possess the same rights and obligations with respect to the securities of Irgovel, as they have in Nutra SA.

Global Holding Company (GHC) Roll-Up – If we form an entity GHC, to hold our bio-refining segment assets, the Investors may exchange units in Nutra SA for equity interests in GHC. The investors may exercise this right after the second anniversary of the formation of GHC or, if an event of default has occurred, the later of January 2013 and the GHC formation date. The appraised fair value of the Investors’ interest in Nutra SA would be used to determine the amount of ownership interest the Investors would receive in GHC.

NutraCea Roll-Up – The Investors may exchange units in Nutra SA for NutraCea common stock. . This right is available upon the earlier of January 2014 or, if an event of default has occurred, January 2013. We may elect to postpone our obligation to complete the NutraCea roll-up to January 2015 if the roll-up would result in over 25% of our common stock being owned by the Investors. The appraised fair value of the Investors’ interest in Nutra SA would be used to determine the amount of ownership interest the Investors would receive in NutraCea.

Drag Along Rights – The Investors have the right to force the sale of all Nutra SA assets after January 2015, January 2013 if an event of default occurs, or February 2014, if we make a NutraCea roll-up postponement election. The right terminates upon the occurrence of certain events (a $50 million Nutra SA initial public offering or a change of control, as defined). We may elect to exercise a right of first refusal to purchase the Investors’ interest instead of proceeding to a sale.

We are required to treat the change in ownership of Nutra SA similar to an equity transaction with no gain or loss recognized in consolidated net income or comprehensive income. The difference between the initial amount of noncontrolling interest recognized and the net proceeds from the sale was recorded in redeemable noncontrolling interest. The Investors share of Nutra SA’s net income or loss after the Closing is recorded in redeemable noncontrolling interest. A summary of changes in redeemable noncontrolling interest for the three months ended March 31, 2011, follows (in thousands):

Investors' initial interest in carrying value of Nutra SA at Closing	$	4,349
Adjustment to increase initial interest to fair value		3,376
Investors interest in net loss of Nutra SA from Closing to March 31, 2011		(28	)
Redeemable noncontrolling interest in Nutra SA, March 31, 2011	$	7,697

Index

NutraCea

Notes to Unaudited Condensed Consolidated Financial Statements

Redeemable noncontrolling interest in Nutra SA is recorded in temporary equity above the equity section and after liabilities, on our consolidated balance sheets, because the Investors have the right to force a sale of Nutra SA assets beginning in January 2015 (see Drag Along Rights described above). We have assessed the likelihood of the Investors exercising these rights as less than probable at March 31, 2011, in part because it is at least as likely the Investors will exercise other rights prior to January 2015. We will continue to evaluate the probability of the Investors’ exercising their Drag Along rights each reporting period. We will begin to accrete the redeemable noncontrolling interest up to fair value if and when it is probable the Investors’ will exercise these rights.

We received in April 2011, an additional $1.0 million from the Investors for the purchase of additional units in Nutra SA. The purchase increased the Investors’ interest in Nutra SA by 4.6%, to a 40.2% interest. Consistent with our initial recording of the transaction, we treated the April 2011 transaction similar to an equity transaction with no gain or loss recognized in consolidated net income or comprehensive income.

NOTE 7. SETTLEMENT WITH HERBAL SCIENCE

In March 2010, Herbal Science Singapore Pte. Ltd. (HS) filed a proof of claim against the Parent Company in the amount of $1.5 million in the Chapter 11 Reorganization. In November 2010, we entered into a stipulated settlement agreement with HS and certain affiliates, which was subsequently approved by the Bankruptcy Court. The stipulation provided that, by no later than January 2011, we would pay HS $0.9 million. In January 2011, we renegotiated the stipulated settlement agreement with HS and the affiliates to provide that the payment of $0.9 million would be deferred until we received the balance of the purchase price for the sale of up to a 49% interest in Nutra SA or until funds otherwise become available earlier. Upon HS’s receipt of full payment:

We will assume the Rice Rx LLC (RRX) and Rice Science, LLC (RS) limited liability company agreements, together with a related supply agreement and license agreement, and the proof of claim will be deemed satisfied;

HS will assign to us all of its interests in the RRX and RS limited liability companies;

HS and the affiliates will assign to us any interest they have in the patentable pharmaceuticals, SRB isolates and related intellectual property;

HS will assign to us the supply agreement, the license agreement and certain related research and development agreements;

HS and the affiliates will agree not to engage in any research, development, sale, distribution, commercialization, and/or manufacturing activities concerning the patentable pharmaceuticals, SRB isolates and related intellectual property;

HS and the affiliates will agree to cooperate with us in specified ways to protect, preserve and perfect the patentable pharmaceuticals, SRB isolates and related intellectual property; and

The parties will waive and release all claims against each other in regard to the limited liability companies, the supply agreement, the license agreement and the research and development agreements.

During the first quarter of 2011, we paid $0.4 million of our obligation to HS and as of March 31, 2011, our remaining obligation to HS was $0.5 million. In April 2011, HS sold their receivable due from us to a third party (Buyer). In settlement of our $0.5 million obligation with Buyer, in April 2011we issued to Buyer 2,576,775 shares of common stock and a warrant to purchase a certain number of shares at a certain exercise price (Buyer Warrant), each to be determined based on post transaction prices of our common stock for a period of time following the transaction (Calculation Period). The number of shares to be issued under the Buyer Warrant will equal $0.1 million divided by the post transaction price of our common stock on the last day of the Calculation Period (Warrant Price) and the exercise price will equal 110% of the Warrant Price. The common stock issued to Buyer had a fair value of $0.6 million, based on the market value of our common stock. The difference between the fair value of the common stock issued to Buyer and our obligation to HS on the date of the transaction was recorded as a financing charge in other expense in the second quarter of 2011. The shares issued to Buyer may be adjusted based on post transaction prices of our common stock during the Calculation Period.

NOTE 8. ASSETS HELD FOR SALE – PROPERTY, PLANT AND EQUIPMENT

In October 2009, as part of evaluating non-core assets and businesses, management determined that the Dillon facility (which included land, building and equipment) would be offered for sale. Throughout 2010, we aggressively marketed the facility. The facility continued to be classified as held for sale through December 31, 2010. While classified as held for sale, no depreciation was recorded on the Dillon assets. In the fourth quarter of 2010, we recognized an impairment loss of $0.9 million based on an evaluation of market conditions and a discounted cash flow analysis.

In February 2011, we ceased actively marketing the facility. We continue to operate the facility and are evaluating ways to utilize excess capacity. As a result, in the first quarter of 2011, we reclassified $3.6 million for the Dillon facility to property, plant and equipment in use and restarted depreciation.

Index

NutraCea

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 9. ACCOUNTS RECEIVABLE RECOVERY

In March 2011, pursuant to a settlement agreement with a former customer, we received $0.8 million in payment of trade receivables previously written-off as uncollectible. This amount is recorded as a recovery of doubtful accounts in the statements of operations for the quarter ended March 31, 2011.

NOTE 10. DEBT

The following table summarizes current and long-term portions of debt (in thousands):

	March 31, 2011		December 31, 2010
Domestic:
Customer list purchase	$	902	$	993
Supplier note		142		177
Convertible note payable		375		-
		1,419		1,170
Foreign:
Equipment financing		261		290
Working capital lines of credit		3,289		4,404
Special tax program		4,491		4,470
Other obligations		95		266
		8,136		9,430
Total debt		9,555		10,600
Current portion		2,653		3,235
Long-term portion	$	6,902	$	7,365

Convertible Note Payable

In February 2011, we borrowed $0.5 million from a financial advisor. We entered into three agreements with the advisor and his firm, the terms of which are summarized below.

Convertible Note: We issued a convertible note in the amount of $0.5 million with a stated interest rate of 8.5%. Interest is payable monthly. The entire principal and any remaining unpaid interest are due February 2013. Until repaid, the outstanding principal and any accrued interest are convertible into our common stock, at the option of the holder, at a value of $0.25 per share (beneficial conversion feature). In addition, in the event of a qualified financing – a securities offering of common stock (or securities convertible into stock) or certain debt with proceeds of $3.0 million or more prior to the expiration of the financial advisor agreement described below - the note is convertible at the option of the holder into the securities issued in the offering on the same terms that apply to other investors. If the note is converted in a qualified financing, the warrant described below is cancelled. The note is secured by a second lien on our Dillon, Montana facility.

Warrant: We issued a warrant to purchase up to 500,000 shares of common stock. The strike price of the warrant is $0.25 per share. It vested immediately and became exercisable upon issuance and expires in February 2015.

Financial Advisor Agreement: We entered into financial advisory agreement with a term of February 2011 to April 2012. We are obligated to pay the advisor success fees ranging from 2.5% to 5.0% of the consideration received from certain equity, convertible securities or debt transactions. We must also issue warrants to purchase shares of common stock that equal from 2.5% to 5.0 % of the consideration received in those transactions, divided by either the market price of our common stock or the conversion price of the securities issued in the transaction.

We allocated the $0.5 million proceeds as follows:

$0.1 million to the warrant at its fair value, as determined using the Black-Scholes valuation methodology,

$0.1 million to the beneficial conversion feature of the convertible note, at its intrinsic value, the difference between the price of our common stock on the date of the transaction and the conversion price, multiplied by the number of shares into which the note was convertible,

$0.4 million to the note payable portion of the convertible note, based on its calculated fair value, determined by using the discounted present value of the payments due on the note, at a 25.0% interest rate, offset by

$0.1 million to an asset, representing the amount attributable to favorable terms on the financial services agreement.

Index

NutraCea

Notes to Unaudited Condensed Consolidated Financial Statements

The fair value of the warrant and the intrinsic value of the convertible note’s beneficial conversion feature were recorded in equity. Interest expense is being recognized on the note payable portion of the convertible note at an effective interest rate of 25.0%. The asset is amortizing to selling, general and administrative expenses over the term of the financial services agreement.

Factoring Agreement

In January 2011, we entered into a domestic factoring agreement which provides for a $1.0 million credit facility with a bank. We may only borrow to the extent we have qualifying accounts receivable as defined in the agreement. The facility expires on December 31, 2011, and renews automatically for another year unless proper termination notice is given. The bank will charge the greater of $2,000 per month or a 2.0% fee on any borrowing. The 2.0% fee increases incrementally for any qualified account with a balance that remains outstanding in excess of 45 days. As of March 31, 2011, there was no outstanding balance due on this facility.

Special Tax Program

In April 2011, Irgovel qualified for a reduction in its special tax program obligation. Total future payments will be reduced approximately $0.6 million. While we are awaiting final calculations from the Brazilian tax authorities, we expect to recognize approximately $0.6 million in other income in the second quarter of 2011 as a result of the modification.

NOTE 11. EQUITY AND SHARE-BASED COMPENSATION AND WARRANT LIABILITY

The following is a summary of stock option and warrant activity for the three months ended March 31, 2011:

	Number of Options			Weighted Average Option Exercise Price		Weighted Average Remaining Contractual Option Life (Years)		Number of Warrrants		Weighted Average Warrant Exercise Price		Weighted Average Remaining Contractual Warrant Life
Outstanding, Janaury 1, 2011		45,485,111		$	0.30		6.9		40,429,577	$	1.27		1.9
Granted		2,187,500			0.25		10.0		1,105,149		1.18		1.1
Exercised		-			-		-		-		-		-
Forfeited, expired or cancelled		(6,204,798	)		0.31				-		-
Outstanding, March 31, 2011		41,467,813		$	0.30		7.3		41,534,726	$	1.24		1.7

Exercisable, March 31, 2011		24,575,029		$	0.35		6.4		41,534,726	$	1.24		1.7

Options

In December 2010, we reached an agreement to settle all potential claims associated with the employment of Mr. Brad Edson, our former chief executive officer. The agreement was subject to the approval of the Bankruptcy Court and became effective upon court approval in January 2011. Mr. Edson agreed to return to NutraCea $0.4 million, representing a bonus earned in 2008. We recorded the right to receive the return of the bonus as a receivable. The corresponding income reduced selling, general and administrative expenses in the first quarter of 2011. As partial payment of the receivable, Mr. Edson forfeited 6,000,000 options granted in 2004 and returned 35,000 shares of common stock in payment of $0.3 million of his obligation. The options had an exercise price of $0.30 per share and were outstanding and exercisable as of December 31, 2010. We reduced the receivable from Mr. Edson and increased equity by $0.3 million in the first quarter of 2011.

In March 2011, we reached an agreement to settle all potential claims associated with the employment of Mr. Todd Crow, our former chief financial officer. As part of the settlement, Mr. Crow was required to forfeit 1,662,942 options and return 9,666 shares of common stock held. The agreement was subject to the approval of the Bankruptcy Court and became effective upon court approval in April 2011. The options had an average exercise price of $0.37 per share and were outstanding and exercisable as of March 31, 2011 and December 31, 2010. No value was assigned to the cancelled stock or options because we transferred no cash or other assets in exchange. In connection with the settlement, Mr. Crow agreed to withdraw his $0.2 million bankruptcy claim which was included in pre-petition liabilities as of March 31, 2011 and December 31, 2010. In April 2011, we reduced selling, general and administrative expenses for the amount of the withdrawn claim.

Index

NutraCea

Notes to Unaudited Condensed Consolidated Financial Statements

Warrants

The table above includes information for both outstanding warrants classified as equity and outstanding warrants classified as warrant liability.

In February 2011, we issued an equity warrant to the holder of a convertible note to purchase up to 500,000 shares of our common stock at $0.25 per share, which vested and became exercisable beginning in February 2011 and expires in February 2015 (See Note 10).

We have certain outstanding warrant agreements in effect that contain anti-dilution clauses. Under these clauses, based on future equity issuances, we may be required to lower the exercise price on existing warrants and issue additional warrants. Equity issuances would include issuances of our common stock, certain awards of options to employees, issuances of warrants, or other convertible instruments below a certain exercise price. Warrant liability is carried at fair value which is determined at the end of each reporting period. The change in fair value is recorded as warrant liability income or expense.

As a result of issuing the warrant to the holder of the convertible note, we issued additional warrants to purchase 605,149 shares to the holders of warrants with anti-dilution clauses. The additional warrants have an average exercise price of $1.95 per share. We also lowered the exercise price of outstanding warrants to purchase 17,794,023 shares from $2.04 per share to $1.98 per share.

The issuance of shares of common stock to Buyer in April 2011, in connection with the Herbal Science transaction, triggered the anti-dilution clauses in certain outstanding warrant agreements. We will be required to lower the exercise price on certain existing warrants and issue additional warrants. These actions are subject to the adjustment provisions included in the agreement with Buyer (see Note 7) when the Calculation Period ends. Based on the shares initially issued in April, we expect to lower the exercise price of existing warrants to purchase approximately 18,379,072 shares from $1.98 per share to approximately $1.83 per share. We expect to issue additional warrants to purchase approximately 1,543,905 shares at an average exercise price of approximately $1.77 per share. The Buyer Warrant will require us to again lower the exercise price on existing warrants and issue additional warrants, once the Calculation Period ends.

As of March 31, 2011, we have 1,045,454 of outstanding equity warrants, which do not contain anti-dilution clauses, with an average exercise price of $0.47, and an average remaining term of 3.22 years.

NOTE 12. COMMITMENTS AND CONTINGENCIES

Purchase and Supply Commitments

In January 2011, Irgovel entered into a commitment to supply $0.4 million of rice oil each month from April 2011 to December 2011. The commitment represents approximately 50% of Irgovel’s current rice oil production capacity.

As of March 31, 2011, Irgovel has outstanding equipment purchase commitments totaling approximately $4.0 million. The equipment is part of a capital project to expand production capacity and improve operational efficiency. We expect to pay for this equipment during the next year.

