10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

______________

FORM 10-K

______________

(Mark one)                                                                                                                             

ý      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)          

OF THE SECURITIES EXCHANGE ACT OF 1934

For the year ended December 31, 2008

¨        TRANSITION REPORT PURSUANT TO 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	87-0673375
(State of Incorporation)	(I.R.S. Employer Identification No.)
5090 N. 40th St., Suite #400 Phoenix, AZ	85018
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s Telephone Number, Including Area Code: (602) 522-3000

______________

Securities registered under Section 12(b) of the Exchange Act:

NONE

______________

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, no par value

(Title of Class)

______________

Indicate by check mark if the registrant is a well-know seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No ý

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

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   ý  No  ¨

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

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 definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated filer ý Non-accelerated filer o Smaller reporting company o

Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended). YES ¨ NO ý

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked prices of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: As of June 30, 2008, the aggregate market value of the Company’s common stock held by non-affiliates was $167,743,724.

Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of August 31, 2009, there were 192,967,680 shares of common stock outstanding.

FORM 10-K

INDEX

PART I
	Item 1.	Business.	12
	Item 1A.	Risk Factors.	26
	Item 1B.	Unresolved Staff Comments.	27
	Item 2.	Description of Property.	38
	Item 3.	Legal Proceedings.	38
	Item 4.	Submission of Matters to a Vote of Security Holders.	41
PART II
	Item 5.	Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities	42
	Item 6.	Selected Financial Data.	44
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	47
	Item 7A.	Quantitative and Qualitative Disclosures about Market Risk.	71
	Item 8.	Financial Statements and Supplementary Data.	71
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	72
	Item 9A.	Controls and Procedures.	72
	Item 9B.	Other Information.	74
PART III
	Item 10.	Directors, Executive Officers and Corporate Governance.	75
	Item 11.	Executive Compensation	77
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.	103
	Item 13.	Certain Relationships and Related Transactions, and Director Independence.	105
	Item 14.	Principal Accountant Fees and Services	106
PART IV
	Item 15.	Exhibits, Financial Statement Schedules.	107

1

FORWARD-LOOKING STATEMENTS

This Annual Report includes forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but are based on current expectations, estimates and projections about our industry, our beliefs and our assumptions. Words such as “believes,” “anticipates,” “expects,” “intends” and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. These forward-looking statements are not guarantees of future performance and concern matters that could subsequently differ materially from those described in the forward-looking statements. Actual events or results may also differ materially from those discussed in this Annual Report. These risks and uncertainties include those described in “Risk Factors” and elsewhere in this Annual Report. Except as required by law, we undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may arise after the date of this Annual Report.

2

Explanatory Note

NutraCea (“Company”) has restated its consolidated balance sheets at December 31, 2006 and 2007 and its consolidated statements of operations, stockholders’ equity, and cash flows for its fiscal years ended December 31, 2006 (“fiscal 2006”) and December 31, 2007 (“fiscal 2007”).  In addition, certain restatement adjustments affected interim financial information for all of the quarters of fiscal 2007 and the first three quarters of the fiscal year ended December 31, 2008 (“fiscal 2008”) previously filed on Form 10-Q.  Such restatement adjustments are reflected in the unaudited selected quarterly financial data as disclosed in Note 25 - Quarterly Financial Data to the Consolidated Financial Statements included in Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K (“Annual Report”).

The restatement adjustments reflect the correction of errors made in the application of generally accepted accounting principles (“GAAP”).  For a discussion of the significant restatement adjustments and the background leading to the adjustments, see Note 2 – Audit Committee Review and Restatement of Consolidated Financial Statements to the Consolidated Financial Statements included in Item 8 of this Annual Report.

The Company has not amended its prior Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q for the periods affected by the restatement adjustments.  The financial statements and related interim financial information contained in such reports is superseded by the information in this Annual Report and the financial statements and related interim financial information contained in such previously filed reports should not be relied upon.

Significant Events

The filing of this Annual report for fiscal 2008 has been delayed as a result of the matters described below under the heading “Audit Committee Review and Restatement of Consolidated Financial Statements.”  Set forth below is a summary of certain significant events that occurred during fiscal 2008 and through the date of this filing.

Audit Committee Review and Restatement of Consolidated Financial Statements

   Overview

The Company’s Consolidated Financial Statements for the years ended December 31, 2006 and 2007 and quarterly information for the first three quarterly periods of fiscal 2008 have been restated to correct errors of the type identified in the course of the Audit Committee-led accounting review (discussed further below, and referred to herein as the “Audit Committee-led review”) and other accounting errors identified by the Company in the course of the restatement process and more fully described in the “Background” section below.

The Audit Committee concluded that the errors were the result of the improper accounting of several revenue transactions, and the improper accounting of the Company’s investment in an Indonesian wheat flour trading company.  Subsequent to the conclusions addressed by the Audit Committee, the Company also determined that certain moving and rental allowance transactions associated with the occupancy of the Company’s current corporate headquarters, an additional revenue transaction, and the recognition of license fee revenue associated with an Indonesian joint venture had not been accounted for properly.  A summary of these subsequent transactions is described below, and is included as part of the restated Consolidated Financial Statements.

The improper accounting of the transactions was primarily the result of the internal control weaknesses which existed within the Company.  Management has begun and continues to review the Company’s accounting practices and its internal control over financial reporting.  These are discussed under “Management Report on Internal Control over Financial Reporting” presented in Item 9A, “Controls and Procedures”.

    Background

During December 2008, the Audit Committee which is comprised of independent outside directors of the Board of Directors of the Company commenced an internal review of certain matters with respect to the Company’s accounting and reporting practices, including the appropriateness and/or timing of recognition of revenues from certain transactions in 2007, and the adequacy of internal controls over financial reporting and disclosure controls and procedures (“Original Review”).  The Audit Committee retained independent outside counsel and forensic accounting consultants to assist in the investigation.

3

As a result of the preliminary findings of the investigation, the Board of Directors of the Company determined, based upon the recommendation of the Audit Committee, that the Company should restate its financial statements for the year ended December 31, 2007, including the second, third, and fourth quarters in 2007 and the first three quarters for the year ended December 31, 2008.  Accordingly, on February 17, 2009, the Board of Directors determined, based upon the recommendation of the Audit Committee that the Company’s previously issued Consolidated Financial Statements included in the filings with the Securities and Exchange Commission (“SEC”) for these periods should no longer be relied upon.  On February 23, 2009, the Company disclosed in its Current Report on Form 8-K (“Original Form 8-K”) the actions and final determinations of the Company’s Board of Directors and Audit Committee as outlined in this and the prior paragraph.

Following the date of the Original Form 8-K, the Audit Committee expanded its review to include the Company’s accounting treatment of additional transactions in 2006, 2007, and 2008 (“Subsequent Review”).  Based upon the Subsequent Review, the Audit Committee determined on April 23, 2009 that the Company would also restate its Consolidated Financial Statements for the year ended December 31, 2006, including the fourth quarter of 2006, and the first quarter of 2007, and that these Consolidated Financial Statements should not be relied upon.  On April 23, 2009, the Company disclosed in its Current Report on Form 8-K (“Subsequent Form 8-K”) the actions and final determinations of the Company’s Board of Directors and Audit Committee as outlined in this paragraph.

Subsequent to the conclusions addressed by the Audit Committee in the Original and Subsequent Reviews, the Company also determined that certain moving and rental allowance transactions associated with the occupancy of the Company’s current corporate headquarters, an additional revenue transaction, and the recognition of license fee revenue associated with an Indonesian joint venture had not been accounted for properly (“Additional Findings”).  A summary of these subsequent transactions is described below, and is included as part of the restated Consolidated Financial Statements.

In connection with the Original Review, Subsequent Review, and Additional Findings, the Company determined that it improperly accounted for the following transactions in 2006, 2007 and 2008:

Original Review:

· The Company recognized revenue in the second quarter of 2007 on a $2.6 million sale of its Dr. Vetz PetFlex brand product with respect to which the applicable criteria for revenue recognition were not met.  Based upon the facts discovered during the Audit Committee investigation, the Company has now concluded that a $1.0 million deposit received by the Company in that transaction was provided to the purchaser through a loan from a person who at the time was a consultant to and a former officer of NutraCea, and that the evidence originally relied upon to determine and support the purchaser’s ability to pay the remaining $1.6 million receivable balance was subsequently determined to be inaccurate.  The Company reversed this sale which resulted in a reduction of revenue of $2.6 million, a reduction of cost of goods sold of $0.6 million, and a reduction of net income of $2.0 million.  The deposit is recorded as a other non-current liability in the Consolidated Financial Statements.  This liability will be extinguished upon the resolution of certain legal matters.

· The Company determined that a $2.0 million sale of its RiceNShine product in December 2007 did not meet accounting requirements for revenue recognition in a bill and hold transaction and that the transaction should not have been recognized as revenue in the Company’s 2007 results.  The Company reversed this sale which resulted in a reduction of revenue of $2.0 million, a reduction of cost of goods sold of $1.3 million, and a reduction of net income of $0.7 million for 2007.  The revenues, costs of goods sold, and net income from this sale were ultimately recognized in the four quarters of 2008 and the first quarter of 2009 as follows (in millions):

		Q1-2008		Q2-2008		Q3-2008		Q4-2008		Q1-2009
Revenues	$	0.7	$	0.7	$	0.4	$	0.1	$	0.1
Cost of Goods		0.5		0.5		0.3		0.0		0.0
Net Income	$	0.2	$	0.2	$	0.1	$	0.1	$	0.1

4

Subsequent Review and Additional Findings:

· The Company recorded revenue of $1.6 million in the fourth quarter of 2006 from a sale of Dr. Vetz Pet Flex product to an infomercial customer.  The Company recorded an $800,000 reserve for this receivable in the second quarter of 2007.  In the third quarter of 2007 the customer returned the product and the Company recorded a sales return of $1.6 million and reversed the reserve it had recorded in the second quarter of 2007.   The Company has now determined that it will reverse this sale in 2006 instead of in 2007 because (i) the Company does not have adequate evidence to conclude that the receivable relating to this sale was collectable in the quarter it was recognized and (ii) the Company did not have sufficient experience in the infomercial market to adequately understand the distribution channel, the fluctuating nature of sales into this channel or to estimate the potential for product return.  The effect of the reversal will be to (1) reduce total revenue by $1.6 million in 2006, (2) reduce cost of sales by $268,000 in 2006, (3) reduce net income by $1.4 million in 2006 and (4) increase net income by $1.4 million in 2007.

· In June 2007 the Company granted to Pacific Holdings Advisors Limited (“PAHL”) a perpetual and exclusive license and distribution rights (“License”) for the production and sale of Stabilized Rice Bran (“SRB”) and SRB derivative products in certain countries in Southeast Asia.  PAHL agreed to pay the Company a $5 million one-time license fee (“License Fee”), which was due and payable on the fifth anniversary of the commencement of SRB production at a facility established by PAHL or a joint venture of PAHL and the Company.  The Company recorded this $5 million License Fee in the second quarter of 2007.  Contemporaneous with the grant of the License, the Company and PAHL jointly formed Grain Enhancements, LLC (“GE”).  Pursuant to GE’s limited liability company agreement, PAHL sublicensed its rights under the License to GE.

Upon further analysis of these transactions, the Company has concluded that the License Fee did not qualify as revenue to the Company under generally accepted accounting principles.   Through our review of the transactions, including the License and other agreements that the Company entered into in connection with the formation of GE, we determined that the transactions should have been considered as one arrangement with multiple deliverables instead of stand-alone transactions.  The various obligations under this one arrangement would have precluded immediate revenue recognition of the License Fee.  Accordingly, this transaction was reversed, which decreased the Company’s license fee revenue in 2007 by $5 million and increased the Company’s net loss in 2007 by $5 million.

In March 2008, Medan, LLC (“Medan”), a wholly-owned subsidiary of the Company, purchased (“First Purchase”) from Fortune Finance Overseas LTD (“FFOL”) for $8.175 million 9,700 outstanding shares of capital stock of PT Panganmas Int Nusantara (“PIN”), an Indonesian company.  In June 2008, Medan purchased directly from PIN 3,050 additional shares of PIN capital stock for $2.5 million.  Following these purchases, Medan and FFOL own 51% and 49%, respectively of PIN’s outstanding capital stock.  The capital contributions that the Company made to Medan funded the purchase of the PIN shares.

The determination of the purchase price of the PIN shares was agreed to by management based upon an economic feasibility study of the PIN project that the Company obtained from a third party valuation firm.  Based upon this study, the Company recorded the value of the PIN shares on its balance sheet at $10.675 million, which was the price the Company paid for the PIN shares.  Upon further review, the Company has determined that there was not sufficient evidence at the time of their acquisition to support the $10.675 million valuation of the PIN shares.  Accordingly, the Company has decided to restate its consolidated balance sheet to reduce the value of the PIN shares by $5 million to $5.675 million as outlined below.

In March 2008, PAHL paid to the Company $5 million for its License Fee described above.  A principal shareholder of FFOL is also a principal shareholder of PAHL, and the Company’s receipt of payment for the License Fee was made at the same time the Company decided to make the First Purchase of the PIN shares.  Based in part upon the related ownership of FFOL and PAHL, the timing of the payments, the sub-license of PAHL’s rights under the License to GE and the Company’s current determination of the value of the PIN shares, the Company now believes the First Purchase of the PIN shares and the payment of the License Fee should be viewed as a combined event with related parties, causing the Company to account for the First Purchase of the PIN shares as a payment of $3.175 million instead of $8.175 million.

5

In accounting for the PIN and GE transactions described above, the Company used the equity method.  The planned business of PIN was the construction and operation of a wheat flour mill in Indonesia including the production of stabilized wheat co-products. Constructing and operating wheat flour mills does not fit the strategic direction we have defined for NutraCea.  On July 23, 2009, we sold to FFOL the Company’s entire balance of 12,750 shares of capital stock of PIN, which shares represented 51% of the currently issued and outstanding capital stock of PIN.  FFOL agreed to pay $1,675,000 to Medan to purchase these shares thus purchasing all of our interest in PIN.  The sale of our shares of capital stock of PIN resulted in a $3,996,000 impairment charge representing the difference between the carrying value of our investment and the cash to be received from FFOL.  This impairment change was recorded as of December 31, 2008.

· In April 2007, the Company began leasing the office space that it currently occupies as its corporate headquarters in Phoenix, Arizona.  As part of the lease arrangement, the landlord provided certain moving and rental incentives to the Company.  The rental incentives provided funds which the Company used for leasehold improvements of the office space.  The Company did not properly account for the incentives.  The Company accounted properly for these transactions as part of its restatement of the Consolidated Financial Statements for fiscal 2007, the second, third, and fourth quarters of fiscal 2007, and the first three quarters of fiscal 2008.  The restatement increased rent expense by $139,000 for the second quarter of 2007 and decreased rent expense by $42,000 for the third and fourth quarters of 2007 and for each of the first three quarters of 2008.

· In the second quarter of 2007, the Company recognized revenue on an approximately $2.1 million sale to a nutraceutical distributor.  The customer made payments during the third and fourth quarters of 2007, and a balance of approximately $1.4 million remained at the end of 2007.  The Company established a reserve for doubtful accounts for the remaining amount as of December 31, 2007. Based upon facts discovered in the Additional Findings, the Company concluded that the sale did not meet the criteria for revenue recognition, and therefore restated the transaction.  The restatement resulted in a reduction to the 2007 revenue of approximately $1.4 million and a reduction to the 2007 bad debt expense of approximately $1.4 million.

The following table summarizes the impact of the restated items on our statement of operations for the periods noted and should be read in conjunction with the accompanying Consolidated Financial Statements and Notes thereto (amounts in thousands except per share data).