Litigation

In addition to the matters discussed below, from time to time we are involved in litigation incidental to the conduct of our business. When applicable, we record accruals for contingencies when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated. While the outcome of lawsuits and other proceedings against us cannot be predicted with certainty, in the opinion of management, individually or in the aggregate, no such lawsuits are expected to have a material effect on our financial position or results of operations. Defense costs are expensed as incurred and are included in professional fees.

Irgovel Stockholders Lawsuit

On August 28, 2008, former Irgovel stockholder David Resyng filed an indemnification suit against Irgovel, Osmar Brito and the remaining Irgovel stockholders (Sellers), requesting: (i) the freezing of the escrow account maintained in connection with the transfer of Irgovel’s corporate control to us and the presentation of all documentation related to the transaction, and (ii) damages in the amount of the difference between (a) the sum received by David Resyng in connection with the judicial settlement agreement executed in the action for the partial dissolution of the limited liability company filed by David Resyng against Irgovel and the Sellers and (b) the amount received by the Sellers in connection with the sale of Irgovel’s corporate control to us, in addition to moral damages as determined in the court’s discretion. The amount of damage claimed by Mr. Resyng is approximately $3 million.

Index

NutraCea

Notes to Unaudited Condensed Consolidated Financial Statements

We believe that the filing of the above lawsuit is a fundamental default of the obligations undertaken by the Sellers under the Quotas Purchase Agreement for the transfer of Irgovel’s corporate control, executed by and among the Sellers and us on January 31, 2008 (Purchase Agreement). Consequently, we believe that the responsibility for any indemnity, costs and expenses incurred or that may come to be incurred by Irgovel and/or us in connection with the above lawsuit is the sole responsibility of the Sellers.

On February 6, 2009, the Sellers filed a collection lawsuit against us seeking payment of the second installment of the purchase price under the Purchase Agreement, which the Sellers allege is approximately $1.0 million. We have withheld payment of the second installment pending resolution of the Resyng lawsuit noted above. The Parent Company has not been served with any formal notices in regard to this matter so far. To date, only Irgovel has received formal legal notice. In addition, the Purchase Agreement requires that all disputes between us and the Sellers be adjudicated through arbitration. As part of the Purchase Agreement, $2.0 million was deposited into an escrow account to cover contingencies with the net remaining funds payable to the Sellers upon resolution of all contingencies. We believe any payout due to the lawsuit will be made out of the escrow account. As of March 31, 2011, and December 31, 2010, the balance in the escrow account was $1.9 million and is included in restricted cash in the consolidated balance sheets. There is an offsetting liability in accrued expenses in our consolidated balance sheets as of March 31, 2011 and December 31, 2010. We believe that there is no additional material exposure as any amounts determined to be owed as a result of the above noted litigation and contingencies will be covered by the escrow account.

SEC Enforcement Investigation

We received a letter from the SEC in January 2009 indicating that it had opened an informal inquiry, and we subsequently received an informal request for the production of documents in February 2009 relating to a number of 2007 transactions. In March 2009, we received a formal order of private investigation from the SEC. In June 2009, we received a subpoena for the production of documents that largely tracked the SEC’s earlier requests. We responded to these requests for documents and based on findings related to the internal review and the SEC’s requests, we restated our financial statements for 2006, 2007 and the first three quarters of 2008.

On January 13, 2011, the SEC filed a complaint in the United States District Court for the District of Arizona alleging that we violated Section 17(a) of the Securities Act of 1933 (Securities Act), 15 U.S.C. § 77q(a), Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act of 1934 (the Exchange Act), 15 U.S.C. §§ 78j(b), 78m(a), 78m(b)(2)(A), and 78m(b)(2)(B), and Rules 10b-5, 12b-20, 13a-1, and 13a-13 thereunder, 17 C.F.R. §§ 240.10b-5, 240.12b-20, 240.13a-1, and 240.13a-13 (the SEC Action). We have settled these allegations with the SEC, without admitting or denying them, and have consented to the entry of a final judgment of permanent injunction (Consent Judgment), which, among other things, permanently restrains and enjoins us from violations of Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a), Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, 15 U.S.C. §§ 78j(b), 78m(a), 78m(b)(2)(A), and 78m(b)(2)(B), and Rules 10b-5, 12b-20, 13a-1, and 13a-13 thereunder, 17 C.F.R. §§ 240.10b-5, 240.12b-20, 240.13a-1, and 240.13a-13. The final Consent Judgment was entered in the SEC action on February 14, 2011. No financial penalty was assessed by the SEC against us.

Farmers’ Rice Milling

Farmers’ Rice Milling (FRM) contended that we defaulted by failing to pay rentals due under two leases between the parties: (i) the March 15, 2007, ground lease, as amended on November 1, 2008, and (ii) the April 15, 2007, warehouse lease. FRM filed suit against us to terminate the leases and recover damages thereunder. This suit was filed in the 14th Judicial District Court on June 24, 2009, and was timely removed to the United States District Court, Western District of Louisiana, Lake Charles division. We filed an answer and counterclaim and deposited into the registry of the court $0.1 million constituting the rentals due under the leases, a late fee due under the warehouse lease plus accrued interest. As part of the Chapter 11 Reorganization, the leases were assumed under Section 365 of the Bankruptcy Code. Arrearages due under the leases were paid in January 2011 and the lawsuit was dismissed. FRM also asserted a claim for monetary damages for breach of a supply agreement, but that claim was dismissed from the lawsuit and allowed as a general unsecured claim in the Chapter 11 Reorganization.

NOTE 13. SEGMENT INFORMATION

We have three reportable segments: Corporate; processed rice bran (SRB), which manufactures and distributes SRB in various granulations along with products derived from bran via patented enzyme treatment processes including a fat and protein rich water soluble fraction and a fiber rich insoluble fraction; and Bio-Refining, which separates rice bran into rice oil and defatted rice bran which are then further processed into a number of valuable food and feed products. The Bio-Refining segment consists of our Irgovel operations in Brazil. The Corporate segment includes corporate general and administrative expenses, litigation settlements and other expenses not directly attributable to segments. No corporate allocations are made to the other segments. Interest is not allocated.

Index

NutraCea

Notes to Unaudited Condensed Consolidated Financial Statements

The table below presents segment information for the years identified and provides a reconciliation of segment information to total consolidated information (in thousands).

	Three Months Ended March 31, 2011
	Corporate			SRB					Bio-Refining				Consolidated
Revenues	$	-		$	2,560				$	5,438			$	7,998
Cost of goods sold		-			1,633					4,150				5,783
Gross profit		-			927					1,288				2,215
Depreciation and amortization (in selling, general and administrative)		(47	)		(325	)				(306	)			(678	)
Other operating income (expense)		(1,931	)		197		(1	)		(1,076	)			(2,810	)
Income (loss) from operations	$	(1,978	)	$	799				$	(94	)		$	(1,273	)
Net loss attributable to NutraCea shareholders	$	(4,711	)	$	799				$	(147	)		$	(4,059	)
Interest expense		(214	)		-					(174	)			(388	)
Depreciation (in cost of goods sold)		-			(157	)				(351	)			(508	)
Purchases of property, plant and equipment		-			43					1,810				1,853

As of the end of the period:
Property, plant and equipment		1,996			12,608					14,330				28,934
Assets held for sale		-			-					-				-
Goodwill		-			-					5,941		(2)		5,941
Intangible assets, net		-			2,754					3,248				6,002
Total assets		6,994			17,463					30,701				55,158

	Three Months Ended March 31, 2010
	Corporate			SRB			Bio-Refining				Consolidated
Revenues	$	-		$	3,234		$	3,988			$	7,222
Cost of goods sold		-			2,023			3,467				5,490
Gross profit		-			1,211			521				1,732
Depreciation and amortization (in selling, general and administrative)		(58	)		(334	)		(281	)			(673	)
Loss on disposal of property, plant and equipment		-			(376	)		-				(376	)
Other operating expense		(2,162	)		(994	)		(839	)			(3,995	)
Loss from operations	$	(2,220	)	$	(493	)	$	(599	)		$	(3,312	)
Net loss attributable to NutraCea shareholders	$	(2,301	)	$	(493	)	$	(476	)		$	(3,270	)
Interest expense		(151	)		-			(130	)			(281	)
Depreciation (in cost of goods sold)		-			(146	)		(320	)			(466	)
Purchases of property, plant and equipment		15			7			39				61

As of the end of the period:
Property, plant and equipment		1,974			10,327			12,785				25,086
Assets held for sale		-			11,142			-				11,142
Goodwill		-			-			5,472		(2)		5,472
Intangible assets, net		-			3,437			3,758				7,195
Total assets		8,196			28,293			27,853				64,342

(1)	SRB segment operating expenses for the first quarter of 2011 included a reduction in expense as a result of the recovery of an $0.8 million accounts receivable previously written off as uncollectible.

(2)	All changes in goodwill between March 31, 2011 and March 31, 2010, relate to foreign currency translation.

Index

NutraCea

Notes to Unaudited Condensed Consolidated Financial Statements

The following table presents revenue by geographic area for the three months ended March 31 (in thousands):

	2011		2010
United States	$	2,277	$	2,451
Brazil		3,501		3,987
Other international		2,220		784
Total revenues	$	7,998	$	7,222

The following table presents property, plant and equipment by geographic area (in thousands):

	March 31, 2011		December 31, 2010
United States	$	14,604	$	11,333
Brazil		14,330		12,721
Total property, plant and equipment, net	$	28,934	$	24,054

NOTE 14. FAIR VALUE MEASUREMENT

As defined in ASC No. 820, Fair Value Measurements (ASC 820), fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Certain assets and liabilities are presented in the financial statements at fair value. Assets and liabilities measured at fair value on a recurring basis include warrant liabilities. Assets and liabilities measured at fair value on a non-recurring basis include held-for-sale property, plant and equipment.

We assess the inputs used to measure fair value using a three-tier hierarchy based on the extent to which inputs used in measuring fair value are observable in the market:

●

Level 1 – inputs include quoted prices for identical instruments and are the most observable.

●

Level 2 – inputs include quoted prices for similar assets and observable inputs such as interest rates, currency exchange rates and yield curves.

●

Level 3 – inputs are not observable in the market and include management’s judgments about the assumptions market participants would use in pricing the asset or liability.

For instruments measured using Level 3 inputs, a reconciliation of the beginning and ending balances is disclosed.

The following table summarizes the fair values by input hierarchy of items measured at fair value on a recurring basis on our consolidated balance sheets (in thousands):

			As of March 31, 2011
			Level 1		Level 2		Level 3		Total

Warrant liability	(1	)	$	-	$	-	$	4,204	$	4,204
Total liabilities at fair value			$	-	$	-	$	4,204	$	4,204

			As of December 31, 2010
			Level 1		Level 2		Level 3		Total

Warrant liability	(1	)	$	-	$	-	$	1,628	$	1,628
Total liabilities at fair value			$	-	$	-	$	1,628	$	1,628

(1)

Represents fair value of warrant liability established as a result of adoption of FASB ASC 815, “ Derivatives and Hedging ” (FASB ASC 815) (previously EITF 07-5, “ Determining Whether an Instrument (or an Embedded Feature) is Indexed to an Entity’s Own Stock ). Fair value of the warrant liabilities was determined using the Lattice Model.

Index

NutraCea

Notes to Unaudited Condensed Consolidated Financial Statements

The following tables summarize the changes in level 3 items measured at fair value on a recurring basis (in thousands):

	Three Months Ended March 31, 2011
	Fair Value as of Beginning of Period			Total Realized/ Unrealized Gains (Losses)			Issuance of New Warrants		Net Transfers Into (Out of) Level 3		Fair Value, at End of Period		Change in Unrealized Gains (Losses) on Instruments Still Held
			(1 )
Warrant liability	$	1,628		$	(2,576	)	$	-	$	-	$	4,204	$	(2,576	)
Total Level 3 fair value	$	1,628		$	(2,576	)	$	-	$	-	$	4,204	$	(2,576	)

	Three Months Ended March 31, 2010
	Adoption of ASC 815-40-15 as of Beginning of Period			Total Realized/ Unrealized Gains (Losses)		Issuance of New Warrants		Net Transfers Into (Out of) Level 3		Fair Value, at End of Period		Change in Unrealized Gains (Losses) on Instruments Still Held
			(1 )
Warrant liability	$	1,279		$	321	$	-	$	-	$	958	$	321
Total Level 3 fair value	$	1,279		$	321	$	-	$	-	$	958	$	321

(1)	Included in warrant liability income (expense) in the consolidated statements of operations.

The following tables summarize the fair values by input hierarchy of items measured at fair value in our consolidated balance sheets on a non-recurring basis (in thousands):

			As of December 31, 2010
			Level 1		Level 2		Level 3		Total

Assets held for sale - property, plant and equipment	(1	)	$	-	$	-	$	3,598	$	3,598
Total assets at fair value			$	-	$	-	$	3,598	$	3,598

(1)	Represents land, building and equipment at our Dillon, Montana facility carried at fair value, based on an evaluation of market conditions and discounted cash flow analyses, less cost to sell (see Note 8).

NOTE 15. EMPLOYEE BENEFIT PLAN

In July 2010, the Board approved a cash incentive bonus plan for a total of $1.0 million to be paid to employees if all of the following conditions are met: i) court approval of our Plan of Reorganization and successfully exiting the Chapter 11 bankruptcy process ii) positive consolidated cash flows as defined, iii) being employed at the time of each payment and iv) cash availability as determined by the Board at its sole discretion. Under the Plan of Reorganization, we are prohibited from paying bonuses in an amount that exceeds the percentage paid to general unsecured creditors with regard to their pre-petition liabilities. Because the positive cash flow condition was not met as of March 31, 2011 and December 31, 2010, the Board has not approved payments and no accrual was recorded.

NOTE 16. EVENTS IN JAPAN

As of March 31, 2011, we have not experienced any unfavorable impact on revenues from the March 2011 earthquake and tsunami which devastated Japan, or its aftermath. Shipments of our rice oil product to Japan have been unaffected. Although not foreseen at this time, we may experience unfavorable impacts on our operating results in the future should the situation change.

Index

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of O perations

The following discussion and analysis addresses material changes in the results of operations and financial condition of NutraCea and subsidiaries (“we”, “us”, “our” or the “Company,”) for the periods presented. This discussion and analysis should be read in conjunction with the consolidated financial statements, the related notes thereto, and management’s discussion and analysis of results of operations and financial condition included in our Annual Report on Form 10-K, for the year ended December 31, 2010.

This Form 10-Q may contain “forward-looking statements.” These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may include, without limitation, statements about the Company’s market opportunities, strategies, competition and expected activities and expenditures, and at times may be identified by the use of words such as “may”, “will”, “could”, “should”, “would”, “project”, “believe”, “anticipate”, “expect”, “plan”, “estimate”, “forecast”, “potential”, “intend”, “continue” and variations of these words or comparable words. Forward-looking statements inherently involve risks and uncertainties. Actual results may differ materially from those projected in such forward-looking statements due to a number of factors, risks and uncertainties, including the factors that may affect future results set forth in this Current Report on Form 10-Q and in our annual Report on Form 10-K for the year ended December 31, 2010. The Company undertakes no obligation to update any forward-looking statements for revisions or changes after the filing date of this Form 10-Q.

We are a food ingredient and health company focused on the procurement, processing and refinement of rice bran and derivative products. We have proprietary intellectual property that allows us to process and convert rice bran, one of the world’s most underutilized food resources, into a highly nutritious ingredient, processed rice bran (SRB) that has applications in various food products. Our target markets are food manufacturers, nutraceuticals and animal nutrition. It is also used as a stand-alone product that can be sold through non-related entities with distribution into the market place, both domestically and internationally. These products include food supplements and nutraceuticals which provide health benefits for humans and animals based on SRB and SRB derivatives. We believe that SRB products can deliver beneficial physiological effects. We are continuing to pursue ongoing clinical trials and third party analyses in order to further support the uses for and effectiveness of our products. In addition, NutraCea has developed a bio-refining approach to processing rice bran into various value added constituents such as rice oil (RBO), defatted rice bran (DRB) and a variety of other valuable derivatives of rice bran.

We have three reportable business segments: (1) Corporate; (2) processed rice bran (SRB), which manufactures and distributes SRB in various granulations along with products derived from bran via patented enzyme treatment processes including a fat and protein rich water soluble fraction and a fiber rich insoluble fraction; and (3) Bio-Refining, which separates rice bran into rice oil and defatted rice bran which are then further processed into a number of valuable food and feed products. The Corporate segment includes selling, general and administrative expenses, litigation settlements, amortization of intangible assets, and other expenses not directly attributable to other segments. No corporate allocations are made to the other segments. Interest is not allocated.

The SRB segment consists of locations in California and Louisiana that produce SRB. The manufacturing facilities included in our SRB segment have 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. In addition, we have the capability to custom manufacture various grain based products for human food ingredient companies at our Dillon facility.

The Bio-Refining segment consists of our Irgovel operations in Brazil. Irgovel manufactures rice oil and DRB products for both the human and animal food markets in Brazil and internationally. Irgovel owns the largest rice bran processing facility in South America and is the only Brazilian company to produce edible rice oil for human consumption. In refining rice oil to an edible grade several co-products are obtained, including distilled fatty acids, a valuable raw material for the detergent industry. DRB is compounded with a number of other ingredients to produce complex animal feeds which are packaged and sold under Irgovel brands in the Brazilian market.

Results of Operations

The following is a discussion of our results of operations for the three months ended March 31, 2011 and 2010.

Consolidated net loss attributable to NutraCea shareholders for the three months ended March 31, 2011, was $4.1 million, or ($0.02) per share, compared to $3.3 million for the three months ended March 31, 2010, or ($.02) per share. The increase in net loss was primarily due to an increase in warrant liability expense of $2.9 million which was partially offset by: (i) higher sales in the Bio-Refining segment, (ii) improved margins, (iii) lower selling, general and administrative expenses and (iv) recovery of an $0.8 million accounts receivable, previously written off as uncollectible. The loss from operations improved by $2.0 million or 61.6%.

Index

Revenue and Gross Profit

Revenues (in thousands):

	Three Months Ended March 31,
	2011		% of Total Revenues		2010		% of Total Revenues		Change			% Change
SRB segment	$	2,560		32.0	$	3,234		44.8	$	(674	)		(20.8	)
Bio-Refining segment		5,438		68.0		3,988		55.2		1,450			36.4
Total revenues	$	7,998		100.0	$	7,222		100.0	$	776			10.7

Consolidated revenues for the three months ended March 31, 2011, were $8.0 million compared to $7.2 million in the prior year period, an increase of $0.8 million, or 10.7%.

SRB segment revenues declined by $0.7 million, a 20.8% decline. The decrease is primarily due to a combination of the following factors:

Cereal product revenues declined $0.3 million. A $0.5 million decline in cereal product revenues due to the March 2010 sale of the cereal product related assets to Kerry Ingredients (Kerry) was partially offset by an increase in tolling revenue of $0.2 million in the first quarter of 2011. Under the tolling agreement, we continued to produce certain cereal products for Kerry on an order by order basis until March 2011.

Animal nutrition product revenues declined $0.2 million due to competitive pressures.

Human nutrition product revenues declined $0.2 million. We implemented a price increase which took effect in the middle of the first quarter of 2011. Human nutrition product orders can be relatively large and infrequent orders. Therefore, revenues often fluctuate between periods due to the timing of shipment of orders.

The Bio-Refining segment revenues increased by $1.5 million, or 36.4%. The increase is attributable to overall favorable pricing trends and increased volume across all product lines.

Cost of goods sold (in thousands):

	Three Months Ended March 31,
	2011		% of Revenues		2010		% of Revenues		Change			% Change
SRB segment	$	1,633		63.8	$	2,023		62.6	$	(390	)		(19.3	)
Bio-Refining segment		4,150		76.3		3,467		86.9		683			19.7
Total cost of goods sold	$	5,783		72.3	$	5,490		76.0	$	293			5.3

Consolidated cost of goods sold for the three months ended March 31, 2011, was $5.8 million compared to $5.5 million in the prior year period, an increase of $0.3 million, or 5.3%.

The SRB segment experienced a decrease of $0.4 million, or 19.3%, that was attributable to reduced revenues. As a percent of revenue costs were relatively constant. The Bio-Refining segment cost of goods sold increased by $0.7 million due to significantly higher revenues. However, as a percent of revenue, cost of goods sold declined due to plant efficiencies associated with a shift in sales mix.

Gross profit (in thousands):

	Three Months Ended March 31,
	2011		Gross Profit %		2010		Gross Profit %		Change			Change in Gross Profit %
SRB segment	$	927		36.2	$	1,211		37.4	$	(284	)		(1.2	)
Bio-Refining segment		1,288		23.7		521		13.1		767			10.6
Total gross profit	$	2,215		27.7	$	1,732		24.0	$	483			3.7

Index

Consolidated gross profit for the three months ended March 31, 2011, was $2.2 million compared to $1.7 million in the prior year period, an increase of $0.5 million, or 3.7 percentage points.

SRB segment gross margin declined to 36.2% in the first quarter of 2011 compared to 37.4% in the first quarter of 2010. First quarter of 2011 results benefited from the impact of the mid-quarter price increase. SRB segment revenues in the first quarter of 2011 included low margin toll processing associated with the sale of the infant cereal business. We discontinued toll processing in April 2011 and expect an SRB segment gross profit percentage of approximately 40% in the second quarter of 2011. First quarter of 2010 results included lower margin revenue from sales of cereal products that ceased with the sale of cereal product-related assets to Kerry. Gross profit in the Bio-Refining segment increased significantly by $0.8 million primarily due to favorable pricing and the shift in product mix noted above. These two factors resulted in gross profit margin improving from 13.1% to 23.7%.

Operating Expenses (in thousands):

	Three Months Ended March 31, 2011
	Corporate		SRB			Bio-Refining			Consolidated
Selling, general and administrative	$	1,277	$	912		$	1,185		$	3,374
Professional fees		582		-			220			802
Loss on disposal of property, plant and equipment		-		-			-			-
Provision for (recovery of) doubtful accounts		83		(800	)		(23	)		(740	)
Research and development		36		16			-			52
Total operating expenses	$	1,978	$	128		$	1,382		$	3,488

	Three Months Ended March 31, 2010
	Corporate		SRB		Bio-Refining		Consolidated
Selling, general and administrative	$	1,903	$	1,205	$	908	$	4,016
Professional fees		318		-		139		457
Loss on disposal of property, plant and equipment		-		376		-		376
Provision for doubtful accounts		-		-		73		73
Research and development		-		122		-		122
Total operating expenses	$	2,221	$	1,703	$	1,120	$	5,044

	Favorable (Unfavorable) Change
	Corporate			SRB		Bio-Refining			Consolidated
Selling, general and administrative	$	626		$	293	$	(277	)	$	642
Professional fees		(264	)		-		(81	)		(345	)
Loss on disposal of property, plant and equipment		-			376		-			376
Provision for doubtful accounts		(83	)		800		96			813
Research and development		(36	)		106		-			70
Total operating expenses	$	243		$	1,575	$	(262	)	$	1,556

Consolidated selling, general and administrative (SG&A) expenses were $3.4 million for the quarter ended March 31, 2011 compared to $4.0 million for quarter ended March 31, 2010, decrease of $0.6 million. The decline in overall SG&A is attributable to improvements in the Corporate and SRB segments.

The decline in corporate segment SG&A is primarily attributable to an agreement to settle all potential claims associated with the employment of Mr. Brad Edson, our former chief executive officer. Mr. Edson agreed to return to NutraCea $0.4 million, representing bonuses earned during his employment. As a result we recorded this receivable and reduced SG&A. The remaining decline in SG&A is attributable to lower consulting fees and a general reduction in corporate spending.

SRB segment SG&A included $0.1 million in property tax expense related to our Phoenix facility in 2010. No such expense was incurred in the comparable 2011 period, as the facility was sold in September 2010. The increase in Bio-Refining segment SG&A is primarily due to an increase in payroll expense related to cost of living adjustments that are effective beginning June 2010.

Consolidated professional fees were $0.8 million compared to $0.5 million for the three months ended March 31, 2011 and 2010, an increase of $0.3 million. Professional fees are expenses associated with consultants, accounting, auditing, tax compliance, SOX 404 compliance, and outside legal counsel. The overall increase in professional fees are related to audit and consultant fees associated with the filing of our 2009 and 2010 Form 10-K’s and Form 10-Q’s in February and March 2011, a total of eight public filings in one quarter.

Index

Consolidated recovery of doubtful accounts was $0.7 million for the first quarter of 2011 compared to a provision for doubtful accounts of $0.1 million for first quarter of 2010. In March 2011, pursuant to a settlement agreement with a former SRB customer, we received $0.8 million in payment of trade receivable previously written-off as uncollectible.

Consolidated Research and Development expenses were nominal for the three months ended March 31, 2011 and 2010, due to cash constraints . 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 based on future cash availability.

During the quarter ended March 31, 2010, a loss on disposal of $0.4 million was recorded related to the sale of the infant cereal manufacturing equipment located at our Phoenix, AZ facility. No such disposals occurred in 2011.

Other Income (Expense) (in thousands):

	Three Months Ended March 31, 2011
	Corporate			SRB		Bio-Refining			Consolidated
Interest income	$	13		$	-	$	-		$	13
Interest expense		(214	)		-		(174	)		(388	)
Loss on equity method investments		(13	)		-		-			(13	)
Warrant liability expense		(2,576	)		-		-			(2,576	)
Other		58			-		32			90
Other income (expense)	$	(2,732	)	$	-	$	(142	)	$	(2,874	)

	Three Months Ended March 31, 2010
	Corporate			SRB		Bio-Refining			Consolidated
Interest income	$	8		$	-	$	10		$	18
Interest expense		(151	)		-		(130	)		(281	)
Loss on equity method investments		(11	)		-		-			(11	)
Warrant liability income		321			-		-			321
Other		89			-		(1	)		88
Other income (expense)	$	256		$	-	$	(121	)	$	135

	Favorable (Unfavorable) Change
	Corporate			SRB		Bio-Refining			Consolidated
Interest income	$	5		$	-	$	(10	)	$	(5	)
Interest expense		(63	)		-		(44	)		(107	)
Loss on equity method investments		(2	)		-		-			(2	)
Warrant liability expense		(2,897	)		-		-			(2,897	)
Other		(31	)		-		33			2
Other income (expense)	$	(2,988	)	$	-	$	(21	)	$	(3,009	)

Consolidated other expense was $2.9 million compared to other income of $0.1 million for the three months ended March 31, 2011 and 2010, an increase in other expense of $3.0 million, primarily due to warrant liability expense as noted below.

Interest expense was $0.4 million for the quarter ended March 31, 2011, compared to $0.3 million for the quarter ended March 31, 2010, a $0.1 million increase. The Corporate segment experienced an increase in interest expense of $0.1 million related to interest due on pre-petition liabilities.

Warrant liability expense for the quarter ended March 31, 2011 was $2.6 million compared to warrant liability income of $0.3 million for the quarter ended March 31, 2010. We have certain outstanding warrant agreements in effect that contain anti-dilution clauses. Under these clauses, we may be required to lower the exercise price on existing warrants along with issuing additional warrants. Warrant liability is carried at fair value which is determined at the end of each reporting period. The change in fair value is recorded as warrant liability income or expense. The valuation method used to calculate fair value requires us to assess the probability of future issuance of equity instruments at a price lower than the current exercise price of the warrants that contain anti-dilution clauses. We must also make other assumptions. Warrant liability increased primarily as a result of an assumed increase in the probability of an equity transaction in light of our projected cash needs.

Liquidity and Capital Resources

Although we have made significant improvements, we continue to experience losses and negative cash flows from operations. These factors raise substantial doubt about our ability to continue as a going concern.

Index

We took steps in 2010 and 2009 to improve profitability and liquidity by reducing our U.S. based employee headcount at both the corporate and plant operations level. In the ongoing effort to improve profitability, significant emphasis will be placed on growing sales. The growth of revenues is expected to include the following:

·	growing sales in existing markets, including bulk processed rice bran (SRB), rice oil and derivative products;

·	aligning with strategic partners who can provide channels for additional sales of our products including rice oil extraction; and

·	price increases.

·	sale or a sale-lease back of certain facilities;

·	sale of a noncontrolling interest in one or more subsidiaries; or

·	sale of surplus equipment.

In December 2010, we entered into a membership interest purchase agreement with AF Bran Holdings-NL LLC and AF Bran Holdings LLC (the Investors). The Investors agreed to purchase a 35.6% interest in Nutra SA for an aggregate purchase price of $7.7 million. The transaction closed in January 2011 and the Parent Company received $4.0 million of the proceeds. The remaining amount of $3.7 million, less $0.5 million retained by Nutra SA for administrative expenses, was invested in Irgovel for capital improvements and working capital needs.

Our cash and cash equivalents were $1.2 million at March 31, 2011, and $0.5 million at December 31, 2010.

Cash used in operating activities was $4.3 million for the first quarter of 2011, compared to net cash used in operations of $2.3 million for the first quarter of 2010. In the first quarter of 2011, we made distributions to unsecured creditors which reduced prepetition liabilities by $3.5 million. As of March 31, 2011, we have made distributions to the general unsecured creditors totaling $3.1 million, or approximately 44% of the amount owed, plus accrued interest. We were able to use a portion of the proceeds from the sale of Nutra SA units discussed above to fund creditor payments and meet our other working capital needs.

As further discussed in Note 2, the unsecured creditors were granted a lien in all of the Parent Company’s assets. The lien is administered and may be enforced by a plan agent, who may, among other things, sell specified assets if the payment benchmarks set forth in the Amended Plan are not met. As of March 31, 2011, we have made distributions to the general unsecured creditors totaling $3.1 million, or approximately 44% of the amount owed, plus accrued interest. We must distribute approximately $0.4 million by July 15, 2011, to meet the benchmark. As of March 31, 2011, we have $0.2 million in restricted cash, set aside for distribution to the unsecured creditors.

Cash used in investing activities was $1.6 million in the first quarter of 2011 compared to cash provided by investing activities of $3.9 million in the first quarter of 2010. During the first quarter of 2011, Irgovel began expending cash for capital improvements which are part of a project to expand production capacity and improve operational efficiency. As of March 31, 2011, Irgovel has outstanding equipment purchase commitments totaling approximately $4.0 million. We expect to pay for this equipment during the next twelve months with funds obtained from the sale of additional Nutra SA membership interests and bank financing. Cash provided by investing activities in the first quarter of 2010 consisted of proceeds from the sale of cereal equipment in the Phoenix, Arizona facility for $3.7 million.

Cash provided by financing activities was $6.7 million for the first quarter of 2011 compared to cash used in financing activities of $1.7 million in the first quarter of 2010. In the first quarter of 2011 we received $7.7 million of proceeds from the sale of membership interests in Nutra SA and $0.5 million from issuance of a convertible note.