	Nine Months
	Ended 9/30/2008			12/31/07			12/31/06
Net (loss) income, as previously reported	$	(17,378	)	$	(11,911	)	$	1,585
Change to revenues for product revenue recognition		1,839			(4,435	)		(1,551	)
Change to revenues for license fee revenue recognition					(5,000	)
Change to cost of goods sold for product revenue recognition		(1,247	)		1,015			268
Change for decrease in bad debt expense		62			2,979
Change for (increase)/decrease in other operating expenses		390			(1,015	)
Change for increase/(decrease) in other income		119			391
Impact of restatement items		1,163			(6,065	)		(1,283	)
Net (loss) income, as restated	$	(16,215	)	$	(17,976	)	$	302
Earnings (loss) per share
Basic, as previously reported	$	(0.12	)	$	(0.09	)	$	0.02
Impact of restatement items, net of taxes	$	0.01		$	(0.05	)	$	(0.02	)
Basic, as restated	$	(0.11	)	$	(0.14	)	$	0.00
Diluted, as previously reported	$	(0.12	)	$	(0.09	)	$	0.02
Impact of restatement items, net of taxes	$	0.01		$	(0.05	)	$	(0.02	)
Diluted, as restated	$	(0.11	)	$	(0.14	)	$	0.00

The effect of the above mentioned restated items on our previously reported fiscal 2007 and 2006 consolidated balance sheets is provided below (amounts in thousands):

6

CONSOLIDATED BALANCE SHEET
As of December 31, 2007
	As Previously						As
	Reported			Adjustments			Restated
ASSETS
Current Assets:
Cash and cash equivalents	$	41,298		$	(100	)	$	41,198
Restricted cash		758						758
Marketable securities		-						-
Trade receivables		5,345			(3,065	)		2,280
Less: allowance for doubtful accounts		(2,999	)		2,979			(20	)
Inventory		1,808			91			1,899
Notes receivable, current portion		2,936						2,936
Deposits and other current assets		2,545			659			3,204
Total Current Assets		51,691			564			52,255
Restricted cash		1,791						1,791
Notes receivable, net of current portion		5,039			(5,000	)		39
Property, plant and equipment, net		19,328			584			19,912
Investment in equity method investments		1,191						1,191
Intangible assets, net		5,743						5,743
Goodwill		39,510						39,510
Total non-current assets		72,602			(4,416	)		68,186
Total Assets	$	124,293		$	(3,852	)	$	120,441
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable and accrued liabilities	$	7,506		$	(810	)	$	6,696
Notes payable - current portion		23						23
Deferred rent incentive - current portion		-			168			168
Deferred revenue		90			1,920			2,010
Total Current Liabilities		7,619			1,278			8,897
Deferred rent incentive - net of current portion		-			1,218			1,218
Other non-current liabilities		-			1,000			1,000
Notes payable - net of current portion		77						77
Total Liabilities		7,696			3,496			11,192
Commitments and contingencies
Minority interest
Stockholders Equity (deficit):
Common Stock		177,813						177,813
Accumulated deficit - prior year		(49,305	)		(1,283	)		(50,588	)
Net income /(loss) - current year		(11,911	)		(6,065	)		(17,976	)
Accumulated deficit		(61,216	)		(7,348	)		(68,564	)
Accumulated other Comprehensive Income (Loss)		-			-			-
Total shareholders'' equity (deficit)		116,597			(7,348	)		109,249
Total Liabilities and Equity	$	124,293		$	(3,852	)	$	120,441

7

CONSOLIDATED BALANCE SHEET
As of December 31, 2006
	As Previously						As
	Reported			Adjustments			Restated
ASSETS
Current Assets:
Cash and cash equivalents	$	14,867		$	-		$	14,867
Restricted cash		-			-			-
Marketable securities		368			-			368
Trade receivables		7,093			-			7,093
Adjustment to AR					(1,551	)		(1,551	)
Less: allowance for doubtful accounts		-			-			-
Inventory		796			-			796
Adjustment to inventory		-			268			268
Notes receivable, current portion		1,694			-			1,694
Deposits and other current assets		1,383			-			1,383
Total Current Assets		26,201			(1,283	)		24,918
Restricted cash		-			-			-
Notes receivable, net of current portion		682			-			682
Adjustment to long term notes receivable		-			-			-
Property, plant and equipment, net		8,961			-			8,961
Investment in equity method investments		-			-			-
Intangible assets, net		5,097			-			5,097
Goodwill		32,314			-			32,314
Total non-current assets		47,054			-			47,054
Total Assets	$	73,255		$	(1,283	)	$	71,972
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable and accrued liabilities	$	2,778		$	-		$	2,778
Notes payable - current portion		-			-			-
Deferred revenue		103			-			103
Total Current Liabilities		2,881			-			2,881
Notes payable - net of current portion		-			-			-
Total Liabilities		2,881			-			2,881
Commitments and contingencies
Convertible, Series B Preferred Stock		439			-			439
Convertible, Series C Preferred Stock		5,051			-			5,051
Stockholders Equity (deficit)
Common Stock		114,111			-			114,111
Accumulated deficit - prior year		(50,890	)		-			(50,890	)
Net income /(loss) - current year		1,585			(1,283	)		302
Accumulated deficit		(49,305	)		(1,283	)		(50,588	)
Accumulated other Comprehensive Income (Loss)		78			-			78
Total shareholders' equity (deficit)		70,374			(1,283	)		69,091
Total Liabilites and Equity	$	73,255		$	(1,283	)	$	71,972

8

The effect of the above mentioned restated items on our previously reported results of operations and cash flows for fiscal 2007 and 2006 is provided below (amounts in thousands except for per share date):

CONSOLIDATED STATEMENT OF OPERATIONS
For the Fiscal Year Ended December 31, 2007
	As Previously						As
	Reported (1)			Adjustments			Restated
Revenue
Product sales	$	18,372		$	(5,986	)	$	12,386
Less returns		(1,551	)		1,551			-
Royalty and licensing fees		5,340			(5,000	)		340
Total revenue		22,161			(9,435	)		12,726
Cost of goods sold		9,898			(1,015	)		8,883
Gross margin		12,263			(8,420	)		3,843
Operating expenses
Research and development		769						769
Selling, general, and administrative		17,243			1,015			18,258
Bad debt		3,233			(2,979	)		254
Impairment of intangible assets		1,300						1,300
Separation agreement with former CEO		1,000						1,000
Professional fees		3,848						3,848
Total operating expenses		27,393			(1,964	)		25,429
Loss from operations		(15,130	)		(6,456	)		(21,586	)
Other Income (expense)
Interest income		2,809			391			3,200
Interest expense		(1	)					(1	)
Gain on settlement		1,250						1,250
Loss on disposal of assets		(347	)					(347	)
Loss on equity method investments		(309	)					(309	)
Loss on sale of marketable securities		(163	)					(163	)
Total other income/(expense)		3,239			391			3,630
Income tax expense		(20	)					(20	)
Minority Interest								-
Net income/(loss)	$	(11,911	)	$	(6,065	)	$	(17,976	)
Earnings per share:
Basic income /(loss) per share	$	(0.09	)	$	(0.05	)	$	(0.14	)
Fully diluted income /(loss) per share	$	(0.09	)	$	(0.05	)	$	(0.14	)
Shares Outstanding:
Weighted average basic number of shares outstanding		125,938						125,938
Weighted average diluted number of shares outstanding		125,938						125,938

(1) Certain reclassifications have been made to prior period amounts to conform to classifications adopted in the current year.

9

CONSOLIDATED STATEMENT OF OPERATIONS
For the Fiscal Year Ended December 31, 2006
	As Previously						As
	Reported (1)			Adjustments			Restated
Statement of Operations
Revenue
Net product sales	$	17,105		$	(1,551	)	$	15,554
Less returns		-						-
Royalty and licensing fees		985			-			985
Total revenues		18,090			(1,551	)		16,539
Cost of goods sold		9,130			(268	)		8,862
Gross margin		8,960			(1,283	)		7,677
Operating expenses
Research and development		377						377
Selling, general, and administrative		6,657						6,657
Bad debt		9						9
Professional fees		865						865
Total operating expenses		7,908			-			7,908
Gain/(loss) from operations		1,052			(1,283	)		(231	)
Other income (expense)
Interest income		545						545
Interest expense		(7	)					(7	)
Total other income/(expense)		538			-			538
Total income before income tax		1,590			(1,283	)		307
Income tax expense		5						5
Net income/(loss)	$	1,585		$	(1,283	)	$	302
Earnings per share:
Basic income /(loss) per share	$	0.02		$	(0.02	)	$	0.00
Fully diluted income /(loss) per share	$	0.02		$	(0.02	)	$	0.00
Shares Outstanding:
Weighted average basic number of shares outstanding		76,692						76,692
Weighted average diluted number of shares outstanding		102,636						102,636

(1) Certain reclassifications have been made to prior period amounts to conform to classifications adopted in the current year.

10

CONSOLIDATED STATEMENT OF CASH FLOWS
For the Fiscal Year Ended December 31, 2007
	As Previously			Adjusting			As
	Reported			Entries			Restated
Cash flow from operating activities:
Net Income (loss)	$	(11,911	)	$	(6,065	)	$	(17,976	)
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation and amortization		2,202			70			2,272
Provision for doubtful accounts and notes		3,229			(2,979	)		250
Goodwill impairment		1,300			-			1,300
Loss on retirement of assets		347			-			347
Stock-based compensation		2,166			-			2,166
Loss on equity method investments		309			-			309
Loss on sale of marketable securities		290			-			290
Changes in operating assets and liabilities:
(Increase) decrease in
Trade accounts receivable		(886	)		1,514			628
Inventories		(971	)		177			(794	)
Other current assets		(1,167	)		(659	)		(1,826	)
Accounts payable and accrued liabilities		2,739			(810	)		1,929
Deferred rent incentive		-			1,386			1,386
Other non-current liabilities		-			1,000			1,000
Deferred revenue		-			1,920			1,920
Net cash used in operating activities		(2,353	)		(4,446	)		(6,799	)
Cash flows from investing activities
Issuance of notes receivable		(7,828	)		5,000			(2,828	)
Proceeds of payments from notes receivable		5,410			-			5,410
Purchases of property, plant and equipment		(11,652	)		(654	)		(12,306	)
Investment in Grainnovation, Inc.		(2,169	)		-			(2,169	)
Investment in Vital Living, Inc.		(5,143	)		-			(5,143	)
Investment in joint venture		(1,500	)		-			(1,500	)
Restricted cash		(2,239	)		-			(2,239	)
Proceeds from issuance of long-term notes		69			-			69
Proceeds from sale of fixed assets		16			-			16
Purchases of other assets, intangibles and goodwill		(2,225	)		-			(2,225	)
Net cash provided by (used in) investing activities		(27,261	)		4,346			(22,915	)
Cash flows from financing activities
Proceeds from private placement financing, net of expenses		46,805			-			46,805
Proceeds from exercise of common stock options and warrants		9,240			-			9,240
Net cash provided by financing activities		56,045			-			56,045
Net increase (decrease) in cash		26,431			(100	)		26,331
Cash, beginning of period		14,867						14,867
Cash, end of period	$	41,298		$	(100	)	$	41,198

11

CONSOLIDATED STATEMENT OF CASH FLOWS
For the Fiscal Year Ended December 31, 2006
	As Previously						As
	Reported			Adjustments			Restated
Cash flow from operating activities:
Net Income (loss)	$	1,585		$	(1,283	)	$	302
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation and amortization		1,150			-			1,150
Stock-based compensation		1,091			-			1,091
Net changes in operating assets and liabilities:
(Increase) decrease in
Trade accounts receivable		(4,578	)		1,551			(3,027	)
Inventories		(202	)		(268	)		(470	)
Other current assets		(1,301	)		-			(1,301	)
Accounts payable and accrued liabilities		1,531			-			1,531
Advances to related parties		(3	)		-			(3	)
Other non-current liabilties		98			-			98
Net cash used in operating activities		(629	)		-			(629	)
Cash flows from investing activities
Issuance of notes receivable		(2,376	)		-			(2,376	)
Purchases of property, plant and equipment		(4,682	)		-			(4,682	)
Purchases of other assets, intangibles and goodwill		(2,640	)		-			(2,640	)
Net cash provided by (used in) investing activities		(9,698	)		-			(9,698	)
Cash flows from financing activities
Proceeds from private placement financing, net of expenses		15,934			-			15,934
Principal payments on notes payable, net of discount		(15	)		-			(15	)
Proceeds from exercise of common stock options and warrants		5,784			-			5,784
Net cash provided by financing activities		21,703			-			21,703
Net increase (decrease) in cash		11,376			-			11,376
Cash, beginning of period		3,491						3,491
Cash, end of period	$	14,867		$	-		$	14,867

Item 1. Business

GENERAL

NutraCea (“we”, “us”, “our”, or the “Company”), a California corporation, is a health science company that has 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, stabilized rice bran (“SRB”) that has applications in various food products and as key components of patented and proprietary formulations that have applications for treatment modalities in nutritional supplementation. 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 medical foods, or “Nutraceuticals,” which provide health benefits for humans and animals based on SRB, SRB derivatives, and rice-bran oils. We believe that SRB products can deliver beneficial physiological effects. We have conducted and are continuing to pursue ongoing clinical trials and third party analyses in order to further support the uses for and effectiveness of our products.

In February 2008 we acquired 100% ownership of Industria Riograndens De Oleos Vegetais Ltda. (”Irgovel”), a limited liability company organized under the laws of the Federative Republic of Brazil, which operates a rice-bran oil manufacturing facility in Pelotas, Brazil (see Note 12 to the Consolidated Financial Statements included herein).  Concurrent with that acquisition we began reporting in two business segments; the NutraCea segment which manufactures and distributes ingredients primarily derived from SRB and the Irgovel segment which manufactures rice-bran oil and fatted and defatted SRB products in Pelotas, Brazil (see Note 19 to the Consolidated Financial Statements included herein).

12

Our NutraCea segment is primarily engaged in the manufacturing of SRB at five locations in California, Louisiana, and Texas (closed in May 2009) for various consumptive uses, and the custom manufacturing of various grain based products for human food ingredient companies at facilities in Dillon, Montana and Phoenix, Arizona (which became operational in February 2009). We 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. NutraCea RiSolubles, a highly nutritious, carbohydrate and lipid rich fraction, is produced at our Dillon, Montana facility along with RiFiber, a fiber rich derivative and RiBalance, a complete rice bran nutritional package. NutraCea believes that these manufacturing capabilities are unique among grain processors, with custom processing capabilities suited to numerous food applications.  In May 2008, NutraCea was granted USDA/FSIS approval to use SRB as an enhancer into meat products such as meat and poultry sausages that contain binders, nugget-shaped patties, meatballs, meatloaf, and meat and poultry patties.   Sales of human food products were approximately 56% of total sales in 2008, while the balance of 44% of sales made were of animal food products.

Our Irgovel segment manufactures rice-bran oil and fatted and defatted rice bran products for both human and animal food products for consumption in Brazil and internationally.  Irgovel owns the largest rice bran processing facility in South America and is the only Brazilian company to produce oil from rice for human consumption.  Sales of human food products were approximately 19% of total sales in 2008, industrial oils were approximately 36% of sales, and the remaining 45% of sales were of animal food products.

The combined company is a vertically integrated company combining the manufacturing, product development, and marketing of a variety of products based upon the use of SRB and rice bran formulations. We generated approximately $35.2 million, $12.7 million, and $16.5 million in revenue for the years ended December 31, 2008, 2007 and 2006, respectively. We reported a net loss for the years ended December 31, 2008 and 2007 of $64.6 million, and $18.0 million, respectively, and a net income of $0.3 million for the year ended December 31, 2006. Our net operating loss, or NOL, carry-forwards expire for federal tax purposes at various dates from 2011 through 2021, and expire for state tax purposes in 2010 through 2016 (see Note 17 to the Consolidated Financial Statements included herein).