Off-Balance Sheet Arrangements

We have not entered into any transactions with unconsolidated entities whereby we have financial guarantees, subordinated retained interests, derivative instruments or other contingent arrangements that expose us to material continuing risk, contingent liabilities, or any other obligation under a variable interest in an unconsolidated entity that provides financing and liquidity support or market risk or credit risk support to the Company.

Index

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses and disclosures on the date of the financial statements. On an ongoing basis, we evaluate the estimates, including, but not limited to, those related to revenue recognition. We use authoritative pronouncements, historical experience and other assumptions as the basis for making judgments. Actual results could differ from those estimates.

For further information about other critical accounting policies, see the discussion of critical accounting policies in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

Recent Accounting Pronouncements

The accounting pronouncements discussed below includes only those that are applicable and could potentially have a material impact on our consolidated financial statements.

In June 2009, the FASB revised variable interest reporting guidance. The revised guidance requires an enterprise to perform a qualitative analysis to determine whether the enterprise’s variable interest(s) give it a controlling financial interest in a variable interest entity and requires ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. We adopted this guidance effective January 1, 2010, and there was no material impact on the consolidated financial statements.

The FASB has issued guidance clarifying the criteria for separating revenue between multiple deliverables. This guidance applies to new revenue arrangements or arrangements materially modified in periods subsequent to adoption. We were required to adopt this standard effective January 1, 2011. Adoption of the standard did not have a significant impact on our consolidated financial statements

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable

Item 4. Controls and Procedures

We evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report.

As previously reported in our Annual Report on Form 10-K for the year ended December 31, 2010, management identified the following material weaknesses in our internal control over financial reporting during the period covered by this report:

While we were in Chapter 11 Reorganization, we had inadequate staffing to allow us to file in a timely manner our Quarterly Reports on Form 10-Q for 2009 and 2010 and our Annual Report on Form 10-K for 2009.

Our Brazilian subsidiary, Irgovel, implemented a new enterprise resource planning (ERP) system during 2010, which precipitated changes to several of the underlying control processes. Due to a limited staff, certain processes were carried out by a single individual and were not subjected to a separate review process. This lack of review caused some inventory and interest calculations to be inaccurate requiring material post-closing adjustments.

Remediation

We assessed our future need for possible permanent additions to the accounting and reporting compliance staff. We hired outside consultants in March 2011 to assist with accounting and financial reporting requirements. With the assistance of the audit committee of the Board of Directors we will continue to assess our staffing requirements in order to remediate the above material weakness. The Chapter 11 Reorganization process has essentially been completed with our emergence from bankruptcy on November 30, 2010, the effective date. Therefore, we are directing more effort and focus to financial reporting.

Our Brazilian subsidiary has realigned controls and responsibilities to ensure adequate and appropriate levels of independent review. We will continue to assess the effectiveness of these remedial actions.

There were no other changes in our internal control, except for the ones noted above over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMAT ION

Item 1. Legal Proc eedings

Various lawsuits, claims, proceedings and investigations are pending involving us as described below in this section. In accordance with ASC 450, Contingencies, when applicable, we record accruals for contingencies when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated. In addition to the matters described herein, we are involved in or subject to, or may become involved in or subject to, routine litigation, claims, disputes, proceedings and investigations in the ordinary course of business. While the outcome of lawsuits and other proceedings against us cannot be predicted with certainty, in the opinion of management, individually or in the aggregate, no such lawsuits are expected to have a material effect on our financial position or results of operations.

Index

Irgovel Stockholders Lawsuit

On February 6, 2009, the Sellers filed a collection lawsuit against us seeking payment of the second installment of the purchase price under the Purchase Agreement, which the Sellers allege is approximately $1.0 million. We have withheld payment of the second installment pending resolution of the Resyng lawsuit noted above. The Parent Company has not been served with any formal notices in regard to this matter so far. To date, only Irgovel has received formal legal notice. In addition, the Purchase Agreement requires that all disputes between us and the Sellers be adjudicated through arbitration. As part of the Purchase Agreement $2.0 million was deposited into an escrow account to cover contingencies with the net remaining funds payable to the Sellers upon resolution of all contingencies. We believe any payout due to the lawsuit will be made out of the escrow account. As of March 31, 2011 and December 31, 2010, the balance in the escrow account was $1.9 million and is included in restricted cash in the consolidated balance sheets. We believe that there is no additional material exposure as any amounts determined to be owed as a result of the above noted litigation and contingencies will be covered by the escrow account.

SEC Enforcement Investigation

On January 13, 2011, the SEC filed a complaint in the United States District Court for the District of Arizona alleging that we violated Section 17(a) of the Securities Act of 1933 (Securities Act), 15 U.S.C. § 77q(a), Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act of 1934 (the Exchange Act), 15 U.S.C. §§ 78j(b), 78m(a), 78m(b)(2)(A), and 78m(b)(2)(B), and Rules 10b-5, 12b-20, 13a-1, and 13a-13 thereunder, 17 C.F.R. §§ 240.10b-5, 240.12b-20, 240.13a-1, and 240.13a-13 (the SEC Action). We have settled these allegations with the SEC, without admitting or denying them, and have consented to the entry of a final judgment of permanent injunction (the Consent Judgment), which, among other things, permanently restrains and enjoins us from violations of Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a), Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, 15 U.S.C. §§ 78j(b), 78m(a), 78m(b)(2)(A), and 78m(b)(2)(B), and Rules 10b-5, 12b-20, 13a-1, and 13a-13 thereunder, 17 C.F.R. §§ 240.10b-5, 240.12b-20, 240.13a-1, and 240.13a-13. The final Consent Judgment was entered in the SEC action on February 14, 2011. No financial penalty was assessed by the SEC against us.

Farmers’ Rice Milling

Index

Item 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, liquidity or future results.

Item 2. Unregistered Sales of Equity Securities and Use of Pro ceeds

The following securities were issued during the three month period ended March 31, 2011:

On January 1, 2011, we issued 150,000 nonvested shares of our common stock to a consultant in connection with a consulting agreement. The shares vest equally over six months.

On January 1, 2011, we issued an option to purchase 250,000 shares of our common stock to each non-employee director at an exercise price of $0.20 per share. Each option was issued under our 2010 Equity Incentive Plan, has a ten year term and vests equally over twelve months.

On February 14, 2011, we entered into a note and warrant purchase agreement with an investor whereby we issued a convertible note in the principal amount of $500,000 and a four-year warrant to purchase 500,000 shares of our common stock at an exercise price of $0.25 per share. See Note 10 to the consolidated financial statements contained herein for further description of the transaction.

On February 14, 2011, we adjusted the exercise price and issued warrants to purchase common stock to the investors in our May 2006, February 2007 and April 2008 equity financings pursuant to the anti-dilution provisions contained in the respective warrants. The investors in the May 2006 financing were issued warrants to purchase a total of 4,645 shares of common stock at $1.15 per share. These warrants expire in May 2011. The investors in the February 2007 financing were issued warrants to purchase a total of 585,048 shares of common stock at $1.98 per share. These warrants expire in February 2016. The exercise price for all warrants outstanding under the February 2007 financing was lowered to $1.98 per share from $2.04 per share. The investors in the April 2008 financing were issued warrants to purchase a total of 15,456 shares of common stock at $1.00 per share. These warrants expire in April 2013. All of these warrants were issued without additional consideration pursuant to the terms of the respective financings.

On February 28, 2011, we issued an option to purchase 500,000 shares of our common stock to a consultant in connection with a consulting agreement at an exercise price of $0.37 per share. The option was issued under our 2010 Equity Incentive Plan, has a ten year term and vests equally over sixty months.

On March 31, 2011, we issued 43,626 shares of our common stock in connection with consulting services previously provided.

On March 31, 2011, we issued 275,000 shares of our common stock in connection with consulting services previously provided.

On March 31, 2011, we issued an option to purchase 187,500 shares of our common stock to a non-employee director at an exercise price of $0.37 per share. The option was issued under our 2010 Equity Incentive Plan, has a ten year term and vests equally over nine months.

Unless otherwise indicated above, the securities were issued pursuant to the private placement exemption provided by Section 4(2) of the Securities Act of 1933. All issuances above were made without any public solicitation, to a limited number of persons and were acquired for investment purposes only.

Item 3. Defaults upon Senior S ecurities

None

Item 4. Removed and R eserved

Item 5. Other Info rmation

None

Item 6. Exh ibits

The following exhibits are attached hereto and filed herewith:

Index

Exhibit Number	Description of Exhibit
10.1*	2010 Equity Incentive Plan

10.2*	Form of Indemnification Agreement for officers and directors of NutraCea

10.3*	Second Amendment of Employment Agreement between NutraCea and W. John Short.

31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*	Indicates a management contract or compensatory plan, contract or arrangement in which any director or any executive officer participates.

SI GNATURES

In accordance with Section 13 or 15 (d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: May 11, 2011

	/s/ W. John Short
	W. John Short
	Chief Executive Officer

	/s/ J. Dale Belt
	Jerry Dale Belt
	Chief Financial Officer

EXHIBIT 10.1

NUTRACEA

2010 Equity Incentive Plan

1 . PURPOSE . The purpose of this Plan is to provide incentives to attract, retain and motivate eligible persons whose present and potential contributions are important to the success of the Company, and any Parents and Subsidiaries that exist now or in the future, by offering them an opportunity to participate in the Company’s future performance through the grant of Awards. Capitalized terms not defined elsewhere in the text are defined in Section 24.

2 . SHARES SUBJECT TO THE PLAN .

2.1 Number of Shares Available . Subject to Sections 2.6 and 18 and any other applicable provisions hereof, the total number of Shares reserved and available for grant and issuance pursuant to this Plan is 25,000,000 Shares, and such number will be subject to increase pursuant to the Automatic Annual Increase as defined and provided in Section 2.4 below.

2.2 Lapsed, Returned Awards . Shares subject to Awards, and Shares issued upon exercise of Awards, will again be available for grant and issuance in connection with subsequent Awards under this Plan to the extent such Shares: (i) are subject to issuance upon exercise of an Option granted under this Plan but which cease to be subject to the Option for any reason other than exercise of the Option; (ii) are subject to Awards granted under this Plan that are forfeited or are repurchased by the Company at the original issue price; (iii) are surrendered pursuant to an Exchange Program; or (iv) are subject to Awards granted under this Plan that otherwise terminate without such Shares being issued. Shares that have been issued under the Plan under any Award will not be returned to the Plan and will not become available for future issuance under the Plan; provided, however, that if Shares issued pursuant to Awards of Restricted Stock or Stock Bonus Shares are repurchased by the Company at the original issue price or are forfeited to the Company, then such Shares shall become available for future grant under the Plan. Shares used to pay the exercise price of an Award or to satisfy the tax withholding obligations related to an Award will become available for future grant or sale under the Plan. To the extent an Award under the Plan is paid out in cash rather than Shares, such cash payment will not result in reducing the number of Shares available for issuance under the Plan.

2.3 Minimum Share Reserve . At all times the Company shall reserve and keep available a sufficient number of Shares as shall be required to satisfy the requirements of all outstanding Awards granted under this Plan and all other outstanding but unvested Awards granted under this Plan.

2.4 Automatic Share Reserve Increase . The number of Shares available for grant and issuance under the Plan shall automatically be increased as follows (“Automatic Annual Increase”): (i) on the first day of each January from 2011 through and including 2020, the number of Shares available for grant and issuance under this Plan shall be automatically increased by 5% of the number of shares of the Company’s Common Stock issued and outstanding on the preceding December 31 (rounded to the nearest whole share); or (ii) a lesser number of Shares as determined by the Board before the start of a calendar year for which an increase applies.

2.5 Limitations . No more than 50,000,000 Shares shall be issued pursuant to the exercise of ISOs.

2.6 Adjustment of Shares . If the number of outstanding Shares is changed by a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or similar change in the capital structure of the Company, without consideration, then (a) the number of Shares reserved for issuance and future grant under the Plan set forth in Section 2.1, (b) the Exercise Prices of and number of Shares subject to outstanding Options, (c) the number of Shares subject to other outstanding Awards, (d) the maximum number of shares that may be issued as ISOs set forth in Section 2 . 5, (e)the number of Shares that are granted as Options to Outside Directors as set forth in Section 8 and (f) the maximum number of Shares that may be issued to an individual or to a new Employee in any one calendar year set forth in Section 3, shall be proportionately adjusted, subject to any required action by the Board or the stockholders of the Company and in compliance with applicable securities laws; provided that fractions of a Share will not be issued but will either be replaced by a cash payment equal to the Fair market Value of such fraction of a Share or will be rounded up (down in the case of ISOs) to the nearest whole Share, as determined by the Committee; and provided further that the Exercise Price of any Option may not be decreased to below the par value of the Shares.

3. ELIGIBILITY . ISOs may be granted only to Employees. All other Awards may be granted to Employees, Consultants, and Directors of the Company or any Parent or Subsidiary of the Company; provided such Consultants, and Directors render bona fide services not in connection with the offer and sale of securities in a capital-raising transaction. No Participant will be eligible to receive more than 5,000,000 Shares in any calendar year under this Plan pursuant to the grant of Awards, except that new Employees of the Company or of a Parent or Subsidiary of the Company (including new Employees who are also officers and directors of the Company or any Parent or Subsidiary of the Company) are eligible to receive up to a maximum of 10,000,000 Shares in the calendar year in which they commence their employment.

4. ADMINISTRATION .

4.1 Committee Composition; Authority . This Plan will be administered by the Committee or by the Board acting as the Committee. Subject to the general purposes, terms and conditions of this Plan, and to the direction of the Board, the Committee will have full power to implement and carry out this Plan except however, the Board shall establish the terms for the grant of Awards to Outside Directors. Without limiting the previous sentence, the Committee will have the authority to:

(a) construe and interpret this Plan, any Award Agreement and any other agreement or document executed pursuant to this Plan;

(b) prescribe, amend and rescind rules and regulations relating to this Plan or any Award;

(d) determine the form and terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Awards may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Award or the Shares relating thereto, based in each case on such factors as the Committee will determine;

(e) determine the number of Shares or other consideration subject to Awards;

(f) determine the Fair Market Value in good faith, if necessary;

(g) determine whether Awards will be granted singly, in combination with, in tandem with, in replacement of, or as alternatives to, other Awards under this Plan or any other incentive or compensation plan of the Company or any Parent or Subsidiary of the Company;

(h) grant waivers of Plan or Award conditions;

(i) determine the vesting, exercisability and payment of Awards;

(j) correct any defect, supply any omission or reconcile any inconsistency in this Plan, any Award or any Award Agreement;

(k) determine whether an Award has been earned;

(l) determine the terms and conditions of any, and to institute any, Exchange Program;

(m) reduce or waive any criteria with respect to Performance Factors;

(n) adjust Performance Factors to take into account changes in law and accounting or tax rules as the Committee deems necessary or appropriate to reflect the impact of extraordinary or unusual items, events or circumstances to avoid windfalls or hardships provided that such adjustments are consistent with the regulations promulgated under Section 162(m) of the Code with respect to persons whose compensation is subject to Section 162(m) of the Code; and

(o) make all other determinations necessary or advisable for the administration of this Plan.

4.2 Committee Interpretation and Discretion . Any determination made by the Committee with respect to any Award shall be made in its sole discretion at the time of grant of the Award or, unless in contravention of any express term of the Plan or Award, at any later time, and such determination shall be final and binding on the Company and all persons having an interest in any Award under the Plan. Any dispute regarding the interpretation of the Plan or any Award Agreement shall be submitted by the Participant or Company to the Committee for review. The resolution of such a dispute by the Committee shall be final and binding on the Company and the Participant. The Committee may delegate to one or more executive officers the authority to review and resolve disputes with respect to Awards held by Participants who are not Insiders, and such resolution shall be final and binding on the Company and the Participant.

4.3 Section 162(m) of the Code and Section 16 of the Exchange Act . When the Committee determines, at the Committee’s sole discretion, that it is necessary or desirable for an Award to qualify as “performance-based compensation” under Section 162(m) of the Code the Committee shall include at least two persons who are “outside directors” (as defined under Section 162(m) of the Code) and at least two (or a majority if more than two then serve on the Committee) such “outside directors” shall approve the grant of such Award and timely determine (as applicable) the Performance Period and any Performance Factors upon which vesting or settlement of any portion of such Award is to be subject. When required by Section 162(m) of the Code, prior to settlement of any such Award at least two (or a majority if more than two then serve on the Committee) such “outside directors” then serving on the Committee shall determine and certify in writing the extent to which such Performance Factors have been timely achieved and the extent to which the Shares subject to such Award have thereby been earned. Awards granted to Insiders must be approved by two or more “non-employee directors” (as defined in the regulations promulgated under Section 16 of the Exchange Act).

4.4 Delegation to an Officer . To the extent permissible by applicable law, the Board may delegate to one or more Officers the authority to do one or both of the following (i) designate Employees who are not Officers to be recipients of Awards and the terms thereof, and (ii) determine the number of shares of Common Stock to be subject to such Awards granted to such Employees; provided, however, that the Board resolutions regarding such delegation shall specify the total number of shares of Common Stock that may be subject to the Awards granted by such Officer and that such Officer may not grant an Award to himself or herself. Notwithstanding anything to the contrary in this Section 4.4, the Board may not delegate to an Officer authority to determine the Fair Market Value pursuant to part (c) of the definition of Fair Market Value. The Board may delegate to one of more Officers the authority to renew and resolve disputes with respect to Awards held by Participants who are not an officer or director of the Company or any other person whose transactions in the Company’s common stock are subject to Section 16 of the Exchange Act.

5. OPTIONS . The Committee may grant Options to Participants and will determine whether such Options will be Incentive Stock Options within the meaning of the Code (“ ISOs ”) or Nonqualified Stock Options (“ NQSOs ”), the number of Shares subject to the Option, the Exercise Price of the Option, the period during which the Option may be exercised, and all other terms and conditions of the Option, subject to the following:

5.1 Option Grant . Each Option granted under this Plan will identify the Option as an ISO or an NQSO. An Option may be, but need not be, awarded upon satisfaction of such Performance Factors during any Performance Period as are set out in advance in the Participant’s individual Award Agreement. If the Option is being earned upon the satisfaction of Performance Factors, then the Committee will: (x) determine the nature, length and starting date of any Performance Period for each Option; and (y) select from among the Performance Factors to be used to measure the performance, if any. Performance Periods may overlap and Participants may participate simultaneously with respect to Options that are subject to different performance goals and other criteria.

5.2 Date of Grant . The date of grant of an Option will be the date on which the Committee makes the determination to grant such Option, or a specified future date. The Award Agreement and a copy of this Plan will be delivered to the Participant within a reasonable time after the granting of the Option.

5.3 Exercise Period . Options may be exercisable within the times or upon the conditions as set forth in the Award Agreement governing such Option; provided , however , that no Option will be exercisable after the expiration of ten (10) years from the date the Option is granted; and provided further that no ISO granted to a person who, at the time the ISO is granted, directly or by attribution owns more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any Parent or Subsidiary of the Company (“ Ten Percent Shareholder ”) will be exercisable after the expiration of five (5) years from the date the ISO is granted. The Committee also may provide for Options to become exercisable at one time or from time to time, periodically or otherwise, in such number of Shares or percentage of Shares as the Committee determines.

5.4 Exercise Price . The Exercise Price of an Option will be determined by the Committee when the Option is granted; provided that: (i) the Exercise Price of an ISO will be not less than one hundred percent (100%) of the Fair Market Value of the Shares on the date of grant and (ii) the Exercise Price of any ISO granted to a Ten Percent Shareholder will not be less than one hundred ten percent (110%) of the Fair Market Value of the Shares on the date of grant. Payment for the Shares purchased must be made in accordance with Section 8 of the Plan and the Award Agreement.

5.5 Method of Exercise . Any Option granted hereunder will be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Committee and set forth in the Award Agreement. An Option may not be exercised for a fraction of a Share. An Option will be deemed exercised when the Company receives: (i) notice of exercise (in such form as the Committee may specify from time to time) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised (together with applicable withholding taxes). Full payment may consist of any consideration and method of payment authorized by the Committee and permitted by the Award Agreement and the Plan. Shares issued upon exercise of an Option will be issued in the name of the Participant. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder will exist with respect to the Shares, notwithstanding the exercise of the Option. The Company will issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 2.6 of the Plan. Exercising an Option in any manner will decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.

5.6 Change of Control Transactions . Except as otherwise provided in an Award Agreement for a particular Option, in the event of a Change of Control Transaction, the vesting of all Options granted to employees pursuant to this Section 5 shall accelerate and such Options will become exercisable in full immediately prior to the consummation of the Change of Control Transaction at such time and on such conditions as the Committee determines, and, unless otherwise determine by the Board, if such Options are not exercised on or prior to the consummation of the Change of Control Transaction, they shall terminate immediately following the consummation of a Change of Control Transaction.

5.7 Termination . The exercise of an Option will be subject to the following (except as may be otherwise provided in an Award Agreement):

(a) If the Participant is Terminated for any reason except for Cause or the Participant’s death or Disability, then the Participant may exercise such Participant’s Options only to the extent that such Options would have been exercisable by the Participant on the Termination Date no later than three (3) months after the Termination Date (or such shorter time period not less than thirty (30) days or longer time period not exceeding five (5) years as may be determined by the Committee, with any exercise beyond three (3) months after the Termination Date deemed to be an NQSO), but in any event no later than the expiration date of the Options.

(b) If the Participant is Terminated because of the Participant’s death (or the Participant dies within three (3) months after a Termination other than for Cause or because of the Participant’s Disability), then the Participant’s Options may be exercised only to the extent that such Options would have been exercisable by the Participant on the Termination Date and must be exercised by the Participant’s legal representative, or authorized assignee, no later than twelve (12) months after the Termination Date (or such shorter time period not less than six (6) months or longer time period not exceeding five (5) years as may be determined by the Committee), but in any event no later than the expiration date of the Options.

(c) If the Participant is Terminated because of the Participant’s Disability, then the Participant’s Options may be exercised only to the extent that such Options would have been exercisable by the Participant on the Termination Date and must be exercised by the Participant (or the Participant’s legal representative or authorized assignee) no later than twelve (12) months after the Termination Date (with any exercise beyond (a) three (3) months after the Termination Date when the Termination is for a Disability that is not a “permanent and total disability” as defined in Section 22(e)(3) of the Code, or (b) twelve (12) months after the Termination Date when the Termination is for a Disability that is a “permanent and total disability” as defined in Section 22(e)(3) of the Code, deemed to be exercise of an NQSO), but in any event no later than the expiration date of the Options.

(d) If the Participant is terminated for Cause, then Participant’s Options shall expire on such Participant’s Termination Date, or at such later time and on such conditions as are determined by the Committee, but in any no event later than the expiration date of the Options.

5.8 Limitations on Exercise . The Committee may specify a minimum number of Shares that may be purchased on any exercise of an Option, provided that such minimum number will not prevent any Participant from exercising the Option for the full number of Shares for which it is then exercisable.

5.9 Limitations on ISOs . With respect to Awards granted as ISOs, to the extent that the aggregate Fair Market Value of the Shares with respect to which such ISOs are exercisable for the first time by the Participant during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds one hundred thousand dollars ($100,000), such Options will be treated as NQSOs. For purposes of this Section 5.8, ISOs will be taken into account in the order in which they were granted. The Fair Market Value of the Shares will be determined as of the time the Option with respect to such Shares is granted. In the event that the Code or the regulations promulgated thereunder are amended after the Effective Date to provide for a different limit on the Fair Market Value of Shares permitted to be subject to ISOs, such different limit will be automatically incorporated herein and will apply to any Options granted after the effective date of such amendment.

5.10 Modification, Extension or Renewal . The Committee may modify, extend or renew outstanding Options and authorize the grant of new Options in substitution therefor, provided that any such action may not, without the written consent of a Participant, impair any of such Participant’s rights under any Option previously granted. Any outstanding ISO that is modified, extended, renewed or otherwise altered will be treated in accordance with Section 424(h) of the Code. Subject to Section 15 of this Plan, by written notice to affected Participants, the Committee may reduce the Exercise Price of outstanding Options without the consent of such Participants; provided , however , that the Exercise Price may not be reduced below the Fair Market Value on the date the action is taken to reduce the Exercise Price.

5.11 No Disqualification . Notwithstanding any other provision in this Plan, no term of this Plan relating to ISOs will be interpreted, amended or altered, nor will any discretion or authority granted under this Plan be exercised, so as to disqualify this Plan under Section 422 of the Code or, without the consent of the Participant affected, to disqualify any ISO under Section 422 of the Code.

6. RESTRICTED STOCK AWARDS .

6.1 Awards of Restricted Stock . A Restricted Stock Award is an offer by the Company to sell to a Participant Shares that are subject to restrictions (“ Restricted Stock ”). The Committee will determine to whom an offer will be made, the number of Shares the Participant may purchase, the Purchase Price, the restrictions under which the Shares will be subject and all other terms and conditions of the Restricted Stock Award, subject to the Plan.

6.2 Restricted Stock Purchase Agreement . All purchases under a Restricted Stock Award will be evidenced by an Award Agreement. Except as may otherwise be provided in an Award Agreement, a Participant accepts a Restricted Stock Award by signing and delivering to the Company an Award Agreement with full payment of the Purchase Price, within thirty (30) days from the date the Award Agreement was delivered to the Participant. If the Participant does not accept such Award within thirty (30) days, then the offer of such Restricted Stock Award will terminate, unless the Committee determines otherwise.

6.3 Purchase Price . The Purchase Price for a Restricted Stock Award will be determined by the Committee and may be less than Fair Market Value on the date the Restricted Stock Award is granted. Payment of the Purchase Price must be made in accordance with Section 8 of the Plan, and the Award Agreement.

6.4 Terms of Restricted Stock Awards . Restricted Stock Awards will be subject to such restrictions as the Committee may impose or are required by law. These restrictions may be based on completion of a specified number of years of service with the Company or upon completion of the performance goals based upon the Performance Factors, if any, during any Performance Period as set out in advance in the Participant’s Award Agreement. Prior to the grant of a Restricted Stock Award, the Committee shall: (a) determine the nature, length and starting date of any Performance Period for the Restricted Stock Award; (b) select from among the Performance Factors to be used to measure performance goals, if any; and (c) determine the number of Shares that may be awarded to the Participant. Performance Periods may overlap and a Participant may participate simultaneously with respect to Restricted Stock Awards that are subject to different Performance Periods and having different performance goals and other criteria.

6.5 Termination of Participant . Except as may be set forth in the Participant’s Award Agreement, vesting ceases on such Participant’s Termination Date (unless determined otherwise by the Committee).

7. STOCK BONUS AWARDS .

7.1 Awards of Stock Bonuses . A Stock Bonus Award is an award to an eligible person of Shares (which may consist of Restricted Stock) for services to be rendered or for past services already rendered to the Company or any Parent or Subsidiary. All Stock Bonus Awards shall be made pursuant to an Award Agreement. No payment from the Participant will be required for Shares awarded pursuant to a Stock Bonus Award.

7.2 Terms of Stock Bonus Awards . The Committee will determine the number of Shares to be awarded to the Participant under a Stock Bonus Award and any restrictions thereon. These restrictions may be based upon completion of a specified number of years of service with the Company or upon satisfaction of performance goals based on Performance Factors during any Performance Period as set out in advance in the Participant’s Stock Bonus Agreement. If the Stock Bonus Award is to be earned upon the satisfaction of performance goals, the Committee shall: (a) determine the nature, length and starting date of any Performance Period for the Stock Bonus Award; (b) select from among the Performance Factors to be used to measure performance goals; and (c) determine the number of Shares that may be awarded to the Participant. Performance Periods may overlap and a Participant may participate simultaneously with respect to Stock Bonus Awards that are subject to different Performance Periods and different performance goals and other criteria.

7.3 Form of Payment to Participant . Payment may be made in the form of cash, whole Shares, or a combination thereof, based on the Fair Market Value of the Shares earned under a Stock Bonus Award on the date of payment, as determined in the sole discretion of the Committee.

7.4 Termination of Participation . Except as may be set forth in the Participant’s Award Agreement, vesting ceases on such Participant’s Termination Date (unless determined otherwise by the Committee).

8. PAYMENT FOR SHARE PURCHASES . Payment from a Participant for Shares purchased pursuant to this Plan may be made in cash or by check or, where expressly approved for the Participant by the Committee and where permitted by law (and to the extent not otherwise set forth in the applicable Award Agreement):

(a) by cancellation of indebtedness of the Company to the Participant;

(b) by surrender of shares of the Company held by the Participant that have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Award will be exercised or settled;

(c) by waiver of compensation due or accrued to the Participant for services rendered or to be rendered to the Company or a Parent or Subsidiary of the Company;

(d) by consideration received by the Company pursuant to a broker-assisted and/or same day sale (or other) cashless exercise program implemented by the Company in connection with the Plan;

(e) by any combination of the foregoing; or

(f) by any other method of payment as is permitted by applicable law.

9. AUTOMATIC GRANTS TO OUTSIDE DIRECTORS .

9.1 Eligibility . Outside Directors are eligible for Options granted pursuant to this Section 9. Notwithstanding the foregoing, this Section 9 does not limit the ability of the Committee to grant discretionary Awards to Outside Directors.

9.2 Annual Grant . On the first business day of each calendar year, each Outside Director will be granted an Option to purchase two hundred fifty thousand (250,000) Shares, or such lesser number of Shares as determined by the Board. Any Outside Director that is initially appointed or elected to the Board following the first business day of a calendar year shall receive, on the date of such appointment or election, an Option to purchase a pro-rata number of the 250,000 Shares based on the number of months remaining in the calendar year from the date of such appointment or election (an “ Appointment Grant ”). Each Option granted pursuant to this Section 9.2 shall be called an “ Annual Grant ”.

9.3 Vesting and Exercisability .

(a) Vesting . Annual Grants shall vest and become exercisable as to 1/12 of the total Shares subject to the Annual Grant on each monthly anniversary of the date of grant, such that Annual Grants are fully vested and exercisable on first anniversary of the date of grant, so long as the Outside Director continuously remains a Director, Consultant or Employee of the Company. Notwithstanding the above, Appointment Grants shall vest monthly in equal amounts over the remaining months in the calendar year they were granted so as to be fully vested by the end of the calendar year.

(b) Change of Control Transactions . In the event of a Change of Control Transaction, the vesting of all Options granted to Outside Directors pursuant to this Section 9 shall accelerate and such Options will become exercisable in full immediately prior to the consummation of the Change of Control Transaction at such time and on such conditions as the Committee determines, and if such Options are not exercised on or prior to the consummation of the Change of Control Transaction, they shall terminate immediately following the consummation of the Change of Control Transaction.

9.4 Form of Option Grant . Each Option granted under this Section 9 shall be a NQSO and shall be evidenced by a Outside Director Stock Option Grant Agreement in such form as the Committee shall from time to time approve and which shall comply with and be subject to the terms and conditions of this Plan.

9.5 Exercise Price. The Exercise Price per Share of each Option granted under this Section 9 shall be the Fair Market Value of the Share on the date the Option is granted.