RiceX™ and RiceX Solubles™ are our registered trade names. TheraFoods®, ProCeuticals®, NutraGlo®, NutraBeauticals®, Mirachol®, Max “E” ®, Max “E” Glo®, StaBran®, RiSolubles® and RiceMucil®, are some of our registered trademarks. In total, we have twenty four registered trademarks. In addition to our trade names and our trademarks, we hold patents to the production of Beta Glucan and a micro nutrient enriched rice bran oil process. We also hold patents to a method to treat high cholesterol, to a method to treat diabetes and on a process for producing higher value fractions (“HVF”) from SRB (see PATENTS AND TRADEMARKS below).

The Company relocated its headquarters to Phoenix, Arizona in April 2007, replacing the office space previously occupied in El Dorado Hills, California.  Our corporate offices are located at 5090 N. 40th St., Phoenix, Arizona 85018.  As of December 31, 2008, we occupy approximately 50,000 square feet of executive offices in Phoenix, and 28,000 square feet of laboratory, warehouse and production facilities in West Sacramento, California. Additionally, we own rice-bran manufacturing facilities in Mermentau and Lake Charles, Louisiana, and second stage (“Stage II”) production facilities in Dillon, Montana and Phoenix, Arizona.  Our three other rice-bran manufacturing facilities are co-located within supplier rice mills in Arbuckle and West Sacramento, California, and Freeport, Texas (closed in May 2009).  Our Irgovel subsidiary comprises of several facilities on approximately 20 acres in Pelotas, Brazil.

HISTORY

We originally incorporated on March 18, 1998 in California as Alliance Consumer International, Inc. We conduct the business previously carried on by NutraStar Technologies Incorporated (“NTI”), a Nevada corporation that was formed and started doing business in February 2000 and is now our wholly-owned subsidiary. On December 14, 2001, NTI effected a re-organization with the inactive publicly-held company, Alliance Consumer International, Inc., and the name was changed to NutraStar Incorporated. As a result of the re-organization NTI became a wholly-owned subsidiary of NutraStar Incorporated and NutraStar Incorporated assumed the business of NTI.

13

On April 27, 2000, NutraStar formed NutraGlo Incorporated, or NutraGlo, a Nevada corporation, which was owned 80% by NTI and 20% by NaturalGlo Investors L.P. During 2001, NutraGlo started marketing, manufacturing and distributing one of our products to the equine market. In 2002, we issued shares of our common stock to NaturalGlo Investors L.P. in exchange for the remaining 20% of the common stock of NutraGlo. As a result, NutraGlo is now a wholly-owned subsidiary of NTI.

On October 1, 2003, NutraStar Incorporated changed its name to NutraCea and the common stock began trading on the OTCBB. Our common stock stopped trading on the OTCBB in May 2009 and is currently trading in the over-the-counter “pink sheets” under the symbol “NTRZ.”

On October 4, 2005, we acquired RiceX in a merger transaction with RiceX surviving the merger as our wholly-owned subsidiary. In the merger, the shareholders of RiceX received 28,272,064 shares of NutraCea common stock in exchange for 100% of the shares of RiceX common stock, and NutraCea assumed the outstanding RiceX options and warrants, which became options and warrants to purchase a total of 11,810,507 shares of NutraCea common stock.  Our acquisition of RiceX provided us with our first SRB manufacturing plant in West Sacramento, California, and our first Stage II facility in Dillon, Montana.

In April 2007 we acquired 100% ownership of Grainnovations, Inc., a privately held company in Freeport, Texas, which manufactures SRB pellets for equine customers and other SRB products (see Note 12 to the Consolidated Financial Statements included herein).

In June 2007 we formed Grain Enhancements, LLC, a joint venture to produce and distribute SRB products in Southeast Asia (see Note 12 to the Consolidated Financial Statements included herein).  We have a 47.5% interest in Grain Enhancements.

In December 2007, we formed Rice RX, LLC, and Rice Science, LLC, in which we hold a 50%, and 80% interest, respectively (see Note 12 to the Consolidated Financial Statements included herein).  We formed Rice RX, LLC and Rice Science, LLC with a minority partner, to develop, acquire, and commercialize certain SRB isolates.

In February 2008 we acquired Irgovel, our rice-bran oil processing plant in Pelotas, Brazil (see Note 12 to the Consolidated Financial Statements included herein).

In March and June 2008 we acquired a total of 51% interest in PT Panganmus Inti Nusantara (“PIN”), an Indonesian company in order to build a wheat mill incorporating our wheat stabilization technology (see Note 12 to the Consolidated Financial Statements included herein).   PIN owns land and permits necessary for the construction of such a facility in Kuala Tnajung, Medan, and North Sumatra, Indonesia. On July 23, 2009, Medan entered into a Stock Purchase Agreement with FFOL where by it sold its 12,750 shares of capital stock of PIN to FFOL, which shares represent 51% of the currently issued and outstanding capital stock of PIN (the “Agreement”).  Pursuant to the Agreement, FFOL agreed to pay $1,675,000 to Medan thus completely liquidating NutraCea’a ownership in PIN.  Based upon the liquidation of the Company’s ownership in PIN, the Company recorded as of December 31, 2008 an impairment charge of $3,996,000 representing the difference between the carrying value of our investment and the cash to be received from FFOL.  

PRODUCTS

The NutraCea Process stabilizes rice bran, which is the portion of the rice kernel that lays beneath the hull and envelopes the endosperm (white rice). Rice bran contains a significant portion of the nutritional value of rice.  However, without stabilization, the nutritional value of rice bran is lost shortly after the milling process.  This is due to the lipase-induced rancidity caused by the rice milling process.  Consequently, this rich nutrient resource is typically disposed of as low value animal feed.  The NutraCea Process deactivates the lipase enzyme and stabilizes the rice bran giving it a shelf life of a minimum of one year.  Other competing processes have the ability to inactivate lipases to various degrees and therefore provide stability for a limited amount of time.  The NutraCea Process thoroughly inactivates these enzymes leading to extended shelf stability while preserving the large array of antioxidants and other nutrients found in rice bran.

The NutraCea Process has enabled the Company to develop a variety of nutritional food products, including its primary product, NutraCea® Stabilized Rice Bran.  NutraCea® SRB meets microbiological standards for human consumption.  Our customers include consumer nutrition and healthcare companies, domestic and international food companies, and companion animal feed manufacturers.  We believe that the NutraCea Process of stabilizing rice bran may be used to stabilize other cereal bran, such as wheat bran.  The Company has ongoing research in this area and is pursuing an industrial proof of concept.

14

We produce stabilized, nutrient-rich rice bran and derivatives that are used in a wide variety of new products. These include:

NutraCea Stabilized Rice Bran:	Stable whole rice bran and germ. This is our basic SRB product that is both a food supplement and an ingredient for cereals, baked goods, companion animal feed, health bars, etc. It is also the base material for producing NutraCea Solubles, oils and NutraCea Fiber Complex.
NutraCea Stabilized Rice Bran Fine:	This is the same product as the NutraCea SRB, except that it has been ground to a particle size that will pass through a 20 mesh screen. It is used primarily in baking and pasta applications.
NutraCea Stabilized Rice Bran Extra Fine:	This is the same product as the NutraCea SRB, except that it has been ground to a particle size that will pass through an 80 mesh screen. It is used primarily in baking and pasta applications.

Dextrinized Rice Bran (RiBalance):	A modified carbohydrate converted NutraCea SRB that is more functional in baking and mixed health drink applications. This product contains all of the nutrient-rich components of NutraCea SRB.
NutraCea RiSolubles:	A highly concentrated water dispersible carbohydrate and lipid rich fraction component of NutraCea SRB.  This product contains only a small amount of fiber and is a concentrated form of the vitamins and nutrients found in NutraCea SRB.
NutraCea Fiber Complex (RiFiber):	Nutrient-rich insoluble fiber source with associated nutrients. This product, designed for use by the baking and health food markets, is the remaining ingredient when NutraCea SRB is processed to form NutraCea Solubles.
NutraCea Baby Cereal:	A comprehensive line of signature branded and private label baby cereals, marketed both to domestic and international customers.  Available in Organic or conventional grains, these cereals can be fortified and/ or fruited to meet customer needs.  Premium quality great tasting large flakes create a significant point of difference.

In addition to the above, further refining NutraCea SRB into oil and its by-products can produce NutraCea Rice Bran Oil, NutraCea Defatted Bran (“DRB”) and Higher Value Fractions.

15

NutraCea Rice Bran Oil:	Nutrient-rich oil made from NutraCea SRB. This oil has high smoke and flash points which provides a very long fry life, is not readily absorbed into food, is naturally trans fat free, and provides excellent nutritional qualities.  It is sold into consumer, food services, and industrial segments.
NutraCea Defatted Bran (DRB):	Low fat bran that does not contain rice bran oil. This is a product designed for use by the baking industry for its high fiber nutritional benefits which include a balanced amino acid profile, high fiber content, and high mineral content.
Higher Value Fractions:	Nutraceutical-like compounds naturally occurring in NutraCea SRB and Rice Bran Oil that provide specific health benefits. Tocopherols, tocotrienols, gamma oryzanol, lecithin, and phytosterols are some of the antioxidant-rich fractions that are found in rice bran and are enhanced by stabilization. Gamma oryzanol has a variety of uses as a nutraceutical and is unique to rice bran in terms of the quantity available.

We have developed a number of product lines using NutraCea SRB products and proprietary rice bran formulations in various categories.

INDUSTRY BACKGROUND

By definition, nutraceuticals are products from natural sources that have biologically therapeutic effects in humans and animals. These compounds include vitamins, antioxidants, polyphenols, phytosterols, oryzanols, as well as macro and trace minerals. The NutraCea Process provides SRB and rice bran oil that are good sources for some of these compounds, including tocotrienols, a highly potent antioxidant form of vitamin E, and gamma-oryzanol, which is found in significant amounts in rice bran. Among other things, these compounds act as potent antioxidants. SRB and its derivatives also contain high levels of B-complex vitamins and beta-carotene, a vitamin A precursor. SRB also contains high levels of carotenoids and phytosterols, both of which are essential fatty acids, a balanced amino acid profile and soluble and insoluble fiber which promote colon health. See section “Benefits of NutraCea Stabilized Bran” for additional information.

Rice is one of the world’s major cereal grains, although United States production of rice is only a small fraction of total world production. However, raw rice bran deteriorates rapidly. Because of the rapid degradation and short shelf life, rice bran has not been widely accepted as a component of nutrition, health or beauty products, notwithstanding the known benefits. We have developed a method of stabilizing rice bran which we believe is superior in providing a shelf life greater than one year. The longer shelf life allows for economical production of nutrition products which incorporate rice bran ingredients.

As the market becomes more aware of the value of our ingredients and proprietary formulations we believe demand for our products will increase materially. Since SRB is a safe food product, we believe that its beneficial effects can be obtained with no known deleterious side effects, such as those that may be present in pharmaceuticals. Many physicians have taken an interest in our nutraceutical products as a means of offering alternative or complementary approaches for treating serious healthcare problems. If further clinical trials support the beneficial effects of our nutraceutical and medical foods products and if the medical community widely endorses such use of our products, we believe that our products in certain situations, may be used as a nutritional therapy either prior to or as a complement to traditional pharmaceutical therapies for the treatment of a variety of ailments including diabetes and coronary heart disease.  NutraCea has recently begun collaborating with Herbal Science, a manufacturer of nutraceutical products, to further explore the pharmaceutical potential of the thousands of compounds found within rice bran.

THE IMPORTANCE OF RICE

Rice is the staple food for approximately 70% of the world’s population, and is the staple food source for several of the world’s most populous countries. World rice production constitutes more than one quarter of all cereal grains produced worldwide. The United States accounts for less than 2% of the world’s rice production. 90% of the world rice tonnage is produced in 13 countries with aggregate populations of 3.2 billion people (according to the USA Rice Federation, Rice Notes). Approximately 75% of all rice production occurs in China, India, South East Asia, Africa and South America. Combined, these regions have a population of 2.3 billion people (nearly 50% of the world’s population), and an average per capita gross domestic product of $2,000 (less than one tenth of the U.S. average).

16

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

RICE PROCESSING AND RICE BRAN STABILIZATION

When harvested from the field, rice is in the form of paddy, or “rough” rice. In this form, the rice kernel is fully enveloped by the rice hull. The hull is removed in the first stage of milling, yielding brown rice. In the second stage of milling, the outer brown layer, or rice bran, is removed to produce white rice. Rice bran is composed of the rice germ and several sub-layers, which accounts for approximately 8% by weight of paddy rice.

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

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

THE NUTRACEA SOLUTION

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

Our processing equipment is designed to be installed on the premises of any two or three-stage rice mill and is located downstream from the rice polishers. After de-hulling, the rice is transported pneumatically to the rice polishing room where the brown rice kernels are tumbled between abrasive surfaces and the rice bran is polished from the surface of each kernel. The bran is separated from the denser polished rice grain and is transported pneumatically to a loop conveyor system of NutraCea design.  The loop conveyor system immediately carries the fresh, raw rice bran to the NutraCea stabilizer. Stabilization is achieved by feeding the fresh rice bran into a specially designed and proprietary technological process. The result is a selectively deactivated lipase enzyme and reduced microbiological load. Process controllers that maintain process conditions within the prescribed pressure/temperature regime control the system. In case of power failure or interruption of the flow of fresh bran into the system, the electronic control system is designed to purge our equipment of materials in process and resume production only after proper operating conditions are re-established.

Bran leaving our stabilization system is treated through an additional proprietary technological process that further tempers and reduces the moisture. This bran is then discharged onto our proprietary cooling unit specifically controlling air pressure and humidity. The cooled bran is then loaded into one ton shipping containers for transportation to other processing facilities or is transported by pneumatic conveyor to a bagging unit for packaging in 30, 40, 50 and 2,000 pound sacks. NutraCea Stabilized Rice Bran (NutraCea SRB) has a shelf life of at least one year and is rich in tocopherols, tocotrienols, oryzanols, a complete and balanced amino acid profile and other nutritional and natural compounds that exhibit positive health properties.

17

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

NutraCea also produces proprietary value-added products in its Dillon, Montana facility. In Dillon, NutraCea has established a production facility which has the ability to isolate components of the SRB into value-added products with impressive nutritional profiles. The primary isolate is NutraCea RiSolubles which is a nutritionally-dense pleasant tasting ingredient. RiSolubles can be used in nutritional finished goods like beverages, bars, powders and pastes. RiSolubles can also be served as a stand-alone nutrition supplement in feeding programs designed to address malnutrition in pregnant/lactating mothers and infant to adolescent children. Another isolate produced in Dillon is Fiber Complex. Fiber Complex is an excellent source of hypoallergenic fiber which can be used in dietary supplement formats like fiber powders, capsules, wafers, baked products and fiber bars.

BENEFITS OF NUTRACEA STABILIZED RICE BRAN

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

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

Rice bran is unique in the plant kingdom. Its protein is hypoallergenic and contains all of the essential amino acids, the necessary building blocks of protein in the body. Rice bran contains approximately 20% oil, which has a favorable fatty acid composition and excellent heat stability. Rice bran oil contains essential fatty acids and a broad range of nutraceutical compounds that have been demonstrated to have therapeutic properties.