9.6 Termination of Option . Except as provided in Section 9.3(b) or this Section 9.6, each Option granted under this Section 9 shall expire ten (10) years after its date of grant. The date on which the Outside Director ceases to be a member of the Board, a Consultant or Employee of the Company shall be referred to as the “ Outside Director Termination Date ” for purposes of this Section 9.6. An Option may be exercised after the Outside Director Termination Date only as set forth below:

(a) Termination Generally . If the Outside Director ceases to be a member of the Board, Consultant or Employee of the Company for any reason except death or Disability, each Annual Grant, to the extent then vested pursuant to Section 9.3 above, then held by such Outside Director may be exercised by the Outside Director (or his or her legal representative) within three (3) months after the Outside Director Termination Date, but in no event later than the expiration date for the Annual Grant.

(b) Death . If the Outside Director ceases to be a member of the Board, Consultant or Employee of the Company because of his or her death, then each Annual Grant, to the extent then vested pursuant to Section 9.3 above, then held by such Outside Director, may be exercised by the Outside Director or his or her legal representative within twelve (12) months after the Outside Director Termination Date, but in no event later than the expiration date for the Annual Grant.

(c) Disability . If the Outside Director ceases to be a member of the Board, Consultant or Employee of the Company because of his or her Disability, then each Annual Grant, to the extent then vested pursuant to Section 9.3 above, then held by such Outside Director, may be exercised by the Outside Director or his or her legal representative within twelve (12) months after the Outside Director Termination Date, but in no event later than the expiration date for the Annual Grant.

10. WITHHOLDING TAXES .

10.1 Withholding Generally . Whenever Shares are to be issued in satisfaction of Awards granted under this Plan, the Company may require the Participant to remit to the Company an amount sufficient to satisfy applicable federal, state, local and international withholding tax requirements prior to the delivery of Shares pursuant to exercise or settlement of any Award. Whenever payments in satisfaction of Awards granted under this Plan are to be made in cash, such payment will be net of an amount sufficient to satisfy applicable federal, state, local and international withholding tax requirements.

10.2 Stock Withholding . The Committee, in its sole discretion and pursuant to such procedures as it may specify from time to time, may require or permit a Participant to satisfy such tax withholding obligation, in whole or in part by (without limitation) (i) paying cash, (ii) electing to have the Company withhold otherwise deliverable cash or Shares having a Fair Market Value equal to the minimum statutory amount required to be withheld, or (iii) delivering to the Company already-owned Shares having a Fair Market Value equal to the minimum statutory amount required to be withheld. The Fair Market Value of the Shares to be withheld or delivered will be determined as of the date that the taxes are required to be withheld.

11. TRANSFERABILITY . Unless determined otherwise by the Committee, an Award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution. If the Committee makes an Award transferable, such Award will contain such additional terms and conditions as the Committee deems appropriate. All Awards shall be exercisable: (i) during the Participant’s lifetime only by (A) the Participant, or (B) the Participant’s guardian or legal representative; and (ii) after the Participant’s death, by the legal representative of the Participant’s heirs or legatees.

12. PRIVILEGES OF STOCK OWNERSHIP; RESTRICTIONS ON SHARES .

12.1 Voting and Dividends . No Participant will have any of the rights of a shareholder with respect to any Shares until the Shares are issued to the Participant. After Shares are issued to the Participant, the Participant will be a shareholder and have all the rights of a shareholder with respect to such Shares, including the right to vote and receive all dividends or other distributions made or paid with respect to such Shares; provided , that if such Shares are Restricted Stock, then any new, additional or different securities the Participant may become entitled to receive with respect to such Shares by virtue of a stock dividend, stock split or any other change in the corporate or capital structure of the Company will be subject to the same restrictions as the Restricted Stock; provided , further , that the Participant will have no right to retain such stock dividends or stock distributions with respect to Shares that are repurchased at the Participant’s Purchase Price or Exercise Price, as the case may be, pursuant to Section 12.2.

12.2 Restrictions on Shares . At the discretion of the Committee, the Company may reserve to itself and/or its assignee(s) a right to repurchase (a “ Right of Repurchase ”) a portion of any or all Unvested Shares held by a Participant following such Participant’s Termination at any time within ninety (90) days after the later of the Participant’s Termination Date and the date the Participant purchases Shares under this Plan, for cash and/or cancellation of purchase money indebtedness, at the Participant’s Purchase Price or Exercise Price, as the case may be.

13. CERTIFICATES . All certificates for Shares or other securities delivered under this Plan will be subject to such stock transfer orders, legends and other restrictions as the Committee may deem necessary or advisable, including restrictions under any applicable federal, state or foreign securities law, or any rules, regulations and other requirements of the SEC or any stock exchange or automated quotation system upon which the Shares may be listed or quoted.

14. ESCROW; PLEDGE OF SHARES . To enforce any restrictions on a Participant’s Shares, the Committee may require the Participant to deposit all certificates representing Shares, together with stock powers or other instruments of transfer approved by the Committee, appropriately endorsed in blank, with the Company or an agent designated by the Company to hold in escrow until such restrictions have lapsed or terminated, and the Committee may cause a legend or legends referencing such restrictions to be placed on the certificates. Any Participant who is permitted to execute a promissory note as partial or full consideration for the purchase of Shares under this Plan will be required to pledge and deposit with the Company all or part of the Shares so purchased as collateral to secure the payment of the Participant’s obligation to the Company under the promissory note; provided , however , that the Committee may require or accept other or additional forms of collateral to secure the payment of such obligation and, in any event, the Company will have full recourse against the Participant under the promissory note notwithstanding any pledge of the Participant’s Shares or other collateral. In connection with any pledge of the Shares, the Participant will be required to execute and deliver a written pledge agreement in such form as the Committee will from time to time approve. The Shares purchased with the promissory note may be released from the pledge on a pro rata basis as the promissory note is paid.

15. REPRICING; EXCHANGE AND BUYOUT OF AWARDS . The Committee may reprice Options without prior stockholder approval. The Committee may, at any time or from time to time authorize the Company, in the case of an Option exchange, and with the consent of the respective Participants (unless not required pursuant to Section 5.9 of the Plan), to pay cash or issue new Awards in exchange for the surrender and cancellation of any, or all, outstanding Awards. The Committee may reduce the Exercise Price of outstanding Options without the consent of affected Participants by a written notice to them; provided, however, that the Exercise Price may not be reduced below the minimum Exercise Price necessary to avoid treatment as a “deferral of compensation” under Section 409A of the Code.

16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE . An Award will not be effective unless such Award is in compliance with all applicable federal and state securities laws, rules and regulations of any governmental body, and the requirements of any stock exchange or automated quotation system upon which the Shares may then be listed or quoted, as they are in effect on the date of grant of the Award and also on the date of exercise or other issuance. Notwithstanding any other provision in this Plan, the Company will have no obligation to issue or deliver certificates for Shares under this Plan prior to: (a) obtaining any approvals from governmental agencies that the Company determines are necessary or advisable; and/or (b) completion of any registration or other qualification of such Shares under any state or federal law or ruling of any governmental body that the Company determines to be necessary or advisable. The Company will be under no obligation to register the Shares with the SEC or to effect compliance with the registration, qualification or listing requirements of any state securities laws, stock exchange or automated quotation system, and the Company will have no liability for any inability or failure to do so.

17. NO OBLIGATION TO EMPLOY . Nothing in this Plan or any Award granted under this Plan will confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Parent or Subsidiary of the Company or limit in any way the right of the Company or any Parent or Subsidiary of the Company to terminate Participant’s employment or other relationship at any time.

18. CORPORATE TRANSACTIONS .

18.1 Assumption or Replacement of Awards by Successor . In the event of a Corporate Transaction any or all outstanding Awards may be assumed or replaced by the successor corporation, which assumption or replacement shall be binding on all Participants. In the alternative, the successor corporation may substitute equivalent Awards or provide substantially similar consideration to Participants as was provided to stockholders (after taking into account the existing provisions of the Awards). The successor corporation may also issue, in place of outstanding Shares of the Company held by the Participant, substantially similar shares or other property subject to repurchase restrictions no less favorable to the Participant. In the event such successor or acquiring corporation (if any) refuses to assume, convert, replace or substitute Awards, as provided above, pursuant to a Corporate Transaction, then notwithstanding any other provision in this Plan to the contrary, such Awards will expire on such transaction at such time and on such conditions as the Board will determine; the Board (or, the Committee, if so designated by the Board) may, in its sole discretion, accelerate the vesting of such Awards in connection with a Corporate Transaction. In addition, in the event such successor or acquiring corporation (if any) refuses to assume, convert, replace or substitute Awards, as provided above, pursuant to a Corporate Transaction, the Committee will notify the Participant in writing or electronically that such Award will be exercisable for a period of time determined by the Committee in its sole discretion, and such Award will terminate upon the expiration of such period. Awards need not be treated similarly in a Corporate Transaction.

Notwithstanding anything to the contrary in this Section 18.1, the Committee, in its sole discretion, may grant Awards that provide for acceleration upon a Corporate Transaction or in other events in the specific Award Agreements.

18.2 Assumption of Awards by the Company . The Company, from time to time, also may substitute or assume outstanding awards granted by another company, whether in connection with an acquisition of such other company or otherwise, by either; (a) granting an Award under this Plan in substitution of such other company’s award; or (b) assuming such award as if it had been granted under this Plan if the terms of such assumed award could be applied to an Award granted under this Plan. Such substitution or assumption will be permissible if the holder of the substituted or assumed award would have been eligible to be granted an Award under this Plan if the other company had applied the rules of this Plan to such grant. In the event the Company assumes an award granted by another company, the terms and conditions of such award will remain unchanged ( except that the Purchase Price or the Exercise Price, as the case may be, and the number and nature of Shares issuable upon exercise or settlement of any such Award will be adjusted appropriately pursuant to Section 424(a) of the Code).

18.3 Outside Directors’ Awards . Notwithstanding any provision to the contrary herein, in the event of a Change of Control Transaction, the vesting of all Awards granted to Outside Directors shall accelerate and such Awards shall become exercisable (as applicable) in full prior to the consummation of such event at such times and on such conditions as the Committee determines.

19. ADOPTION AND SHAREHOLDER APPROVAL . This Plan shall be submitted for the approval of the Company’s shareholders, consistent with applicable laws, within twelve (12) months before or after the date this Plan is adopted by the Board.

20. TERM OF PLAN/GOVERNING LAW . Unless earlier terminated as provided herein, this Plan will become effective on the Effective Date and will terminate ten (10) years from the date this Plan is adopted by the Board. This Plan and all Awards granted hereunder shall be governed by, and construed in accordance with, the laws of the State of California.

21. AMENDMENT OR TERMINATION OF PLAN . The Board may at any time terminate or amend this Plan in any respect, including, without limitation, amendment of any form of Award Agreement or instrument to be executed pursuant to this Plan; provided , however , that the Board will not, without the approval of the shareholders of the Company, amend this Plan in any manner that requires such shareholder approval; provided further , that a Participant’s Award shall be governed by the version of this Plan then in effect at the time such Award was granted.

22. NONEXCLUSIVITY OF THE PLAN . Neither the adoption of this Plan by the Board, the submission of this Plan to the shareholders of the Company for approval, nor any provision of this Plan will be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of stock awards and bonuses otherwise than under this Plan, and such arrangements may be either generally applicable or applicable only in specific cases.

23. INSIDER TRADING POLICY . Each Participant who receives an Award shall comply with any policy adopted by the Company from time to time covering transactions in the Company’s securities by Employees, officers and/or directors of the Company.

24. DEFINITIONS . As used in this Plan, and except as elsewhere defined herein, the following terms will have the following meanings:

“ Award ” means any award under the Plan, including any Option, Restricted Stock or Stock Bonus.

“ Award Agreement ” means, with respect to each Award, the written or electronic agreement between the Company and the Participant setting forth the terms and conditions of the Award, which shall be in substantially a form (which need not be the same for each Participant) that the Committee has from time to time approved, and will comply with and be subject to the terms and conditions of this Plan.

“ Board ” means the Board of Directors of the Company.

“ Cause ” means (a) the commission of an act of theft, embezzlement, fraud, dishonesty, (b) a breach of fiduciary duty to the Company or a Parent or Subsidiary, (c) a failure to materially perform the customary duties of Employee’s employment, (d) any unauthorized use or disclosure by the Participant of confidential information or trade secrets of the Company, or (e) any intentional misconduct by a Participant that adversely affects the business or affairs of the Company in a material manner. The foregoing definition shall not be deemed to be inclusive of all the acts or omissions which the Company may consider as grounds for the dismissal or discharge of a Participant.

“ Change of Control Transaction ” means the occurrence of any of the following events: (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company’s then-outstanding voting securities; (ii) the consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets; or (iii) the consummation of a merger or consolidation of the Company or a subsidiary with another corporation or any other entity, other than a merger or consolidation which results in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation.

“ Code ” means the United States Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder.

“ Committee ” means the Compensation Committee of the Board or those persons to whom administration of the Plan, or part of the Plan, has been delegated as permitted by law.

“ Company ” means NutraCea, a California corporation, or any successor corporation.

“ Consultant ” means any person, including an advisor or independent contractor, engaged by the Company or a Parent or Subsidiary to render services to such entity.

“ Corporate Transaction ” means (a) a merger or consolidation in which the Company is not the surviving corporation, (b) a dissolution or liquidation of the Company, (c) the sale of substantially all of the assets of the Company, (d) a merger in which the Company is the surviving corporation but after which the stockholders of the Company immediately prior to such merger (other than any stockholder that merges, or which owns or controls another corporation that merges, with the Company in such merger) cease to own their shares or other equity interest in the Company; or (e) any other transaction which qualifies as a “corporate transaction” under Section 424(a) of the Code wherein the stockholders of the Company give up all o f their equity interest in the Company (except for the acquisition, sale or transfer of all or substantially all of the outstanding shares of the Company).

“ Director ” means a member of the Board.

“ Disability ” means total and permanent disability as defined in Section 22(e)(3) of the Code, provided, however, that except with respect to Awards granted as ISOs, the Committee in its discretion may determine whether a total and permanent disability exists in accordance with non-discriminatory and uniform standards adopted by the Committee from time to time, whether temporary or permanent, partial or total, as determined by the Committee.

“ Effective Date ” means the date of the Plan’s adoption by the Board.

“ Employee ” means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. Neither service as a Director nor payment of a director’s fee by the Company will be sufficient to constitute “employment” by the Company.

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended.

“ Exercise Price ” means the price at which a holder of an Option may purchase the Shares issuable upon exercise of an Option.

“ Exchange Program ” means a program pursuant to which outstanding Awards are surrendered, cancelled or exchanged for cash, the same type of Award or a different Award (or combination thereof).

“ Fair Market Value ” means, as of any date, the value of a share of the Company’s Common Stock determined as follows:

(a) if such Common Stock is publicly traded and is then listed on a national securities exchange or quoted on the OTC Bulletin Board, its closing price on the date of determination on the OTC Bulletin Board or the principal national securities exchange on which the Common Stock is listed or admitted to trading, as applicable, as reported in The Wall Street Journal or such other source as the Board or the Committee deems reliable;

(b) if such Common Stock is publicly traded but is neither listed nor admitted to trading on a national securities exchange or on the OTC Bulletin Board, the average of the closing bid and asked prices on the date of determination as reported in The Wall Street Journal or such other source as the Board or the Committee deems reliable; or

(c) if none of the foregoing is applicable, by the Board or the Committee in good faith and by taking into account such factors as may be required by applicable law.