Nutraceuticals are food constituents that have human therapeutic effects. Some of these compounds include a highly potent anti-oxidant form of Vitamin E called “tocotrienols,” and gamma oryzanol, which is found in rice bran in large quantities. These compounds are potent antioxidants that have been shown to aid in reducing damage from free radicals in the body. NutraCea SRB also contains very high levels of B-complex vitamins, betacarotene (a vitamin A precursor), other carotenoids and phytosterols, as well as both soluble and insoluble fiber.

We have been assigned eight U.S. patents relating to the production or use of nutraceutical HVF products (see PATENTS AND TRADEMARKS below).

BUSINESS STRATEGY

Our goal is to become a significant global producer and marketer of SRB. We produce SRB and related products in manufacturing facilities we own or through other arrangements (see SUPPLY AND MANUFACTURING below). We intend to vigorously protect our process and products through both trade secret protection and through patent and trademark protection (see PATENTS AND TRADEMARKS below).

18

We believe that clinical support for SRB products will further enhance the value of our products as nutraceuticals and functional food ingredients. Finally, we intend to aggressively market our products in four distinct market segments. These areas are functional food ingredients, nutraceuticals, animal nutrition, and private label manufacturing.  In pursuit of this goal, we have focused and will continue to focus our marketing and development efforts worldwide.

SALES AND MARKETING

We target four distinct market segments in which NutraCea SRB and related products may be used as the primary ingredient. Our key marketing strategy is to form strategic alliances with industry leaders in each of our target segments. This strategy allows us to leverage the research, marketing and distribution strengths of our partners to more economically and efficiently introduce and market NutraCea products. We have formed alliances, or have entered into negotiations to form alliances, in each of our target segments.

As of December 31, 2008, we have a Senior Vice-President of Sales and five domestic sales representatives.  In addition, we have one equine marketing representative in Europe and specialized meat and poultry consultants in the U.S. and Europe.  These specialized consultants assist in meat and poultry application research and development and potential qualified customer introductions. Currently, NutraCea’s international distributor network is on every continent excluding Antarctica.  We will continue to develop breadth and depth of relationships in efforts to increase sales volume.

Because of the potential significance for SRB inclusion in meat and poultry, we have enlisted the services of a Strategic Protein Application Specialist from The Netherlands to help research and establish manufacturing processes, identify new SRB meat applications, and market to key international contacts.  We have also secured the services of PHD Technologies LLC to focus on North American meat and poultry application development, marketing support, and customer training programs.

During fiscal 2008, approximately 9 percent of our net products sales of our NutraCea segment were to regions outside of the United States while approximately 6 percent of our net product sales of our Irgovel segment were to regions outside of Brazil. Information on net sales to unaffiliated customers and long-lived assets attributable to our geographic regions is included in Note 19 of Notes to Consolidated Financial Statements.

Nutraceuticals

Nutraceuticals are plant-derived substances with pharmaceutical-like properties, including vitamins and dietary supplements. NutraCea SRB can be used as a nutraceutical to provide certain specific nutrients or food components (including antioxidants, oryzanols, Vitamin E, Vitamin B, and bran fiber) or to address specific health applications such as cardiovascular health, diabetes control, fighting free radicals, and general nutritional supplementation. Our ingredient products are primarily sold to consumer nutrition and healthcare companies, national nutritional retailers, and multi-level personal product marketers.

Functional Food Ingredients

The functional food market in the United States is $16 billion and we estimate that this represents more than a $100 million annual market share opportunity for us. Premium ingredient manufacturers are in high demand and we are strategically positioned to take advantage of this growing and sustainable market opportunity. Our proprietary technology and product patents represent extremely valuable assets for achieving strategic leverage in this industry segment.

NutraCea SRB and DRB are economical, all natural food products that contain a unique combination of oil, protein, carbohydrates, vitamins, minerals, fibers, and antioxidants that enhance the nutritional value of popular consumer products.  Foods that are ideally suited for the addition of NutraCea SRB and DRB to their products include processed meats, cereals, baked goods, breadings, and batters.  NutraCea’s SRB inclusion in breadings and batters results in a reduction in oil uptake, higher moisture retention, improved nutritional profiles, and reduced costs.

In 2008, NutraCea received USDA/FSIS approval to provide rice bran as an enhancer into meat products such as meat and poultry sausages that contain binders, nugget-shaped patties, meatballs, meatloaf, and meat and poultry patties. NutraCea’s SRB is replacing functional ingredients like soy protein isolate, soy protein concentrate, modified food starch, pea protein and mustard flour at a fraction of the costs. With strong application benefits such as reduced cost per unit, increased product yield, and reduced purge, NutraCea’s SRB has a strong marketing position in the US meat market and an even stronger position outside the US where non-meat ingredients make up a larger percentage of meat products.

19

Animal Nutrition

NutraCea SRB and DRB are marketed as feed ingredients in the U.S. and international animal nutrition markets. NutraCea SRB and DRB are used as equine feed ingredients and have proven to provide a safe, all natural energy source which assists in lowering glycemic response, improving stamina thru being a ready available low starch energy component, and improving overall coat bloom through its essential fatty acid and amino acid profiles. Show and performance horses represent the premium end of the equine market and represent a more than $100 million annual market share opportunity.

In 2008, NutraCea extended its Natural Glo equine products line with Natural Glo Rice Bran Oil.  Current animal nutrition products include: Natural Glo, Natural Glo Rice Bran Oil, Equine Shine, Satin Finish, and Max-E-Glo.  Additionally, we opened and continued to pursue new markets in the $50 billion per year Pet Food Market and are finding strong interest and rapid adoption in Wildlife (Deer & Wild Bird), Show Animal, and specialized piglet diets in both the commercial and integrated markets.

Private Label

We manufacture and market private label baby cereal to retail in the US and abroad.  According to the National Association for the Specialty Food Trade, baby food experienced the largest sales growth between 2006 and 2008 out of the entire specialty food market. Specialty baby food generated $58 million in sales in the U.S. and represents a significant annual market share potential for NutraCea. Overseas interest, especially in China, is significant and in the fourth quarter we accepted purchase orders and held discussions relating to baby food manufacturing opportunities with two of China’s largest food distributors and retailers. There is high demand for US products, especially baby cereal, in China and we are confident that our product quality and pricing makes us a solid player in the baby cereal market both in the US and overseas.  In 2008, we manufactured all baby cereal in our Dillon, MT facility.

Domestic Initiatives

Our main domestic initiative for 2008 was to construct and open our Phoenix, Arizona plant to manufacture cereals for both infant and adult formulations.   In the 2nd quarter of 2008, we purchased a facility and began retrofitting the building and land to accommodate production of baby cereal and related products.  With over 124,000 square feet of manufacturing and warehousing space, the facility is a state of the art cereal manufacturing facility that initially equals Dillon in capacity with four drum driers.  The intent is to expand to eight drum driers of installed capacity with room for an additional four if the business demands it.

 International Initiatives

In the fourth quarter of 2008, NutraCea began negotiations with several businesses in China for different aspects of our Rice Bran products.  One company has since become a customer who has placed purchase orders for our private label baby cereal.  We filled the first order for this customer in May 2009.

Additionally, we have had success with product testing and small batch runs with companies in China that are interested in including SRB in meat products, specifically sausage.   Initial testing indicates that a 3% inclusion of SRB requires additional water and increases yields substantially, resulting in increased profits for the producer.  All indications are positive at this time, although no purchase orders have been placed.

We continue to look at ways to improve profitability at Irgovel and are now speaking with customers throughout Asia and other parts of the world to purchase the rice oil produced in Pelotas.  This would provide a higher price than the current local markets and would also be a natural hedge since exports are US Dollar denominated sales.  We are currently in discussion with several potential international customers at this time.

In June 2007, we entered into a joint venture with an Indonesian company to construct Rice Bran Stabilization facilities in Southeast Asia.  Although we originally expected the facility to be operational in the fourth quarter of 2008, we now expect to begin construction in late 2009 or early 2010.

20

There can be no assurance that these international initiatives will be achieved in part or whole, however management continues its efforts to formalize its relationship within these countries to further its business objectives.

CUSTOMERS

For the twelve months ended December 31, 2008, five customers accounted for a total of 28.2% of the Company’s sales: 14.8%, 6.6%, 2.4%, 2.3%, and 2.1% respectively. At December 31, 2008, three of those customers accounted for 28.2% of the Company’s accounts receivable: 20%, 6.5%, and 1.7%, respectively.  One other customer accounted for more than 3% of the total outstanding accounts receivable.   This customer accounted for 3.5% of the total outstanding accounts receivable.

For the twelve months ended December 31, 2007, five customers accounted for a total of 29.4% of the Company’s sales: 7.8%, 7.5%, 5.5%, 4.7%, and 3.9% respectively.  At December 31, 2007, three of those customers accounted for 21.6% of total accounts receivable: 9.2%, 8.4% and 4.0%, respectively.  Seven other customers accounted for 32.6% of the total outstanding accounts receivable, 7.8%, 5.4%, 4.4%, 4.2%, 4.1%, 3.6% and 3.1% respectively. No other customer accounted for more than 3% of the total outstanding accounts receivable.

For the twelve months ended December 31, 2006, one customer accounted for a total of 48.7% of sales. At December 31, 2006, accounts receivable due from this customer was 62.7% of the total outstanding accounts receivable. Four other customers accounted for 24.1% of the total outstanding accounts receivable, 10.2%, 6.5%, 3.8% and 3.6% respectively.  No other customer accounted for more than 3% of the total outstanding accounts receivable.

Although the loss of any one of these customers could have a material adverse effect on our revenues and results of operations, we continue to diversify our customer base in an attempt to mitigate the concentration of customers.

SUPPLY AND MANUFACTURING

Initial production of SRB

We purchase raw rice bran from multiple suppliers. These include Farmers’ Rice Cooperative (“FRC”) in Sacramento, California, ADM Rice (“ADM”) in Arbuckle, California, Louisiana Rice Mill (“LRM”) in Mermentau, Louisiana, Farmers’ Rice Milling (“FRM”) in Lake Charles, Louisiana, and American Rice, Inc. (“ARI”) in Freeport, Texas. Pursuant to our agreements our stabilization machinery is physically located within or adjacent to the rice processing plants and the rice bran by-product is directly transferred to our machinery for stabilization without the need for shipping. The relationship with the rice mills are symbiotic, as the rice manufacturer searches for raw rice bran marketing channels while we have ready access to raw bran.

We have ongoing discussions regarding entering into contracts for the supply of rice bran in China, Indonesia, Brazil, and throughout other areas of the world. We are continuing to seek additional relationships with rice processors, both in the United States and abroad as part of our overall business strategy. We believe suitable alternative supply arrangements are readily available if needed.

Stage II production of SRB

As required, we ship NutraCea SRB from our warehouse in California to our plant in Dillon, Montana for further processing into NutraCea RiSolubles, Dextrinized Rice Bran and NutraCea Fiber Complex. Since the end of 2005 we installed additional equipment at the Dillon, Montana facility which increased our production of NutraCea Solubles and NutraCea Fiber Complex by more than 150%, to a capacity of 5,000 tons per year.  During 2008 we purchased an existing building in Phoenix, Arizona and installed equipment which added 5,000 tons of Stage II processing capacity, with room to more than quadruple that capacity.

Every food product that we manufacture is produced under published FDA and USDA regulations for “Good Manufacturing Practices.” The Company has extensive processes and programs to oversee product quality. Product samples for each product code are frequently analyzed for adherence to a predetermined set of product microbiological and attribute specifications and each lot is released only when it demonstrates its compliance with specifications.

21

RESULTS OF TRIALS AND SCIENTIFIC RESEARCH

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

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

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

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

NutraCea has an on-going immune system response study for HIV patients at the Haddassah Medical University in Israel.   This study was initiated due to mounting anecdotal evidence obtained from NutraCea’s humanitarian efforts in Africa that RiSolubles seems to boost energy levels in HIV infected individuals, also helping them gain weight and regain relatively normal lifestyles.  We caution that no causal relationship has yet been proven and that RiSolubles does not reverse infection by HIV.  The study, with a medically reviewed, statistically validated protocol, is intended to provide a definitive answer.  Assuming no unexpected delays in the study, initial results are expected toward the end of 2009 or early 2010.

In December 2007 we formed Rice Science, LLC (“RS”), a Delaware LLC with Herbal Science Singapore PTe. Ltd. (“HS”) to develop nutraceutical extracts and pharmaceutical chemistries from NutraCea SRB.  HS utilizes sophisticated methodologies in the identification and isolation of specific biologically active compounds that have been tested for effectiveness against specific disease conditions. Thus far, it is apparent that SRB contains a large number of novel, potentially active compounds that will be the target of HS’s methodologies. We are hopeful that the partnership will result in biologically active SRB extracts for use in the nutraceutical industry as well as specific identified compounds targeting the pharmaceutical industry.

In 2008 RS conducted a significant amount of research.  The initial thrust of this work was the development of extracts from SRB that would be effective in fighting inflammation which leads to pain.  A number of extracts have been tested with two identified as having significant effect based on in vitro tests.  A combination of these was created to produce a third extract that exhibits a high level of Cox 1, Cox 2 and Lox 5 inhibition.  This extract was used in a pharmacokinetic study to determine the speed of assimilation into the human body.  Results indicated that the active compounds were rapidly assimilated with no evidence of toxic byproducts.  Our next step is to conduct a human clinical trial.  A number of active compounds were identified and modeled.  RS has filed Patent applications for the extract along with each of the specific active compounds.

RS has also conducted preliminary work on extracts of SRB for treatment of diabetes and metabolic syndrome.  This is a promising area of research which will be focused on in 2009 and beyond.

Late in 2007, the Cancer Biomarkers Group in the Department of Cancer Studies and Molecular Medicine, University of Leicester in Leicester, UK published a research paper evaluating the effect of NutraCea SRB in ApcMin mice (British Journal of Cancer (2007) 96, 248-254). The mice were genetically modified to serve as models for mammary, prostate and intestinal carcinogenesis. They reported that consumption of SRB (30% in the diet) reduced the numbers of intestinal adenomas in these mice by 51% compared to the same mice on a control diet. The results suggest that SRB might be further evaluated as a chemo-preventative intervention in humans. These results led to NutraCea filing a patent application on “Methods for Treatment of Intestinal Carcinogenesis with Rice Bran” on January 4, 2008 by assignee NutraCea. A new clinical trial utilizing NutraCea Fiber Complex has been initiated at the University of Leicester to further characterize the effectiveness of this rice bran derivative as a chemo-preventative intervention against intestinal cancer in humans.  The study is scheduled for completion by late 2009.

22

PATENTS AND TRADEMARKS

Through our subsidiary RiceX, we have been assigned eight U.S. patents relating to the production or use of Nutraceutical or HVF products. The patents include:

1. Patent Number 5,512,287 “PRODUCTION OF BETA-GLUCAN AND BETA-GLUCAN PRODUCT,” which issued on April 30, 1996 and expires in 2014.

2. Patent Number 5,985,344 “PROCESS FOR OBTAINING MICRONUTRIENT ENRICHED RICE BRAN OIL,” which issued November 16, 1999 and expires in 2018.

3. Patent Number 6,126,943 “METHOD FOR TREATING HYPERCHOLESTEROLEMIA, HYPERLIPIDEMIA, AND ATHEROSCLEROSIS,” which issued October 3, 2000 and expires in 2018.

4. Patent Number 6,303,586 B1 “SUPPORTIVE THERAPY FOR DIABETES, HYPERGLYCEMIA AND HYPOGLYCEMIA,” which issued October 16, 2001 and expires in 2018.

5. Patent Number 6,350,473 B1 “METHOD FOR TREATING HYPERCHOLESTEROLEMIA, HYPERLIPIDEMIA AND ATHEROSCLEROSIS,” which issued February 26, 2002 and expires in 2020.