“ Insider ” means an officer or director of the Company or any other person whose transactions in the Company’s Common Stock are (or would be if the Company’s Shares are not then publicly traded) subject to Section 16 of the Exchange Act.

“ Officer ” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

“ Option ” means an award of an option to purchase Shares pursuant to Section 5 or Section 9.

“ Outside Director ” means a Director who is not an Employee of the Company or any Parent or Subsidiary.

“ Parent ” means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if each of such corporations other than the Company owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

“ P articipant ” means an Employee, Consultant or Director (including Outside Directors) who receives an Award under this Plan.

“ Performance Factors ” means the factors selected by the Committee, which may include, but are not limited to the, the following measures (whether or not in comparison to other peer companies) to determine whether the performance goals established by the Committee and applicable to Awards have been satisfied:

·	Net revenue and/or net revenue growth;

·	Earnings per share and/or earnings per share growth;

·	Earnings before income taxes and amortization and/or earnings before income taxes and amortization growth;

·	Operating income and/or operating income growth;

·	Net income and/or net income growth;

·	Total stockholder return and/or total stockholder return growth;

·	Return on equity;

·	Operating cash flow return on income;

·	Adjusted operating cash flow return on income;

·	Economic value added;

·	Individual business objectives; and

·	Company specific operational metrics.

“ Performance Period ” means the period of service determined by the Committee, not to exceed five (5) years, during which years of service or performance is to be measured for the Award.

“ Plan ” means this NutraCea 2010 Equity Incentive Plan.

“ Purchase Price ” means the price to be paid for Shares acquired under the Plan, other than Shares acquired upon exercise of an Option.

“ Restricted Stock Award ” means an award of Shares pursuant to Section 6 of the Plan, or issued pursuant to the early exercise of an Option.

“ SEC ” means the United States Securities and Exchange Commission.

“ Securities Act ” means the United States Securities Act of 1933, as amended.

“ Shares ” means shares of the Company’s Common Stock as adjusted pursuant to Sections 2 and 18, and any successor security.

“ Stock Bonus ” means an Award granted pursuant to Section 7 of the Plan.

“ Subsidiary ” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

“ T ermination ” or “ Terminated ” means, for purposes of this Plan with respect to a Participant, that the Participant has for any reason ceased to provide services as an employee, officer, director, consultant, independent contractor or advisor to the Company or a Parent or Subsidiary of the Company. An employee will not be deemed to have ceased to provide services in the case of (i) sick leave, (ii) military leave, or (iii) any other leave of absence approved by the Committee; provided , that such leave is for a period of not more than 90 days, unless reemployment upon the expiration of such leave is guaranteed by contract or statute or unless provided otherwise pursuant to formal policy adopted from time to time by the Company and issued and promulgated to employees in writing. In the case of any employee on an approved leave of absence, the Committee may make such provisions respecting suspension of vesting of the Award while on leave from the employ of the Company or a Parent or Subsidiary of the Company as it may deem appropriate, except that in no event may an Award be exercised after the expiration of the term set forth in the applicable Award Agreement. The Committee will have sole discretion to determine whether a Participant has ceased to provide services and the effective date on which the Participant ceased to provide services (the “ Termination Date ”).

“ Unvested Shares ” means Shares that have not yet vested or are subject to a right of repurchase in favor of the Company (or any successor thereto).


	INDEMNIFICATION AGREEMENT

NutraCea, a California corporation (“Company”) and ___________ (“Indemnitee”) enter into this Indemnification Agreement (“Agreement”) and agree as of _____________ (“Effective Date”) as follows:

RECITALS

A. Indemnitee is either a member of the Board of Directors or an executive officer of Company and in such capacity is performing a valuable service for Company.

B. Indemnitee is to serve, continue to serve, and take additional service for or on behalf of Company on the condition that he/she is indemnified by Company as herein provided.

C. It is intended that Indemnitee shall be paid promptly by Company all amounts necessary to effectuate in full the indemnity provided herein.

AGREEMENT

1. Services by Indemnitee . Indemnitee agrees to serve as a director or executive officer of Company so long as he/she is duly appointed or elected and qualified in accordance with the applicable provisions of the Articles of Incorporation and Bylaws of Company or any subsidiary of Company and until such time as he/she resigns or fails to stand for election or is removed from his/her position. Indemnitee may at any time and for any reason resign or be removed from such position (subject to any other contractual obligation or other obligation imposed by operation of law), in which event Company shall have no obligation under this Agreement to continue Indemnitee in any such position.

2. Indemnification .

2.1 Subject to the limitations set forth herein and in Sections 2.2 and 4 below, Company shall indemnify Indemnitee against Expenses and Liabilities in connection with any Proceeding associated with Indemnitee’s being a director or executive officer of Company to the fullest extent permitted by applicable law, the Articles of Incorporation and Bylaws, as they may from time to time be amended (but, in the case of any such amendment, only to the extent such amendment permits Company to provide broader indemnification rights than the law, the Articles of Incorporation or the Bylaws permitted Company to provide before such amendment). The right to indemnification provided in Company’s Bylaws shall be presumed to have been relied upon by Indemnitee in serving or continuing to serve Company and shall be enforceable as a contract right. Without diminishing the scope of the indemnification provided by this Section 2, Company shall indemnify Indemnitee whenever he/she is or was a party or is threatened to be made a party to any proceeding, including without limitation any such proceeding brought by or in the right of Company, because he/she is or was a director or executive officer of Company or because of anything done or not done by him/her in such capacity, against responses and liabilities actually and reasonably incurred by Indemnitee or on his/her behalf in connection with such proceeding, including the costs of any investigation, defense, settlement or appeal. In addition to, and not as a limitation of, the foregoing, the rights of indemnification of Indemnitee provided under this Agreement shall include those rights set forth in Sections 3, 7, 8 and 12 below.

2.2 Notwithstanding anything in this Agreement to the contrary, Company shall not be obligated under this Agreement to indemnify Indemnitee with respect to:

a. Any claim, issue or matter if Indemnitee was finally adjudged to be liable to Company by a court of competent jurisdiction due to his/her gross negligence or willful misconduct unless and to the extent that a California court or the court in which the action was heard determines that Indemnitee is entitled to indemnification for such amounts as the court deems proper; provided, that until such time as a final adjudication is made as to Indemnitee’s gross negligence or willful misconduct, Company shall advance Indemnitee his/her expenses in accordance with Section 3 herein, subject to repayment as described in Section 3 in the event of a final adjudication of gross negligence or willful misconduct;

b. the reporting or accounting of profits made from the purchase or sale by Indemnitee of securities of Company within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended, or similar provisions of any state statutory or common law;

c. any attempt to require, or obtain voting rights with respect to, at least fifty percent (50%) of the then-outstanding voting stock of Company, whether by tender offer, proxy solicitation or otherwise, if (a) Indemnitee attempted to acquire or obtain voting rights with respect to such stock or was or became a member of a group consisting of two or more persons that has agreed (whether formally or informally and whether or not in writing) to act together for the purpose of acquiring, obtaining voting rights with respect to, holding, voting or disposing of such stock, and (b) such attempt to acquire or obtain voting rights with respect to such stock was not approved by a majority of the directors of Company. For purposes of determining whether any tender offer, proxy solicitation or other transaction constituted an attempt by Indemnitee, or a group (as described above) of which Indemnitee was or became a member, to acquire or obtain voting rights with respect to at least fifty percent (50%) of the then-outstanding voting stock of Company, there shall be counted toward the requisite number of shares of voting stock any shares which, immediately prior to the commencement of such tender offer, proxy solicitation or other transaction, (x) were owned by Indemnitee or any member of such group, (y) Indemnitee or any member of any such group had the right to vote, or (z) Indemnitee or any member of any such group had the right to acquire;

d. any solicitation of proxies by Indemnitee, or by a group of which he/she was or became a member consisting of two or more persons that had agreed (whether formally or informally and whether or not in writing) to act together for the purpose of soliciting proxies, in opposition to any solicitation of proxies approved by Company’s Board of Directors; or

e. any act or omission by Indemnitee that constitutes a breach of or default under any agreement between Indemnitee and Company.

2.3 Indemnitee shall be paid promptly by Company all amounts necessary to effectuate the indemnity described in Section 2.1.

3. Advancement of Expenses . All reasonable expenses incurred by or on behalf of Indemnitee shall be advanced from time to time by Company to him/her within thirty (30) days after the receipt by Company of a written request for an advance of expenses, whether prior to or after final disposition of a proceeding (except to the extent that there has been a Final Adverse Determination that Indemnitee is not entitled to be indemnified for such expenses), including without limitation any proceeding brought by or in the right of Company; provided, however, that Indemnitee shall not be entitled to the advancement of expenses in connection with any proceeding relating to his/her termination by or resignation from Company or arising out of the circumstances described in Section 2.2, (b), (c) or (d). The written request for an advancement of any and all expenses under this paragraph shall contain reasonable detail of the expenses incurred by Indemnitee. If required by law at the time of such advance, Indemnitee hereby agrees to repay the amounts advanced if it is ultimately determined that Indemnitee is not entitled to be indemnified pursuant to the terms of this Agreement.

4. Additional Limitations . The foregoing indemnity and advance of expenses shall apply only to the extent that Indemnitee has not been indemnified and reimbursed pursuant to such insurance as Company may obtain; provided, however, that notwithstanding the availability of such other indemnification and reimbursement, Indemnitee may claim indemnification and advancement of expenses pursuant to this Agreement by assigning to Company, at its request, Indemnitee’s claims under such insurance to the extent Indemnitee has been paid by Company.

5. Insurance and Funding . Company may purchase and maintain insurance to protect itself and/or Indemnitee against any expenses and liabilities in connection with any proceeding to the fullest extent permitted by applicable laws. Company may create a trust fund, grant an interest or use other means (including, without limitation, a letter of credit) to ensure the payment of such amounts as may be necessary to effect indemnification or advancement of expenses as provided in this Agreement.

6. Procedure for Determination of Entitlement to Indemnification .

6.1 Whenever Indemnitee believes that he/she is entitled to indemnification pursuant to this Agreement, Indemnitee shall submit a written request for indemnification to Company. Any request for indemnification shall include sufficient documentation or information reasonably available to Indemnitee to support his/her claim for indemnification. Indemnitee shall submit his/her claim for indemnification within a reasonable time not to exceed five years after any judgment, order, settlement, dismissal, arbitration award, conviction, acceptance of appeal of “nolo contendere” or its equivalent, final termination or other disposition or partial disposition of any proceeding, whichever is the later date for which Indemnitee requests indemnification. The President or the Secretary or other appropriate officer of Company shall, promptly upon receipt of Indemnitee’s request for indemnification, advise the Board of Directors of Company in writing that Indemnitee has made such request. Determination of Indemnitee’s entitlement to indemnification shall be made not later than sixty (60) days after Company’s receipt of his/her written request for such indemnification. If no determination has been made in such 60-day period, Company shall be deemed to have approved the request.

6.2 The Indemnitee shall be entitled to select the forum in which Indemnitee’s request for indemnification will be heard, which selection shall be included in the written request for indemnification required in Section 6.1. The forum shall be any one of the following:

a. The stockholders of Company;

b. A quorum of the Board of Directors consisting of Disinterested Directors;

c. Independent Legal Counsel, who shall make the determination in a written opinion; or

d. A panel of three arbitrators, one selected by Company, another by Indemnitee and the third by the first two arbitrators selected. If for any reason three arbitrators are not selected within thirty (30) days after the appointment of the first arbitrator, then selection of additional arbitrators shall be made by the American Arbitration Association. If any arbitrator resigns or is unable to serve in such capacity for any reason, the American Arbitration Association shall select such arbitrator’s replacement. The arbitration shall be conducted pursuant to the commercial arbitration rules of the American Arbitration Association now in effect.

e. If Indemnitee fails to make such designation, his/her claim shall be determined by an appropriate court of the State of California.

6.3 Upon making a request for indemnification, Indemnitee shall be presumed to be entitled to indemnification under this Agreement and Company shall have the burden of proof to overcome that presumption in reaching any contrary determination. The termination of any proceeding by judgment, order, settlement, arbitration award or conviction, or upon a plea of “nolo contendere” or its equivalent shall not affect this presumption or, except as provided in Section 3 or 4 hereof, establish a presumption with regard to any factual matter relevant to determining Indemnitee’s rights to indemnification hereunder.

7. Fees and Expenses of Independent Legal Counsel . The Company agrees to pay the reasonable fees and expenses of Independent Legal Counsel or a panel of three arbitrators should such counsel or such panel of arbitrators be retained to make a determination of Indemnitee’s entitlement to indemnification pursuant to Section 6 of this Agreement, and to fully indemnify such counsel or arbitrators against any and all expenses and losses incurred by any of them arising out of or relating to this Agreement or their engagement pursuant hereto, except with respect to expenses and losses resulting from the negligence or willful misconduct of such persons.

8. Remedies of Indemnitee .

8.1 In the event that (i) a determination pursuant to Section 6 hereof is made that Indemnitee is not entitled to indemnification, (ii) advances of expenses are not made pursuant to this Agreement, (iii) payment has not been timely made following a determination of entitlement to indemnification pursuant to this Agreement, or (iv) Indemnitee otherwise seeks enforcement of this Agreement, Indemnitee shall be entitled to a final adjudication in any court of competent jurisdiction of his/her rights. Company shall not oppose Indemnitee’s right to seek any such adjudication. In any such proceeding Indemnitee shall be presumed to be entitled to indemnification under this Agreement and Company shall have the burden of proof to overcome that presumption.

8.2 In the event that a determination that Indemnitee is not entitled to indemnification, in whole or in part, has been made pursuant to Section 6 hereof, the decision in the judicial proceeding provided in Section 8.1 shall be made de novo and Indemnitee shall not be prejudiced by reason of a determination that he/she is not entitled to indemnification.

8.3 If a determination that Indemnitee is entitled to indemnification has been made pursuant to Section 6 hereof or otherwise pursuant to the terms of this Agreement, Company shall be bound by such determination in the absence of (i) a misrepresentation of a material fact by Indemnitee or (ii) a specific finding (which has become final) by a court of competent jurisdiction that all or any part of such indemnification is expressly prohibited by California law.

8.4 In any court proceeding pursuant to this Section 8, Company shall be precluded from asserting that the procedures and presumptions of this Agreement are not valid, binding and enforceable. The Company shall stipulate in any such court that Company is bound pursuant to the terms hereof.

9. Modification, Waiver, Termination and Cancellation . No supplement, modification, termination, cancellation or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver.

10. Notice by Indemnitee and Defense of Claim . Indemnitee shall promptly notify Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any matter, whether civil, criminal, administrative or investigative, but the omission so to notify Company shall not relieve them from any liability which they may have to Indemnitee if such omission does not prejudice Company’s rights. If such omission does prejudice Company’s rights, Company will be relieved from liability only to the extent of such prejudice, or will such omission relieve Company from any liability which it may have to Indemnitee otherwise than under this Agreement. With respect to any proceeding as to which Indemnitee notifies Company of the commencement thereof:

a. Company will be entitled to participate therein at its own expense;

b. Company jointly with any other indemnifying party similarly notified shall be entitled to assume the defense thereof, with counsel reasonably satisfactory to Indemnitee; provided, however, that Company shall not be entitled to assume the defense of any proceeding if there has been a Change of Control or if Indemnitee shall have reasonably concluded that there may be a conflict of interest between Company and Indemnitee with respect to such proceeding. After notice from Company to Indemnitee of its election to assume the defense thereof, Company shall not be liable to Indemnitee under this Agreement for any expenses subsequently incurred by the Indemnitee in connection with the defense thereof, other than reasonable costs of investigation or as otherwise provided below. Indemnitee shall have the right to employ its own counsel in such proceeding but the fees and expenses of such counsel incurred after notice from Company of its assumption of the defense thereof shall be at the expense of Indemnitee unless: (i) the employment of counsel by Indemnitee has been authorized by Company; (ii) Indemnitee shall have reasonably concluded that counsel engaged by Company may not adequately represent Indemnitee; or (iii) Company shall not in fact have employed counsel to assume the defense in such proceeding or shall not in fact have assumed such defense and be acting in connection therewith with reasonable diligence; in each of which cases the fees and expenses of such counsel shall be at the expense of Company; and

c. Company shall not settle any proceeding in any manner that would subject Indemnitee to a penalty or cost without Indemnitee’s written consent; provided, however, that Indemnitee shall not unreasonably withhold his/her consent to any proposed settlement.