6. Patent number 6,558,714 B2 “METHOD FOR TREATING HYPERCHOLESTEROLEMIA, HYPERLIPIDEMIA AND ATHEROSCLEROSIS” which issued May 06, 2003 and expires in 2021.

7. Patent number 6,733,799 “METHOD FOR TREATING HYPERCHOLESTEROLEMIA, HYPERLIPIDEMIA AND ATHEROSCLEROSIS” which issued May 11, 2004 and expires in 2023.

8. Patent number 6,902,739 “METHODS FOR TREATING JOINT INFLAMMATION, PAIN AND LOSS OF MOBILITY” which issued June 07, 2005 and expires in 2021.

NutraCea currently has several additional patent applications filed and pending formal review, and we intend to apply for additional patents in the future as new products, treatments and uses are developed.

In addition to the previously identified issued patents NutraCea has been issued nine additional International patents covering this subject area.

1. Patent number 71377 “SUPPORTIVE THERAPY FOR DIABETES, HYPERGLYCEMIA AND HYPOGLYCEMIA” which issued by Singapore March 28, 2002.

2. Patent number 751704 “SUPPORTIVE THERAPY FOR DIABETES, HYPERGLYCEMIA AND HYPOGLYCEMIA” which issued by Australia December 5, 2002.

3. Patent number 503648 “SUPPORTIVE THERAPY FOR DIABETES, HYPERGLYCEMIA AND HYPOGLYCEMIA” which issued by New Zealand February 3, 2003.

4. Patent number 98810675.2 “SUPPORTIVE THERAPY FOR DIABETES, HYPERGLYCEMIA AND HYPOGLYCEMIA” which issued by Canada July 16, 2003.

5. Patent number 15162B1 “PROCESS FOR OBTAINING MICRONUTRIENT ENRICHED RICE BRAN OIL” which issued by Argentina October 22, 2004.

6. Patent number 232655 “SUPPORTIVE THERAPY FOR DIABETES, HYPERGLYCEMIA AND HYPOGLYCEMIA” which issued by Mexico December 6, 2003.

7. Patent number 583211 “A METHOD FOR TREATING DIABETES, HYPERGLYCEMIA AND HYPOGLYCEMIA” which issued by Korea May 18, 2006.

8. Patent number 2002315558 “METHODS FOR TREATING JOINT INFLAMMATION, PAIN AND LOSS OF MOBILITY” which issued by Australia October 18, 2007.

9. Patent number 221444 “DIABETIC FOOD KIT COMPRISING ENZYME TREATED STABILIZED RICE BRAN DERIVATIVE” which issued by India June 23, 2008

23

In 2008 another 11 provisional patent applications were filed by NutraCea of which four have been submitted as formal patent filings. NutraCea currently has a number of additional patent applications filed and pending formal review and we intend to apply for additional patents in the future as new products, applications and data become available.

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

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

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

GOVERNMENT REGULATIONS

The Federal Food, Drug, and Cosmetic Act, or FFDCA, and the U.S. Food and Drug Administration, (“FDA”), regulations govern the marketing of our products.

The FFDCA provides the statutory framework governing the manufacturing, distribution, composition and labeling of dietary supplements for human consumption. These requirements apply to our product trademarks TheraFoods® and ProCeutical®.

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

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

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

24

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

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

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

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

We believe that we are in substantial compliance with all material governmental laws and regulations.

COMPETITION

Although we believe that we are the only company to produce stabilized all natural rice bran so that the bran has a shelf life of over one year, we compete with other companies attempting to stabilize rice bran, as well as companies producing other food ingredients and nutritional supplements. We believe that our only significant competitor currently for rice bran products is Producer’s Rice Mill, Stuttgart, AR. We believe that our major nutritional supplement competitors include producers of wheat bran and oat bran, particularly in the functional food ingredients market segment.

We compete with other companies that offer products incorporating SRB as well as companies that offer other food ingredients and nutritional supplements.  We also face competition from companies providing products that use oat bran and wheat bran in the nutritional supplements as well as health and beauty aids. Many consumers may consider such products to be a replacement for the products manufactured and distributed by us.  Many of our competitors have greater marketing, research, and capital resources than we do, and may be able to offer their products at lower costs because of their greater purchasing power or the lower cost of oat and wheat bran ingredients. There are no assurances that our products will be able to compete successfully.

With the purchase of Irgovel we now compete in the world's edible oil market.  Our competition for exports of rice bran oil resides primarily in Southeast Asia.

REASEARCH AND DEVELOPMENT EXPENDITURES

During years 2008, 2007, and 2006, we spent $1,509,000, $769,000, and $377,000, respectively, on product research and development.

SEASONALITY

Our business is not materially affected by seasonal factors.

25

ENVIRONMENT

We believe that our operations comply in all material respects with applicable laws and regulations concerning the environment. While it is impossible to predict accurately the future costs associated with environmental compliance and potential remediation activities, compliance with environmental laws is not expected to require significant capital expenditures and has not had, and is not expected to have, a material adverse effect on our results of operations or competitive position.

EMPLOYEES

As of August 31, 2009, the NutraCea segment had a total of 68 full-time domestic employees and approximately 4 contract employees. The Irgovel segment had approximately 213 employees.  Our employee count may change periodically.  From year to year we experience normal variable labor fluctuation at our production facilities around the world. We consider that our relations with our employees are good.

SECURITIES EXCHANGE ACT REPORTS

The Company maintains an Internet website at the following address: www.nutracea.com. We make available on or through our Internet website certain reports and amendments to those reports that we file with the Securities and Exchange Commission (“SEC”) in accordance with the Securities Exchange Act of 1934 (Exchange Act). These include our annual reports on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K. We make this information available on our website free of charge as soon as reasonably practicable after we electronically file the information with, or furnish it to, the SEC. The contents of our website are not incorporated by reference in this report on Form 10-K and shall not be deemed “filed” under the Securities Exchange Act of 1934. The public may also read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information about the Public Reference Room by contacting the SEC at 1-800-SEC-0330. Reports filed with the SEC are also made available on the SEC website (www.sec.gov).

Item 1A. Risk Factors

Investors or potential investors in our stock should carefully consider the risks described below. Our stock price will reflect the performance of our business relative to, among other things, our competition, expectations of securities analysts or investors, and general economic market conditions and industry conditions. One should carefully consider the following factors in connection with any investment in our stock. Our business, financial condition and results of operations could be materially adversely affected if any of the following risks occur. Should any or all of the following risks materialize, the trading price of our stock could decline, and investors could lose all or part of their investment.

Risks Related to Our Business

Our significant losses and negative cash flow raise questions about our ability to continue as a going concern.

We incurred net losses (excluding Goodwill impairment) of approximately $31.3 million and $16.7 million in 2008 and 2007, respectively. We cannot assure you that we will be able to achieve or sustain revenue growth, profitability, or positive cash flow on either a quarterly or annual basis or that profitability, if achieved, will be sustained.  No adjustments have been made to the financial statements that might result from the outcome of this uncertainty. If we are unable to achieve or sustain profitability, we may not be financially viable in the future and may have to curtail, suspend, or cease operations, restructure existing operations to attempt to ensure future viability, or pursue other alternatives such as filing for bankruptcy, pursuing dissolution and liquidation or seeking to merge with another company or sell all or substantially all of our assets. Because of our recurring losses and negative cash flows from operations, the audit report of our independent public accountants on our financial statements for the fiscal years ended December 31, 2008 contains an explanatory paragraph stating that the independent auditor has substantial doubt about our ability to continue as a going concern.

26

The restatement of our consolidated financial statements has subjected us to a number of additional risks and uncertainties, including increased costs for accounting and legal fees and the increased possibility of legal proceedings.

As discussed elsewhere in this Annual Report and in Note 2 Audit Committee Review and Restatement of Consolidated Financial Statements to our Consolidated Financial Statements, we determined that our consolidated financial statements for our 2006 and 2007 fiscal years, each of the quarterly periods of 2007 and the first three quarters of 2008 should be restated due to, among other things, errors in our interpretation and application of generally accepted accounting principles. As a result of the restatement, we have become subject to a number of additional risks and uncertainties, including:

· We incurred substantial unanticipated costs for accounting and legal fees in connection with the restatement. Although the restatement is complete, we expect to continue to incur accounting and legal costs as noted below.

· As a result of the restatement, we have been named in a number of lawsuits as discussed in Item 3 of Part I of this Annual Report, “Legal Proceedings” and Note 18, “Commitments and Contingencies.” The plaintiffs in these lawsuits may make additional claims, expand existing claims and/or expand the time periods covered by the complaints. Other plaintiffs may bring additional actions with other claims, based on the restatement. If such events occur, we may incur substantial defense costs regardless of the outcome of these actions and insurance may not be sufficient to cover the losses we may incur. Likewise, such events might cause a diversion of our management’s time and attention. If we do not prevail in one or more of these actions, we could be required to pay substantial damages or settlement costs, which could adversely affect our business, financial condition, results of operations and liquidity.

The United States Securities and Exchange Commission (“SEC”) investigation may result in significant costs and expenses which may divert resources and could have a material adverse effect on the Company’s business and results of operations.

As further described under Item 3 — “Legal Proceedings,” in March 2009 the Company was advised by the Staff of the SEC that the SEC had commenced a formal investigation for potential violations by the Company and its current and former officers and directors, of the antifraud provisions and of the reporting and record keeping requirements, including internal controls sections, of the Securities Act of 1933 and the Securities Exchange Act of 1934.  We have cooperated fully with the SEC on the formal investigation and the informal inquiry that preceded it; however, we cannot predict the outcome of the investigation. We have incurred professional fees and other costs in responding to the SEC’s previously informal inquiry and in responding to the formal investigation and expect to continue to incur professional fees and other costs, which may be significant, until resolved.

In addition, our management, Board of Directors and employees may need to expend a substantial amount of time in addressing the SEC’s investigation, which could divert a significant amount of resources and attention that would otherwise be directed toward operations, all of which could materially adversely affect our business and results of operations. Further, if the SEC were to conclude that enforcement action is appropriate, NutraCea and/or its current or former officers and directors could be sanctioned or required to pay significant civil penalties and fines. Any of these events could have a material adverse effect on the Company’s business and results of operations.

Management recently identified material weaknesses in our internal control over financial reporting with respect to control environment and revenue recognition. Additionally, management may identify material weaknesses in the future that could adversely affect investor confidence, impair the value of our common stock and increase our cost of raising capital.

In connection with the restatement, we have assessed the effectiveness of our disclosure controls and procedures. Management identified material weaknesses in our internal control over financial reporting with respect to control environment and revenue recognition. As a result of this material weakness, our Interim Chief Executive Officer and our Principal Financial Officer concluded that our disclosure controls and procedures were not effective at a reasonable assurance level as of December 31, 2008 and the date of this filing. Management has taken and is taking steps to remediate the material weakness in our internal control over financial reporting. There can be no assurance as to how quickly or effectively our remediation steps will remediate the material weakness in our internal control over financial reporting or that additional material weaknesses will not be identified in the future.

27

Any failure to remedy additional deficiencies in our internal control over financial reporting that may be discovered in the future or to implement new or improved controls, or difficulties encountered in the implementation of such controls, could harm our operating results, cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. Any such failure could, in turn, affect the future ability of our management to certify that our internal control over our financial reporting is effective and, moreover, affect the results of our independent registered public accounting firm’s attestation report regarding our management’s assessment. Inferior internal control over financial reporting could also subject us to the scrutiny of the SEC and other regulatory bodies which could cause investors to lose confidence in our reported financial information and could subject us to civil or criminal penalties or shareholder litigation, which could have an adverse effect on the trading price of our common stock.

In addition, if we or our independent registered public accounting firm identify additional deficiencies in our internal control over financial reporting, the disclosure of that fact, even if quickly remedied, could reduce the market’s confidence in our financial statements and harm our share price. Furthermore, additional deficiencies could result in future non-compliance with Section 404 of the Sarbanes-Oxley Act of 2002. Such non-compliance could subject us to a variety of administrative sanctions, including review by the SEC or other regulatory authorities.

We are subject to a securities law class action lawsuit seeking damages we may not be able to pay.

NutraCea and certain of its former and current officers and directors have been named defendants in two securities law class actions which have been consolidated into one case. These lawsuits were filed in the United States District Court District of Arizona on behalf of shareholders who acquired securities of the Company between April 2, 2007 and February 23, 2009. The lawsuits allege, among other things, that we made material false and misleading statements in publicly disseminated press releases and that our Securities and Exchange Commission filings misrepresented material facts about the business, operations and management of NutraCea.  These lawsuits are in a preliminary phase and been consolidated into one class action  The plaintiffs seek damages under Section 10(b) of the Securities and Exchange Act and Rule 10b-5 promulgated there under and for violations of Section 20(a) of the Exchange Act.  While we intend to vigorously defend this action, it should be recognized that it is unclear what the plaintiffs claim for damages will be and if it will exceed the amount of the available D&O insurance.  In addition the Company was and will continue to incur defense costs and has certain indemnification obligations which may not be covered by the D&O insurance. These claims and possible claims are at an early stage and it is not possible to determine the probability of liability, if any, or estimate the loss, if any, that might arise from these lawsuits. Accordingly, no accrual has been made at this time for these contingencies.

We have a limited operating history and have generated losses in each quarter of 2007 and 2008, and in the first and fourth quarters of 2006.

We began operations in February 2000 and incurred losses in each reporting period except for the second and third quarter of 2006, and we incurred losses in each quarter of 2007 and 2008. Our prospects for financial success are difficult to forecast because we have a relatively limited operating history. Our prospects for financial success must be considered in light of the risks, expenses and difficulties frequently encountered by companies in new, unproven and rapidly evolving markets. Our business could be subject to any or all of the problems, expenses, delays and risks inherent in the establishment of a new business enterprise, including limited capital resources, possible delays in product development, possible cost overruns due to price and cost increases in raw product and manufacturing processes, uncertain market acceptance, and inability to respond effectively to competitive developments and attract, retain and motivate qualified employees. Therefore, there can be no assurance that our business or products will be successful, that we will be able to achieve or maintain profitable operations or that we will not encounter unforeseen difficulties that may deplete our capital resources more rapidly than anticipated.

We have not yet achieved positive cash flow

We have not generated a positive cash flow from operations continuous period to period since commencing operations. We raised $5,000,000 gross proceeds in a preferred stock offering in October 2008 and $20,000,000 gross proceeds in a common stock and warrants offering in April 2008.  Additionally, we raised in private placements of equity approximately $50,000,000 in February 2007, $17,560,000 in May 2006, and $8,000,000 in October 2005. We most likely will need to raise additional financing and to increase cash flow from operations to fund current operations in our NutraCea Segment.  Additionally, our ability to meet long term business objectives likely will be dependent upon our ability to raise additional financing through public or private equity financings, establish increasing cash flow from operations, enter into collaborative or other arrangements with corporate sources, or secure other sources of financing to fund long-term operations.  There is no assurance that external funds will be available on terms acceptable to us in sufficient amount to finance operations until we do reach sufficient positive cash flow to fund our capital expenditures.  In addition, any issuance of securities to obtain such funds would dilute percentage ownership of our shareholders.  Such dilution could also have an adverse impact on our earnings per share and reduce the price of our common stock. Incurring additional debt may involve restrictive covenants and increased interest costs that will strain our future cash flow.  Our inability to obtain sufficient financing may require us to delay, scale back or eliminate some or all of our product development and marketing programs, eliminate or restructure portions of our operations, restructure existing operations to attempt to ensure future viability, or pursue other alternatives such as filing for bankruptcy, pursuing dissolution and liquidation or seeking to merge with another company or sell all or substantially all of our assets.  In addition, potential debt or equity funders may require that we initiate bankruptcy proceedings before providing us with additional debt or equity funding.

28

There are significant market risks associated with our business.

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

We may face difficulties integrating businesses we acquire.

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

· issue stock that would dilute current shareholders’ percentage ownership;

· incur debt; or

· assume liabilities.

These purchases also involve numerous risks, including:

· problems combining the purchased operations, technologies or products;

· unanticipated costs;

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

· adverse effects on existing business relationships with suppliers and customers;

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

· potential loss of key employees of purchased organizations.

We cannot assure you that we will be able to successfully integrate any businesses, products, technologies or personnel that we might acquire in the future.

29

We intend to pursue significant foreign operations and there are inherent risks in operating overseas.

An important component of our business strategy is to build rice bran stabilization and rice bran oil facilities in foreign countries and to market and sell our products internationally. For example, we recently entered into joint ventures to produce and market our SRB products in Southeast Asia and China and purchased a company in Brazil that manufactures rice bran oil. There are risks in operating stabilization facilities in developing countries because, among other reasons, we may be unable to attract sufficient qualified personnel, intellectual property rights may not be enforced as we expect, and legal rights may not be available as contemplated. Should any of these risks occur, we may be unable to maximize the output from these facilities and our financial results may decrease from our anticipated levels. The inherent risks of international operations could materially adversely affect our business, financial condition and results of operations. The types of risks faced in connection with international operations and sales include, among others:

·  cultural differences in the conduct of business;

· fluctuations in foreign exchange rates;

· greater difficulty in accounts receivable collection and longer collection periods;

· impact of recessions in economies outside of the United States;

· reduced protection for intellectual property rights in some countries;

· unexpected changes in regulatory requirements;

· tariffs and other trade barriers;

· political conditions in each country;

· management and operation of an enterprise spread over various countries;

· the burden and administrative costs of complying with a wide variety of foreign laws; and

· currency restrictions.

Fluctuations in foreign currency exchange could adversely affect our financial results.

We earn revenues, pay expenses, own assets and incur liabilities in countries using currencies other than the U.S. dollar, including primarily the Brazilian Real.  Currently, a significant portion of our revenues and expenses occur with our Brazilian subsidiary, Irgovel.  Because our Consolidated Financial Statements are presented in U.S. dollars, we must translate revenues, income and expenses, as well as assets and liabilities, into U.S. dollars at exchange rates in effect historically, during or at the end of each report period.  Therefore, increases or decreases in the value of the U.S. dollar against the Brazilian real and any other currency which affects a material amount of our operations, will affect our revenues, cost of sales, gross profit (loss), operating expenses, or other income and expenses and the value of balance sheet items denominated in foreign currencies.  These fluctuations may have a material adverse effect on our financial results.  Moreover, recent disruptions in financial markets have resulted in significant changes in foreign exchange rates in relatively short periods of time which further increases the risk of an adverse currency effect.  Since we plan to expand our international operations, we will likely increase our exposure to foreign currency risks.  We do not hedge our currency risk, and do not expect to as currency hedges are expensive and do not necessarily reduce the risk of currency fluctuations over longer periods of time.

We depend on a limited number of customers.

For the twelve months ended December 31, 2008, five customers accounted for a total of 28.2% of the Company’s sales: 14.8%, 6.6%, 2.4%, 2.3%, and 2.1% respectively. At December 31, 2008, three of those customers accounted for 28.2% of the Company’s accounts receivable: 20.0%, 6.5%, and 1.7%, respectively.  One other customer accounted for more than 3% of the total outstanding accounts receivable.   This customer accounted for 3.5% of the total outstanding accounts receivable.

For the twelve months ended December 31, 2007, five customers accounted for a total of 29.4% of the Company’s sales: 7.8%, 7.5%, 5.5%, 4.7%, and 3.9% respectively.  At December 31, 2007, three of those customers accounted for 21.6% of total accounts receivable: 9.2%, 8.4% and 4.0%, respectively.  Seven other customers accounted for 32.6% of the total outstanding accounts receivable, 7.8%, 5.4%, 4.4%, 4.2%, 4.1%, 3.6% and 3.1% respectively. No other customer accounted for more than 3% of the total outstanding accounts receivable.

For the twelve months ended December 31, 2006, one customer accounted for a total of 48.7% of sales. At December 31, 2006, accounts receivable due from this customer was 62.7% of the total outstanding accounts receivable. Four other customers accounted for 24.1% of the total outstanding accounts receivable, 10.2%, 6.5%, 3.8% and 3.6% respectively.  No other customer accounted for more than 3% of the total outstanding accounts receivable.

Although we continue to expand our customer base in an attempt to mitigate the concentration of customers, the loss of any one of these customers could have an adverse effect on our revenues and results of operations.

30

Credit Risk Management

We define credit risk as the risk of loss from obligors or counterparty default. Our credit risks arise from both distributors and consumers.  Many of these risks and uncertainties are beyond our control.

Ourability to forecast future trends and spot shifts in consumer patterns or behavior even before they occur are vital for our success in today's economy.  In managing risk, our objective is to protect our profitability, but also protect, to the extent we can, our ongoing relationship with our distributors and customers. With this in mind, we have taken the following actions:

· We adopted, and our Board of Directors approved, a new credit risk policy that establishes general principles and the overall framework for managing consumer credit risk across the Company. This policy is further supported by subordinate policies and practices covering all facets of consumer credit extension, including prospecting, approvals, authorizations, line management, collections, and fraud prevention. Going forward, these policies should help ensure consistent application of credit management principles and standardized reporting of asset quality and projected loss reserves.

· We incorporate more sophisticated information in the Company’s risk evaluations;

· We increased our focus on areas of high risk, including canceling or placing a cash only policy on certain questionable accounts;

· We reduced certain credit limits;

· We concentrated our efforts on quickly identifying and assisting distributors who are experiencing temporary financial difficulty.

Implementing and enforcing our credit policy and providing guidance to the officers on the policy is critical for us to achieve US GAAP compliant revenue recognition. We may encounter difficulties in maintaining relationships with distributors and customers while enforcing our credit policies.

We rely upon a limited number of product offerings

The majority of the products that we have sold as of December 31, 2008 have been based on SRB. Although we will market SRB as a dietary supplement, as an active food ingredient for inclusion in our products and in other companies’ products, and in other ways, a decline in the market demand for our SRB products, as well as the products of other companies utilizing our SRB products, could have a significant adverse impact on us.

We are dependent upon our marketing efforts.

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

We rely upon an adequate supply of raw rice bran.

All of our current products depend on our proprietary technology using raw rice bran, which is a by-product from milling paddy rice to white rice. Our ability to manufacture SRB is currently limited to the production capability of our production equipment at Farmers’ Rice Co-operative and Archer Daniels Midland in California, American Rice, Inc. in Texas, and our own plants located next to Louisiana Rice Mill in Mermentau, Louisiana, and Farmer’s Rice Inc.  in Lake Charles, Louisiana.  Along with our value-added products plants in Dillon, Montana, Phoenix, Arizona, and our facility in Pelotas, Brazil (acquired in February 2008), we currently are capable of producing enough finished products to meet current demand. If demand for our products were to increase dramatically in the future, we would need additional production capacity.

31

We are pursuing other supply sources in the United States and in foreign countries and anticipate being able to secure alternatives and back-up sources of rice bran, however, there can be no assurance that we will continue to secure adequate sources of raw rice bran to meet our future demand.  Since rice bran has a limited shelf life, the supply of rice bran is affected by the amount of rice planted and harvested each year. If economic or weather conditions adversely affect the amount of rice planted or harvested, the cost of rice bran products that we use may increase.  We are not generally able to immediately pass cost increases to our customers and any increase in the cost of SRB products would have an adverse effect on our results of operations.

We face risks in our wheat bran stabilization efforts.

In January 2008, through a newly formed wholly owned subsidiary, we entered into an agreement to develop and lease wheat bran stabilization equipment to an Indonesian company.  We cannot guarantee that our efforts to develop wheat bran stabilization equipment will be successful.

We face competition.

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

We must comply with our contractual obligations.

We have numerous ongoing contractual obligations under various purchase, sale, supply, production and other agreements which govern our business operations.  We also have contractual obligations which require ongoing payments such as various lease obligations and the agreement of Irgovel to pay tax obligations to the Brazilian government over a ten year period.  While we seek to comply at all times with these obligations, there can be no assurance that we will be able to comply with the terms of all contracts during all periods of time, especially if there are significant changes in market conditions or our financial condition.  If we are unable to comply with our material contractual obligations, there likely would be a material adverse effect on our financial condition and results of operations.

Concentration of Credit Risk

Financial instruments that potentially subject us to concentration of credit risk consist primarily of cash and cash equivalents and trade receivables.  Historically, we have not experienced any loss of our cash and cash equivalents, but we have experienced losses to our trade receivables.

The Company currently depends on a limited number of customers.  This results in a concentration of credit risk with respect to the Company’s outstanding accounts receivable.  The Company considers the financial strength of the customer, the remoteness of the possible risk that a default event will occur, the potential benefits to the future growth and development of the Company, possible actions to reduce the likelihood of a default event and the benefits to the Company from the transaction before entering into a large credit limit for a customer.  Although the Company analyzes these factors, there can be no assurance that the ultimate collection of the obligation from the customer will occur.

Although we continue to expand our customer base in an attempt to mitigate the concentration of credit risk, the writing off of an accounts receivable balance could have an adverse effect on our results of operations.

32

Debt covenant obligations, if triggered, may affect our financial condition.

Our long-term debt obligations and committed short-term lines of credit contain financial covenants related to debt-to-capital ratios and interest-coverage ratios.  Failure to comply with any of these covenants could result in an event of default which, if not cured or waived, could result in the acceleration of outstanding debt obligations or the inability to borrow under certain credit agreements. Any such acceleration could cause a material adverse change in NutraCea’s financial condition.  We entered into a forbearance agreement with Wells Fargo Bank NA pursuant to which Wells Fargo agreed to forbear from exercising its rights and remedies with respect to existing defaults.  We have determined it is probable that we will not be in compliance with the terms of the forbearance agreement as of October 31, 2009 which may result in the acceleration of outstanding debt obligation.

A downgrade in our credit rating could adversely affect our access to capital markets.

Our ability to obtain adequate and cost-effective capital depends upon our credit ratings, which are greatly affected by our financial performance and the liquidity of financial markets. A downgrade in our current credit ratings could adversely affect our access to capital markets, as well as our cost of capital.

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

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

We may be subject to product liability claims and product recalls.

We sell food and nutritional products primarily for human consumption, which involves risk such as product contamination or spoilage, product tampering and other adulteration of food products.  We may be subject to liability if the consumption of any of our products causes injury, illness or death.  In addition, we may voluntarily recall products in the event of contamination or damage.  A significant product liability judgment or a widespread product recall may cause a material adverse effect on our financial condition.  Even if a product liability claim is unsuccessful, there may be negative publicity surrounding any assertion that our products caused illness or injury which could adversely affect our reputation with existing and potential customers.

Many of the risks of our business have only limited insurance coverage and many of our business risks are uninsurable.

Our business operations are subject to potential product liability, environmental, fire, employee, manufacturing, shipping and other risks.  Although we have insurance to cover some of these risks, the amount of this insurance is limited and includes numerous exceptions and limitations to coverage.  Further, no insurance is available to cover certain types of risks, such as acts of God, war, terrorism, major economic and business disruptions, and similar events.  In the event we were to suffer a significant uninsured claim, our financial condition would be materially and adversely affected.

Our success depends in part on our ability to obtain patents, licenses and other intellectual property rights for our products and technology.

Our success is dependent upon our ability to protect the patents, trade secrets and trademarks that we have and to develop new patents and trademarks for future processes, machinery, compounds and products that we develop.  The process of seeking patent protection may be long and expensive, and there can be no assurance that patents will be issued, that we will be able to protect our technology adequately, or that competition will not be able to develop similar technology.

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

33

We are dependent on key employees and consultants.

Our success depends upon the efforts of our top management team, including the efforts of John Short, President, Jim Lintzenich, our Interim Chief Executive Officer, Interim Principal Financial Officer and Interim Chief Accounting Officer, Leo Gingras, our Chief Operating Officer, Eliseu Batista, Executive Vice President - Latin America, and Kody K. Newland, our Senior Vice President of Sales and Marketing. Although we have written employment agreements with each of the foregoing individuals, other than Jim Lintzenich, there is no assurance that such individuals will not die, become disabled, or resign. In addition, our success is dependent upon our ability to attract and retain key management persons for positions relating to the marketing and distribution of our products. There is no assurance that we will be able to recruit and employ such executives at times and on terms acceptable to us.

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

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

34

Risks Related to Our Stock

Our Stock Price is Volatile.

The market price share of our common stock has fluctuated significantly in the past and may continue to fluctuate significantly in the future.  We trade on the over the counter “pink sheets” for which there is an inconsistent market and we are thinly traded stock subject to volatility in our stock price and the demand of our shares. The high and low closing sales prices of our common stock for the following periods were:

NutraCea Common Stock	Low		High
Year Ended December 31, 2009
Third Quarter	$	0.17	$	0.26
Second Quarter	$	0.16	$	0.38
First Quarter	$	0.19	$	0.50
Year Ended December 31, 2008
Fourth Quarter	$	0.31	$	0.52
Third Quarter	$	0.39	$	0.70
Second Quarter	$	0.69	$	1.13
First Quarter	$	0.89	$	1.56
Year Ended December 31, 2007
Fourth Quarter	$	0.75	$	1.76
Third Quarter	$	1.34	$	3.31
Second Quarter	$	3.03	$	5.00
First Quarter	$	2.21	$	3.39
Year Ended December 31, 2006
Fourth Quarter	$	1.32	$	2.65
Third Quarter	$	0.86	$	1.32
Second Quarter	$	0.81	$	1.42
First Quarter	$	0.65	$	1.27

The market price of a share of our common stock may continue to fluctuate in response to a number of factors, including:

· announcements of new products or product enhancements by us or our competitors;

· fluctuations in our quarterly or annual operating results;

· developments in our relationships with customers and suppliers;

· the loss of services of one or more of our executive officers or other key employees;

· announcements of technological innovations or new systems or enhancements used by us or our competitors;

· developments in our or our competitors’ intellectual property rights;

· adverse effects to our operating results due to impairment of goodwill;

· failure to meet the expectation of securities analysts’ or the public;

· general economic and market conditions;

· our ability to expand our operations, domestically and internationally, and the amount and timing of expenditures related to this expansion;

· litigation involving us, our industry or both;

· actual or anticipated changes in expectations regarding our performance by investors or securities analysts; and

· price and volume fluctuations in the overall stock market from time to time.

In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. Our stock price is volatile and we have become the target of securities litigation which could result in substantial costs and divert our management’s attention and resources from our business. In addition, volatility, lack of positive performance in our stock price or changes to our overall compensation program, including our equity incentive program, may adversely affect our ability to retain key employees.

35

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

As of August 31, 2009, NutraCea had 192,967,680 shares of our common stock was outstanding. Additionally, as of August 31, 2009, options and warrants to purchase approximately 71,127,000 shares of our common stock were outstanding. The possibility that substantial amounts of our outstanding common stock may be sold by investors or the perception that such sales could occur, often called “equity overhang,” could adversely affect the market price of our common stock and could impair our ability to raise additional capital through the sale of equity securities in the future.

Sales of our stock pursuant to registration statements may hurt our stock price.