11. Notices . All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered personally or by overnight courier such as Federal Express, or sent by certified or registered mail with postage prepaid, addressed as follows:

a. If to Indemnitee, to: John Quinn

7945 Beaumont Green West Drive

Indianapolis, IN 46250

b. If to Company, to: NutraCea

6720 N Scottsdale Road, Suite 390

Scottsdale, AZ 85253

Attn: Chief Executive Officer

c. or to such other address as may have been furnished to Indemnitee by Company or to Company by Indemnitee, as the case may be. Notices given as set forth herein shall be conclusively deemed to have been received by the party to whom addressed upon receipt, if delivered personally or by overnight courier, and three business days after the same is deposited in the United States mail if sent by certified or registered mail.

12. Non-exclusivity . The rights of Indemnitee hereunder shall not be deemed exclusive of any other rights to which Indemnitee may now or in the future be entitled under the California General Corporation Law, Company’s Articles of Incorporation or Bylaws, or any agreements, vote of stockholders, resolution of the Board of Directors or otherwise.

13. Certain Definitions .

13.1 “Change in Control” shall be deemed to have occurred if:

a. Any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an employee benefit plan of Company or a corporation owned directly or indirectly by the stockholders of Company in substantially the same proportions as their ownership of stock of Company, hereafter becomes the “beneficial owner” (as defined in rule 13d-3 under such Act), directly or indirectly, of securities of Company representing fifteen percent (15%) or more of the total voting power represented by Company’s then outstanding voting securities; or

b. The stockholders of Company approve a merger or consolidation of Company with any other corporation, other than a merger or consolidation which would result in the voting securities of Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least eighty percent (80%) of the total vesting power represented by the voting securities of Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of Company approve a plan of complete liquidation of Company or an agreement for the sale or disposition by Company of all or substantially all of Company’s assets.

13.2 “Disinterested Director” shall mean a director of Company who is not or was not a party to the proceeding in respect of which indemnification is being sought by Indemnitee.

13.3 “Expenses” shall include all direct and indirect costs (including, without limitation, attorneys’ fees, retainers, court costs, transcripts, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, all other disbursements or out-of-pocket expenses and reasonable compensation for time spent by Indemnitee for which he/she is otherwise not compensated by Company) actually and reasonably incurred in connection with a proceeding or establishing or enforcing a right to indemnification under this Agreement, applicable law or otherwise; provided, however, that “Expenses” shall not include any Liabilities.

13.4 “Final Adverse Determination” shall mean that a determination that Indemnitee is not entitled to indemnification shall have been made pursuant to Section 6 hereof and either (i) a final adjudication in a court of competent jurisdiction pursuant to Section 8.1 hereof shall have denied Indemnitee’s right to indemnification hereunder, or (ii) Indemnitee shall have failed to file a complaint in a court of competent jurisdiction pursuant to Section 8.1 for a period of one hundred twenty (120) days after the determination made pursuant to Section 6 hereof.

13.5 “Indemnification Period” shall mean the period of time during which Indemnitee shall continue to serve as a director or executive officer of Company, and thereafter so long as Indemnitee shall be subject to any possible proceeding arising out of acts or omissions of Indemnitee as a director or executive officer of Company.

13.6 “Independent Legal Counsel” shall mean a law firm selected by Company and approved by Indemnitee (which approval shall not be unreasonably withheld) or, if there has been a change in control, selected by Indemnitee and approved by Company (which approval shall not be unreasonably withheld) and that neither is presently nor in the past five years has been retained to represent, (i) Company or any of its subsidiaries or affiliates, or Indemnitee or any corporation as to which Indemnitee was or is a director, officer, employee or agent, or any subsidiary or affiliate of such a corporation, in any material matter, or (ii) any other party to the proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term, “Independent Legal Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing Company or Indemnitee in an action to determine Indemnitee’s right to indemnification under this Agreement.

13.7 “Liabilities” shall mean liabilities of any type whatsoever including, but not limited to, any judgments, finds, excise taxes and penalties, penalties and amounts paid in settlement (including all interest assessments and other charges paid or payable in connection with or in respect of such judgments, fines, penalties or amounts paid in settlement) of any proceeding.

13.8 “Proceeding” shall mean any threatened, pending or completed action, claim, suit, arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or any other proceeding whether civil, criminal, administrative or investigative, including any appeal there from.

14. Binding Effect, Duration and Scope of Agreement . This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of Company), spouses, heirs and personal and legal representatives. This Agreement shall continue in effect during the Indemnification Period, regardless of whether Indemnitee continues to serve as a director or executive officer.

15. Severability . If any provision or provisions of this Agreement (or any portion thereof) shall be held to be invalid, illegal or unenforceable for any reason whatsoever:

a. the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby; and

b. to the fullest extent legally possible, the provisions of this Agreement shall not in any way be affected or impaired thereby.

16. Governing Law and Interpretation of Agreement . This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California, as applied to contracts between California residents entered into and to be performed entirely within California. If the laws of the State of California are hereafter amended to permit Company to provide broader indemnification rights than such laws permitted Company to provide prior to such amendment, the rights of indemnification and advancement of expenses conferred by this Agreement shall automatically be broadened to the fullest extent permitted by the laws of the State of California, as so amended.

17. Consent to Jurisdiction . The Company and Indemnitee irrevocably consent to the jurisdiction of the courts of the State of California for all purposes in connection with an action or proceeding which arises out of or relates to this Agreement.

18. Attorneys’ Fees . In any proceeding brought to enforce any provision of this Agreement, or to seek damages for a breach of any provision hereof, or when any prevailing party is validly asserted as a defense, the prevailing party shall be entitled to receive from the other party all reasonable attorneys’ fees and costs in connection therewith.

19. Entire Agreement . This Agreement represents the entire agreement between the parties hereto, and there are no other agreements, contracts or understandings between the parties hereto with respect to the subject matter of this Agreement, except as specifically referred to herein or as provided in Section 12 hereof.

20. Counterparts . This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement.

	NutraCea


	__________________________________________
	By: W. John Short
	Title: Chief Executive Officer

	Date: ______________________________________


	“ Indemnitee ”


	__________________________________________
	[name]

	Date: ______________________________________

SECOND AMENDMENT

EMPLOYMENT AGREEMENT

This Second Amendment to Employment Agreement (“ Amendment ”) is entered into by and between NutraCea, a California corporation with principal offices at 5090 N 40 th Street, Suite 400, Phoenix, Arizona 85018 (“ NutraCea ”) and W. John Short (“ Employee ”) effective as of November 6, 2009 (the “ Effective Date ”), as follows.

1.	Background and Purpose .

1.1. Employment Agreement . NutraCea and Employee are parties to that certain Employment Agreement dated July 6, 2009 (the “ Original Agreement ”), as amended pursuant to the First Amendment to the Employment Agreement dated July 7, 2009 (the “ First Amendment ” and, collectively with the Original Agreement, the “ Employment Agreement ”).

1.2. Amendment . NutraCea and Employee wish to modify certain of the provisions of the Employment Agreement as set forth in this Amendment.

1.3. Effective Date . This Amendment shall become effective as of the Effective Date set forth above.

2. Termination for Good Reason . Section 3.1.2(a)(iv) shall be deleted in its entirety and Section 3.1.2(a)(iii) shall be replaced with the following provision:

“or (iii) any reduction of Employee’s Base Salary.”

3. Relocation Expenses . The first sentence of Section 4.2.1 shall be deleted in its entirety and replaced with the following provision:

“NutraCea shall reimburse Employee’s reasonable expenses for (a) travel between the Phoenix, Arizona, area and the Bend, Oregon, area, (b) temporary housing in the Phoenix area, and (c) car rental or leasing in the Phoenix area, in each case from the Effective Date until December 31, 2010, or such earlier date that Employee relocates his family and family residence to Phoenix, Arizona.

4. Initial Bonus . Section 4.2.3 shall be deleted in its entirety and replaced with the following provision:

“4.2.3. Initial Bonus . NutraCea shall pay Employee an initial bonus (“ Initial Bonus ”) of one hundred thousand dollars ($100,000) to Employee, subject to and expressly contingent upon (i) NutraCea raising a minimum of seven million dollars ($7,000,000) in cash on or before June 30, 2010, from equity or debt financing transaction, a sale of capital assets or equity in subsidiary entities, or any other transaction, but not including any operating revenues arising from operations in the ordinary course of business or any other transactions in the ordinary course of business, and (ii) Section 4.4 In the event Employee does not relocate his family and his family’s residence to the Phoenix, Arizona, area on or before December 31, 2010, the Board may request that Employee (arid if the Board so requests, Employee shall) return the Initial Bonus to NutraCea.”

5. Additional Terms of the Options . New Section 4.3.4 shall be added to the Agreement and shall provide as follows:

“4.3.4 Additional Terms of the Options . If there is no effective registration statement under the Securities Act of 1933 registering the issuance or resale by Employee of the shares of NutraCea’s common stock underlying the Options, then the Options, once exercisable, may also be exercised (so long as no such registration statement is then in effect) by means of a “net exercise” in which Employee shall be entitled to cancel the exercisable portion of the Options and receive a certificate for the number of shares of NutraCea’s common stock equal to (A-B) x C ÷ A, where:

A = the fair market value of a share of NutraCea’s common stock on the date of exercise, as determined under the terms of the 2005 Plan;

B = the exercise price per shares of NutraCea’s common stock subject to the Options; and

C= the number of shares of NutraCea’s common stock with respect to which Employee is then net-exercising the Options.

Notwithstanding the foregoing, Employee may not net-exercise any portion of an Option unless Employee pays to NutraCea in cash at the time of the net-exercise the amount of any applicable federal, state and local withholding taxes.”

6. Life Insurance . The final sentence of Section 4.5 (which was added to the Original Agreement by the First Amendment) shall be deleted in its entirety and replaced with the following provision:

“Not later than December 31, 2009, NutraCea shall obtain a life insurance policy on the life of Employee in the amount of five million dollars ($5,000,000). NutraCea shall maintain such policy for the full term of Employee’s employment with NutraCea. During the period between the Effective Date and the two (2) year anniversary of the Effective Date, the policy shall be payable two million five hundred thousand dollars ($2,500,000) for the benefit of Employee and Employee’s wife and the balance for the benefit of NutraCea. Commencing on the two (2) year anniversary of the Effective Date, such policy shall be for the sole benefit of Employee and Employee’s wife as to the full amount of the policy.”

7. Effect of Amendment . Except as specifically set forth in this Amendment, the Employment Agreement shall remain in full force and effect in accordance with its terms.

8. Modification; Interpretation . From and after the Effective Date, all references in the Agreement to “the Amendment,” “this Amendment” or any similar reference shall refer to the Agreement as amended by this Amendment. Capitalized terms not otherwise defined herein shall have the respective meanings ascribed to them in the Agreement.

NutraCea and W. John Short have executed and delivered this Amendment as of the Effective Date set forth above.

	NUTRACEA


	__________________________________________
	By: Leo Gingras
	Title: Chief Operating Officer

	Date: November 6, 2009


	W. JOHN SHORT


	___________________________________________

	Date: November 6, 2009

INDEMNIFICATION AGREEMENT

NutraCea, a California corporation (“Company”) and W. John Short (“Indemnitee”) enter into this Indemnification Agreement (“Agreement”) and agree as of November 6, 2009 (“Effective Date”) as follows:

RECITALS

A. Indemnitee is either a member of the Board of Directors or an executive officer of Company and in such capacity is performing a valuable service for Company.

B. Indemnitee is to serve, continue to serve, and take additional service for or on behalf of Company on the condition that he/she is indemnified by Company as herein provided.

C. It is intended that Indemnitee shall be paid promptly by Company all amounts necessary to effectuate in full the indemnity provided herein.

AGREEMENT

2. Indemnification .

2.2 Notwithstanding anything in this Agreement to the contrary, Company shall not be obligated under this Agreement to indemnify Indemnitee with respect to:

e. any act or omission by Indemnitee that constitutes a breach of or default under any agreement between Indemnitee and Company.

2.3 Indemnitee shall be paid promptly by Company all amounts necessary to effectuate the indemnity described in Section 2.1.

The written request for an advancement of any and all expenses under this paragraph shall contain reasonable detail of the expenses incurred by Indemnitee. If required by law at the time of such advance, Indemnitee hereby agrees to repay the amounts advanced if it is ultimately determined that Indemnitee is not entitled to be indemnified pursuant to the terms of this Agreement.

6. Procedure for Determination of Entitlement to Indemnification .

a. The stockholders of Company;

b. A quorum of the Board of Directors consisting of Disinterested Directors;

c. Independent Legal Counsel, who shall make the determination in a written opinion; or

e. If Indemnitee fails to make such designation, his/her claim shall be determined by an appropriate court of the State of California.

8. Remedies of Indemnitee .

a. Company will be entitled to participate therein at its own expense;

a. If to Indemnitee, to: W. John Short

61508 Cultus Lake Court

Bend, OR 97702

b. If to Company, to: NutraCea

5090 N 40 th Street, Suite 400

Phoenix, AZ 85018

Attn: Leo Gingras, Chief Operating Officer

13. Certain Definitions .

13.1 “Change in Control” shall be deemed to have occurred if:

13.2 “Disinterested Director” shall mean a director of Company who is not or was not a party to the proceeding in respect of which indemnification is being sought by Indemnitee.

15. Severability . If any provision or provisions of this Agreement (or any portion thereof) shall be held to be invalid, illegal or unenforceable for any reason whatsoever:

a. the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby; and

b. to the fullest extent legally possible, the provisions of this Agreement shall not in any way be affected or impaired thereby.

	NutraCea


	__________________________________________
	By: Leo Gingras
	Title: Chief Operating Officer

	Date: November 6, 2009


	“ Indemnitee ”


	___________________________________________
	W. John Short

	Date: November 6, 2009

Certification of Principal Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, W. John Short, certify that:

1. I have reviewed this quarterly report on Form 10-Q of NutraCea;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report was prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s disclosure internal control over financial reporting.

Dated: May 11, 2011	/s/ W. John Short

	Name: W. John Short
	Title: Chief Executive Officer

Certification of Principal Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Jerry Dale Belt, certify that:

1. I have reviewed this quarterly report on Form 10-Q of NutraCea;

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s disclosure internal control over financial reporting.

Dated: May 11, 2011	/s/ J. Dale Belt

	Name: Jerry Dale Belt
	Title: Chief Financial Officer

Certification of Principal Executive Officer and Principal Financial Officer

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of NutraCea (the “Company”) for the period ended March 31, 2011, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned, in the capacities and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Company.

Dated: May 11, 2011

	/s/ W. John Short
	W. John Short
	Chief Executive Officer

	/s/ J. Dale Belt
	Jerry Dale Belt
	Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

The foregoing certification is being furnished in accordance with Securities and Exchange Commission Release No. 34-47551 and shall not be considered filed as part of the Form 10-Q.