We granted registration rights to the investors in our October 2005, May 2006 and February 2007 capital stock and warrant financings. As of August 31, 2009, approximately 27,162,602 shares of our common stock remained eligible for resale pursuant to outstanding registration statements filed for these investors. In addition, we have filed a shelf registration statement to cover our issuance and sale of up to $125,000,000 of common stock, preferred stock and warrants to purchase common or preferred stock. Pursuant to that shelf registration statement we sold an aggregate of 22,222,223 shares of common stock and warrants to purchase an aggregate of 6,666,664 shares of our common stock for gross proceeds of $20,000,000 in April 2008 and we sold 5,000 shares of our Series D Preferred Stock and warrants to purchase 4,545,455 shares of our common stock for gross proceeds of $5,000,000 in October 2008.  Sales or potential sales of a significant number of shares into the public markets may negatively affect our stock price.

The exercise of outstanding options and warrants may dilute current shareholders.

As of August 31, 2009, there were outstanding options and warrants to purchase approximately 71,127,000 shares of our common stock. Holders of these options and warrants may exercise them at a time when we would otherwise be able to obtain additional equity capital on terms more favorable to us. Moreover, while these options and warrants are outstanding, our ability to obtain financing on favorable terms may be adversely affected.

We likely will need to raise funds through debt or equity financings in the future to achieve our business objectives and to satisfy our cash obligations, which would dilute the ownership of our existing shareholders and possibly subordinate certain of their rights to the rights of new investors.

We likely will need to raise funds through debt or equity financings in order to meet our current cash requirements and to complete our ultimate business objectives.  We also may choose to raise additional funds in debt or equity financings if they are available to us on terms we believe reasonable to increase our working capital, strengthen our financial position or to make acquisitions. Our Board of Directors has the ability, without seeking shareholder approval, to issue additional shares of common stock or preferred stock that is convertible into common stock for such consideration as the Board of Directors may consider sufficient, which may be at a discount to the market price.  Any sales of additional equity or convertible debt securities would result in dilution of the equity interests of our existing shareholders, which could be substantial. Additionally, if we issue shares of preferred stock or convertible debt to raise funds, the holders of those securities might be entitled to various preferential rights over the holders of our common stock, including repayment of their investment, and possibly additional amounts, before any payments could be made to holders of our common stock in connection with an acquisition of the company. Such preferred shares, if authorized, might be granted rights and preferences that would be senior to, or otherwise adversely affect, the rights and the value of our common stock. Also, new investors may require that we and certain of our shareholders enter into voting arrangements that give them additional voting control or representation on our Board of Directors.

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

Our Board of Directors, without further action or vote by holders of our common stock, has the right to establish the terms, preference, rights and restrictions and issue shares of preferred stock.  The terms of any series of preferred stock could be issued with terms, rights, preferences and restrictions that could adversely affect the rights of holders of our common stock and thereby reduce the value of our common stock. The designation and issuance of preferred stock favorable to current management or shareholders could make it more difficult to gain control of our Board of Directors or remove our current management and may be used to defeat hostile bids for control which might provide shareholders with premiums for their shares. We have designated and issued five series of preferred stock, no shares of which remain outstanding as of August 31, 2009.  We may issue additional series of preferred stock in the future.

36

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

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

Our officers and directors have limited liability and have indemnification rights

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

Item 1B. Unresolved Staff Comments

On June 30, 2008, we received a letter from the Staff of the SEC’s Division of Corporation Finance (“Staff”) as part of its review of our Form 10-K for the fiscal year ended December 31, 2007, and our Form 10-Q for the fiscal quarter ended March 31, 2008.  The Company responded to that letter, which has been followed by a series of new letters and comments from the Staff and our responses.  Many of the Staff’s comments have been resolved.  The Staff’s unresolved comments that we believe are material relate primarily to the following:

· Our disclosure of background information relating to our purchase of outstanding secured promissory notes and Series D Preferred Stock of Vital Living, Inc;

· Our accounting for $1 million of cash that we received in connection with a $2.6 million sale in the second quarter of 2007, which sale we are reversing in the restatement and which $1 million was sourced from a former officer of NutraCea;

· Disclosure of the relationship between Vital Living and NutraCea and Vital Living’s primary distributor, Wellness Watchers Global, and a consolidated entity of Vital Living, Wellness Watchers Systems;

· Our recognition of $2.5 million of revenue relating to a sale to Wellness Watchers Global in the second quarter of 2007, and the accounting standards that we applied to the sale;

· Our recognition of $365,000 of revenue relating to a sale to a customer in December 2006 and our determination that the amounts recognized were collectible and fixed and determinable at the time of sale;

· Our recognition of $8.1 and $1.9 million of revenue from a customer in 2006 and 2007, respectively, our determination that the amounts recognized were collectible and fixed and determinable at the time of sale and our application of the bill and hold revenue recognition method with this customer;

· The impact of the restatement items on the goodwill impairment analysis for Vital Living as of December 31, 2007 and for fiscal year 2008;

· Our consolidation of Vital Living and our allocation of the purchase price of the outstanding promissory notes and Series D Preferred Stock of Vital Living; and

· Our accounting in 2004 and 2005 with respect to our investment in Langley Park.

The Company believes it has addressed each of these comments in its most recent response to the Staff on October 16, 2009.  However, The Company can provide no assurance that the Staff will have no further comments on these matters.

37

Item 2. Description of Property

We maintain various facilities that are used for manufacturing, warehousing, research and development, distribution, and administrative functions. These facilities consist of both owned and leased properties.

The following summarizes the properties used to conduct our operations:

Primary Segment	Location	Status	Primary Use
NutraCea	West Sacramento, California	Leased	Warehousing, and Administrative
	Mermentau, Louisiana	Owned	Manufacturing (temporarily idled May 2009)
	Lake Charles, Louisiana	Building – Owned Land - Leased	Manufacturing (temporarily idled May 2009)
	Dillon, Montana	Owned	Manufacturing
	Freeport, Texas	Leased	Manufacturing (closed in May 2009)
	Phoenix, Arizona	Owned	Manufacturing and Warehousing
	Burley, Idaho	Leased	Administrative
	Phoenix, Arizona	Leased	Administrative – corporate offices
Irgovel	Pelotas, Brazil	Owned	Manufacturing, R&D, Administrative

We believe that all facilities are in good operating condition, the machinery and equipment are well-maintained, the facilities are suitable for their intended purposes and they have capacities adequate for current operations. The properties are covered by insurance but properties in the Gulf Coast are subject to high deductibles and limitations on damages due to tropical storms.

Item 3. Legal Proceedings

Various lawsuits, claims, proceedings and investigations are pending involving us as described below in this section. In accordance with SFAS No. 5, Accounting for 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, which in our opinion will not have a material adverse effect on our financial condition, cash flows or results of operations.

Shareholder Class Action

On February 27, 2009, a shareholder securities class action was filed against the Company and certain of its current and former officers and directors in the U.S. District Court for the District of Arizona Case No. CV 09-00406-PHX-FJM.  The class action is purportedly brought on behalf of a class consisting of all persons who purchased common stock of NutraCea between August 14, 2007 and February 23, 2009.  The Complaint alleges that the Company filed material misstatements in publicly disseminated press releases and Securities Exchange Commission filings misstating the Company’s financial condition during the period in question.  The plaintiffs assert two causes of action under Section 10(b) and 20(a) of the Securities and Exchange Act (15 U.S.C. §78j(b) and 78t(a)) and Rule 10b-5 promulgated thereunder (17 C.F.R. §240.10b-5).

38

On April 27, 2009, a second shareholder securities class action was filed against the Company and certain of its current and former officers and directors in the U.S. District Court for the District of Arizona, Case No. CV 09-00880-SRB.  The class action is purportedly brought on behalf of a class consisting of all persons who purchased common stock of NutraCea between April 2, 2007 and February 23, 2009.  The Complaint alleges that the Company filed material misstatements in publicly disseminated press releases and Securities and Exchange Commission filings misstating the Company’s financial condition during the period in question.  The plaintiffs assert four causes of action under Section 10(b) and 20(a) of the Securities and Exchange Act (15 U.S.C. §78j(b) and 78t(a)) and Rule 10b-5 promulgated thereunder (17 C.F.R. §240.10b-5) and under the Arizona Revised Statutes.

On May 29, 2009, the court presiding over the first filed case consolidated these two actions into one action under the case name Burritt v. NutraCea, et al., Case No. CV 09-00406-PHX-FJM (the “Federal Action”) and appointed Harvey Pensack, represented by The Rosen Law Firm P.A., as lead plaintiff and lead counsel.

On July 1, 2009, lead plaintiff filed a consolidated class action complaint, alleging that, among other things, defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Sections 44-1991(A)(3), 44-2003(A), and 44-1999(B) of the Arizona Revised Statutes.  The complaint generally alleges that NutraCea and the individual defendants made false and misleading statements in NutraCea’s financial statements and seek unspecified monetary damages and other relief against the defendants.  Defendants moved to dismiss this complaint on August 3, 2009.  On August 14, 2009, lead plaintiff filed a motion for leave to amend the consolidated class action complaint.  On September 25, 2009, the court granted plaintiff’s motion to amend and denied defendants’ motion to dismiss as moot in light of the amended complaint.  Motions to dismiss the amended complaint were filed on October 7, 2009.

Shareholder Derivative Action

In addition to the shareholder class actions, on March 30, 2009 and May 9, 2009, two shareholder derivative lawsuits were filed in the Superior Court of Arizona, County of Maricopa, by persons identifying themselves as shareholders of the Company and purporting to act on its behalf, naming the Company as a nominal defendant and naming its former Chief Executive Officer and its current Board of Directors as defendants.

In these actions, the plaintiffs assert claims against the individual defendants for breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets, and unjust enrichment based on the alleged wrongful conduct complained of in the Federal Action described above.  All of these claims are purportedly asserted derivatively on the Company’s behalf and the plaintiffs seek no monetary recovery against the Company.  The plaintiffs seek, among other relief, disgorgement of all profits, benefits, and compensation received from the individual defendants and plaintiffs’ attorneys’ fees and costs.

By an order entered on June 3, 2009, the superior court consolidated these two cases into one action captioned In re:  NutraCea Derivative Litigation, Case No. CV2009-051495.  Although the parties entered into a stipulation staying the derivative action, the court has ordered that the matter proceed and the parties are discussing a briefing schedule.

SEC Enforcement Investigation

The Company received a letter from the SEC in January 2009 indicating that it had opened an informal inquiry, and the Company subsequently received an informal request for the production of documents in February 2009 relating to a number of 2007 transactions.  In March 2009 the Company received a Formal Order of Private Investigation from the SEC. In June 2009, the Company received a subpoena for the production of documents that largely tracked the SEC’s earlier requests.  The Company has responded to these requests for documents and based on findings related to the internal review and the SEC’s requests, the Company restated its financial statements for 2006, 2007 and the first three quarters of 2008.

39

 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 the Company 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 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 the Company, in addition to moral damages as determined in the court’s discretion.  The amount in dispute is estimated to be approximately USD $2,000,000, plus any moral damages as determined by the court.

The Company believes 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 the Company on January 31, 2008 (“Purchase Agreement”) and, consequently, that the responsibility for any indemnity, costs and expenses incurred or that may come to be incurred by Irgovel and/or the Company in connection with the above lawsuit is the sole responsibility of the Sellers.

On February 6, 2009, the Sellers filed a collection lawsuit against the Company seeking payment of the second installment of the purchase price under the Purchase Agreement, which was indicated by the Sellers to be approximately USD $853,000.  The Company is holding back payment of the second installment until the resolution of the Resyng lawsuit noted above.  The Company has not been served with any formal notices in regard to this matter so far.  In addition, the Purchase Agreement requires that all disputes between the Company and the Sellers are subject to arbitration. As part of the purchase agreement $1,905,000 was deposited into an escrow account to cover contingencies and is payable to the sellers upon resolution of all contingencies.  The Company believes any payout due to the lawsuit will be made out of the escrow account.

40

W.D. Manor Mechanical Contractors, Inc. and Related Matters

On April 30, 2009, W.D. Manor Mechanical Contractors, Inc. (“W.D.”) filed a complaint against NutraPhoenix, LLC, the Company and other unrelated defendants in Superior Court of Arizona, Maricopa County (CV2009-013957) arising out of the construction of a facility in Phoenix, Arizona that is owned by NutraPhoenix, LLC and at which the Company is the tenant.  W.D. seeks to foreclose a mechanic’s lien and alleges unjust enrichment arising out of the alleged non-payment of $399,589 in regard to labor and materials allegedly performed/provided by W.D.  The Company and NutraPhoenix, LLC are attempting to negotiate a settlement.  The company is subject to various related claims from sub-contractors totaling to $437,000. These claims have been accrued and expensed in our consolidated financial statements as of December 31, 2008. The settlement of these claims is expected to be equal or less than the accrued amount.

Halpern

On January 21, 2009, Halpern Capital Inc, filed a complaint against NutraCea in the Circuit Court of the Eleventh Judicial Circuit in Miami-Dade County, Florida (Case No: 09-04688CA06) arising out of a financial advisory and investment banking relationship.  The two parties have reached a tentative settlement agreement which includes cash payments and warrants.  The total value of the expected settlement was accrued in our Consolidated Financial Statements as of December 31, 2008.

Famers’ Rice Milling

Farmers’ Rice Milling (“FRM”) contends that the Company has defaulted by failing to pay the rentals due under two leases between the parties: (i) March 15, 2009 ground lease, as amended by November 1, 2008 and (ii) April 15, 2007 Warehouse lease (collectively the “Leases”).  FRM seeks to terminate the leases and recover both back and future rent there under. The Company has filed an Answer and Counterclaim and deposited into the registry of the court the sum of $60,425 constituting the rental due under both the Leases, a late fee due under the Warehouse lease plus accrued interest.  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, Lakes Charles division where it is presently pending.

Management believes that it has meritorious defenses and plans on defending the suit vigorously. Management has not accrued an estimated loss. However, if FRM prevails in the case, the Company will lose the building and permanent fixtures which cannot be removed, totaling approximately $ 3,377,000 as of December 31, 2008.

Item 4. Submission of Matters to a Vote of Security Holders

Not applicable.

41

PART II

Item 5.  Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

PRICE RANGE OF COMMON STOCK

The Company’s common stock is traded on the pink sheets, a centralized electronic quotation service for over-the-counter securities, under the symbol “NTRZ.PK” Our CUSIP No. is 45776L100.  Our common stock previously traded on the OTCBB until May 1, 2009. The following table sets forth the range of high and low closing sales prices for our common stock as reported on the OTCBB for the periods indicated below. The quotations below reflect inter-dealer prices, without retail mark-up, markdown or commission, and may not represent actual transactions.

NutraCea Common Stock	Low		High
Year Ended December 31, 2009
Third Quarter	$	0.17	$	0.26
Second Quarter	$	0.16	$	0.38
First Quarter	$	0.19	$	0.50
Year Ended December 31, 2008
Fourth Quarter	$	0.31	$	0.52
Third Quarter	$	0.39	$	0.70
Second Quarter	$	0.69	$	1.13
First Quarter	$	0.89	$	1.56
Year Ended December 31, 2007
Fourth Quarter	$	0.75	$	1.76
Third Quarter	$	1.34	$	3.31
Second Quarter	$	3.03	$	5.00
First Quarter	$	2.21	$	3.39
Year Ended December 31, 2006
Fourth Quarter	$	1.32	$	2.65
Third Quarter	$	0.86	$	1.32
Second Quarter	$	0.81	$	1.42
First Quarter	$	0.65	$	1.27

HOLDERS

As of August 31, 2009 there were approximately 276 holders of record of our common stock.

DIVIDENDS

We have never declared or paid any cash dividends on our common stock. We currently anticipate that we will retain all future earnings for the expansion and operation of our business and do not anticipate paying cash dividends in the foreseeable future.

42

Pursuant to our credit agreement with Wells Fargo Bank, we may not pay cash dividends on our common stock so long as we have a line of credit with, or owe any debt to, Wells Fargo Bank.

RECENT SALES OF UNREGISTERED SECURITIES

During the three months ended December 31, 2008, we did not issue any securities without registration under the Securities Act of 1933.

Sales of unregistered securities during the first three quarters of 2008 have previously been reported in quarterly reports on Form 10-Q or current reports on Form 8-K that we have filed with the SEC.

SHARE REPURCHASES

We did not repurchase any of our securities in 2008.

PERFORMANCE GRAPH

The following graph compares the cumulative total return on our common stock, the NASDAQ Composite Index and a peer group over the period commencing on December 31, 2003 and ending on December 31, 2008.  The Company does not believe there are any publicly traded companies that represent strict peers.  However, each of the companies in the peer group offers similar products in one or more segments of its business.  The peer group consists of Martek Biosciences Corp., Conagra Foods Inc., Kraft Foods Inc., Nutraceutical International Corp., and Synovics Pharmaceuticals Inc.

The performance graph assumes the value of the investment in the common stock of each index was $100 and that all dividends were reinvested. This graph is not necessarily indicative of future price performance.

43

The performance graph in this Item 5 shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C under the Exchange Act or to the liabilities of Section 18 of the Exchange Act, and will not be deemed to be incorporated by reference into any filings under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent we specifically incorporate it by reference into such a filing.

Item 6. Selected Financial Data

The following table sets forth our selected consolidated statement of operations, balance sheet, and operating data.  The selected statement of operations and balance sheets are derived from our Consolidated Financial Statements for the fiscal years of 2007 and 2006 and have been restated to reflect adjustments discussed in footnote 2 to the table below.  The data presented below should be read in conjunction with our restated Consolidated Financial Statements and related notes included in Item 8, “Financial Statements and Supplementary Data,” and the information in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” below.

44

Statements of Operations Data: (In thousands, except per share data)
	Years Ended December 31,
	2008			2007			2006			2005			2004
				Restated (1)						Correction (2)
Revenues	$	35,224		$	12,726		$	16,539		$	5,564		$	1,225
Cost of goods sold		30,416			8,883			8,862			2,878			600
Gross profit		4,808			3,843			7,677			2,686			625
Operating expenses		68,466			25,429			7,908			5,678			24,176
(Loss) profit from operations		(63,658	)		(21,586	)		(231	)		(2,992	)		(23,551	)
Interest income/(expense)		122			3,199			538			(878	)		(23	)
Other income/(expense)		(1,052	)		431			-			(78	)		(2,012	)
Income tax expense		(64	)		(20	)		(5	)		(2	)		-
Minority Interest		80			-
Net (loss) income	$	(64,572	)	$	(17,976	)	$	302		$	(3,950	)	$	(25,586	)
Basic (loss) net income per common share	$	(0.40	)	$	(0.14	)	$	0.00		$	(0.10	)	$	(1.18	)
Diluted (loss) net income per common share	$	(0.40	)	$	(0.14	)	$	0.00		$	(0.10	)	$	(1.18	)
Weighted ave basic number of shares outstanding		160,585			125,938			76,692			38,615
Weighted ave diluted number of shares outstanding		160,585			125,938			102,636			38,615
Balance Sheet Data: (end of period)
	As of December 31,
		2008			2007			2006			2005			2004
Cash, cash equivalents, restricted cash and investments	$	10,064		$	43,747		$	14,867		$	3,636		$	2,112
Total Assets	$	102,380		$	120,441			71,982			47,464			3,338
Current Liabilities	$	18,799		$	8,897			2,881			1,261			2,170
Long Term Debt	$	9,217		$	77			-			9			-
Accumulated Deficit	$	(133,136	)	$	(68,564	)		(50,588	)		(50,890	)(2)		(46,940	)(2)
Total shareholders equity (deficit)	$	68,206		$	109,249		$	69,091		$	38,893		$	1,167

(1) As set forth below, we have restated our previously reported financial statements to correct certain errors in our accounting for revenue recognition, rental allowances, and investment in an Indonesian joint venture as discussed in Item 7, “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” and Note 2 – Audit Committee Review and Restatement of Consolidated Financial Statements to our Consolidated Financial Statements included in Item 8 in this Annual Report.

(2) The Company adopted Securities and Exchange Commission, Staff Accounting Bulletin No. 108 in 2006.  As a result, the Company increased accumulated deficit at December 31, 2005 by $2,090,000.  The corrected statements of operations data is presented above for the years ended December 31, 2004 and 2005 report the results of operations for those years as if the $2,090,000 decline in investment had been classified as other than temporary.  See Note 4 Implementation of Staff Accounting Bulleting No. 108 to the Consolidated Financial Statements.

45

Statements of Operations Data: (In thousands, except per share data)
	Years Ended December 31,
	2007			2006
Revenues, as previously reported	$	22,161		$	18,090
Change to revenues for product revenue recognition		(4,435	)		(1,551	)
Change to revenues for license fee revenue recognition		(5,000	)		-
Revenues, as restated	$	12,726		$	16,539
Cost of Goods Sold, as previously reported	$	9,898		$	9,130
Change to cost of goods sold for product revenue recognition		(1,015	)		(268	)
Cost of Goods Sold, as restated	$	8,883		$	8,862
Gross Profit, as reported	$	12,263		$	8,960
Gross Profit, as restated	$	3,843		$	7,677
Operating Expenses, as reported	$	27,393		$	7,908
Change for increase in general SG&A expense		890		$	-
Change for decrease in bad debt expense		(2,979	)
Change for increase in rent expense		55
Change for increase in depreciation expense		70
Operating Expenses, as restated	$	25,429		$	7,908
Other Income/(Expense) as reported	$	3,239		$	538
Change for decrease in interest income		391
Other Income/(Expense) as restated	$	3,630		$	538
Income Tax Expense, as reported	$	20		$	5
Income Tax Expense, as restated	$	20		$	5
Minority Interest as reported	$	-		$	-
Minority Interest as restated	$	-		$	-
Net Income/(Loss), as reported	$	(11,911	)	$	1,585
Net Income/(Loss), as restated	$	(17,976	)	$	302
Earnings/(Loss) per Share
Basic, as previously Reported	$	(0.09	)	$	0.02
Change to income for product revenue recognition		-			(0.02	)
Change to revenues for license fee revenue recognition		(0.05	)
Change to operating expenses for various items		-
Basic, as restated	$	(0.14	)	$	-
Diluted, as previously Reported	$	(0.09	)	$	0.02
Change to income for product revenue recognition		-		$	(0.02	)
Change to revenues for license fee revenue recognition		(0.05	)
Change to operating expenses for various items		-
Diluted, as restated	$	(0.14	)	$	-
Weighted average basic number of shares outstanding, as reported/restated		125,938			76,692
Weighted average diluted number of shares outstanding, as reported/restated		125,938			102,636

46

Balance Sheet Data: (In thousands)
	As of December 31,
	2007			2006
Cash, cash equivalents, restricted cash and investments, as reported	$	43,847		$	14,867
Change to cash equivalents - removal of Rice RX		(100	)
Cash, cash equivalents, restricted cash and investments, as restated	$	43,747		$	14,867
Total Assets, as reported	$	124,293		$	73,255
Change to cash equivalents - removal of Rice RX		(100	)
Change to revenues for product revenue recognition	$	(86	)		(1,551	)
Change to notes receivable, net of current portion - revenues for license fee revenue recognition		(5,000	)
Change to inventory - COGS for product revenue recognition		91			268
Change to other assets - removal of Rice RX		659
Change to property and equipment, net of accumulated depreciation		584
Total Assets, as restated	$	120,441		$	71,972
Current Liabilities, as reported	$	7,619		$	2,881
Change to accounts payable		(810	)
Change to deferred rent incentive		168
Change to deferred revenue		1,920
Current Liabilities, as restated	$	8,897		$	2,881
Long Term Debt, as reported	$	77		$	-
Change to deferred rent incentive - long-term		1,218
Long Tern debt, as restated	$	1,295		$	-
Minority interest as reported	$	-		$	-
Change to minority interest		-			-
Minority interest as restated	$	-		$	-
Accumulated Deficit, as reported	$	(61,216	)	$	(49,305	)
Change to revenues for product revenue recognition		(5,986	)		(1,551	)
Change to revenues for license fee revenue recognition		(5,000	)
Change to cost of goods sold for product revenue recognition		1,283			268
Change for decrease in bad debt expense		2,979
Change for increase in operating expenses		(1,015	)
Change to other income/(expense)		391
Accumulated Deficit, as restated	$	(68,564	)	$	(50,588	)

Item 7.  Management’s Discussion and Analysis of Financial Conditions and Results of Operation

The following discussion should be read in conjunction with the Consolidated Financial Statements and related notes thereto included in Item 8 of this Form 10-K.

This discussion and analysis 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,” “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. Accordingly, actual results may differ materially from those expressed or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, the risks described under “Risk Factors” in Item 1A. The Company undertakes no obligation to update any forward-looking statements for revisions or changes after the filing date of this Form 10-K.

Executive Summary

The year ended December 31, 2008 was a busy and challenging year for NutraCea and an important phase in our growth.  Our acquisition of Irgovel, a rice-bran oil manufacturing facility in Pelotas, Brazil, established us as a major source of rice-bran oil.  During 2008, we completed our rice-bran stabilization facility in Lake Charles, Louisiana and acquired a manufacturing property in Phoenix, AZ which we converted into a Stage II processing operation.  We entered into new distribution agreements that underscored the demand for our core product, stabilized rice bran (“SRB”), and marked a number of operating achievements that positioned NutraCea for success in 2009 and beyond.

47

Basis of Presentation and Going Concern

Our financial statements have been prepared assuming the Company will continue as a going concern based on the realization of assets and the satisfaction of liabilities in the normal course of business.  The Company has experienced recurring losses and negative cash flows from operations raising substantial doubt as to our ability to continue as a going concern.  Due to defaults under its credit agreement with Wells Fargo Bank, the Company’s credit lines were reduced to approximately $3,500,000, which was the level of the current outstanding loans and obligations at that time.  NutraCea also entered into a forbearance agreement with Wells Fargo pursuant to which Wells Fargo agreed to forbear from exercising its rights and remedies with respect to the existing defaults.  NutraCea is behind on its payments to vendors and has defaulted on several agreements due to non-payment.  Expenses have been reduced where possible.  In the past the Company has turned to the equity markets for additional liquidity.  This is not a likely source of funds at this time due to the Company’s financial position and the state of the equity markets.

The Company’s management intends to provide the necessary cash to continue operations through the monetization of certain assets and the growth of revenues.  The monetization of assets is expected to include some or all of the following:

· sale or a sale/ lease back of certain of the Company’s facilities;

· sale of a minority interest in one or more of the Company’s  subsidiaries;

· sale of certain trademarks to strategic buyers that could become long-term buyers of bulk SRB; or

· sale of surplus equipment.

The growth of revenues is expected to include the following:

· licensing of the Company’s intellectual properties;

· growing sales in existing markets, including bulk SRB, rice bran oil and baby cereal; and

· aligning with strategic partners who can provide channels for additional sales of our products.

We have already taken steps to pursue several of these potential sources of cash.  Successful monetization of one or more of the assets identified above could yield sufficient cash to enable the Company to remain a going concern.  Some of these sales could result in non-cash write downs of asset values.  These potential write downs have not been recorded in the accompanying financial statements.  Although management believes that they will be able to obtain the funds necessary for us to continue as a going concern there can be no assurances that the means for maintaining this objective will prove successful.

Acquisition of Irgovel

In February, 2008 we acquired 100% ownership of Industria Riograndens De Oleos Vegetais Ltda. (”Irgovel”), a limited liability company organized under the laws of the Federative Republic of Brazil, which operates a rice-bran oil manufacturing facility in Pelotas, Brazil (see Note 12 Acquisition and Joint Ventures to the Consolidated Financial Statements included herein).

Segments

With the acquisition of Irgovel the Company now operates in two reporting segments; the NutraCea segment, which manufactures and distributes ingredients primarily derived from SRB, utilizing our unique and proprietary technology and the Irgovel segment, which consists of our rice-bran oil and fatted and de-fatted SRB manufacturing subsidiary in Pelotas, Brazil.

48

Significant Events

Below is a summary of certain significant events that occurred during fiscal 2008 and through the date of this filing.

Audit Committee Review and Restatement of Consolidated Financial Statements

Overview

The Company’s Consolidated Financial Statements for the years ended December 31, 2006 and 2007 and quarterly information for the first three quarterly periods of fiscal 2008 have been restated to correct errors identified in the course of the Audit Committee-led accounting review (discussed further below, and referred to herein as the “Audit Committee-led review”) and other accounting errors identified by the Company in the course of the restatement process and more fully described in the “Background” section below.

The Audit Committee concluded that the errors were the result of the improper accounting of several revenue transactions, and the improper accounting of the Company’s investment in an Indonesian wheat flour trading company.  Subsequent to the conclusions addressed by the Audit Committee, the Company also determined that certain moving and rental allowance transactions associated with the occupancy of the Company’s current corporate headquarters, an additional revenue transaction, and the recognition of license fee revenue associated with an Indonesian joint venture had not been accounted for properly.  A summary of these subsequent transactions is described below, and is included as part of the restated Consolidated Financial Statements.

The improper accounting of the transactions was primarily the result of the internal control weaknesses which existed within the Company.  Management has begun and continues to review the Company’s accounting practices and its internal control over financial reporting.  These are discussed under “Management Report on Internal Control over Financial Reporting” presented in Item 9A, “Controls and Procedures”.

Background

During December 2008, the Audit Committee which is comprised of independent outside directors of the Board of Directors of the Company commenced an internal review of certain matters with respect to the Company’s accounting and reporting practices, including the appropriateness and/or timing of recognition of revenues from certain transactions in 2007, and the adequacy of internal controls over financial reporting and disclosure controls and procedures (“Original Review”).  The Audit Committee retained independent outside counsel and forensic accounting consultants to assist in the investigation.

As a result of the preliminary findings of the investigation, the Board of Directors of the Company determined, based upon the recommendation of the Audit Committee, that the Company should restate its financial statements for the year ended December 31, 2007, including the second, third, and fourth quarters in 2007 and the first three quarters for the year ended December 31, 2008.  Accordingly, on February 17, 2009, the Board of Directors determined, based upon the recommendation of the Audit Committee that the Company’s previously issued Consolidated Financial Statements included in the filings with the SEC for these periods should no longer be relied upon.  On February 23, 2009, the Company disclosed in its Current Report on Form 8-K (“Original Form 8-K”) the actions and final determinations of the Company’s Board of Directors and Audit Committee as outlined in this and the prior paragraph.

Following the date of the Original Form 8-K, the Audit Committee expanded its review to include the Company’s accounting treatment of additional transactions in 2006, 2007, and 2008 (“Subsequent Review”).  Based upon the Subsequent Review, the Audit Committee determined on April 23, 2009 that the Company would also restate its Consolidated Financial Statements for the year ended December 31, 2006, including the fourth quarter of 2006, and the first quarter of 2007, and that these Consolidated Financial Statements should not be relied upon.  On April 23, 2009, the Company disclosed in its Current Report on Form 8-K the actions and final determinations of the Company’s Board of Directors and Audit Committee as outlined in this paragraph.

Subsequent to the conclusions addressed by the Audit Committee in the Original and Subsequent Reviews, the Company also determined that certain moving and rental allowance transactions associated with the occupancy of the Company’s current corporate headquarters, an additional revenue transaction, and the recognition of license fee revenue associated with an Indonesian joint venture had not been accounted for properly (“Additional Findings”).  A summary of these subsequent transactions is described below, and is included as part of the restated Consolidated Financial Statements.

49

In connection with the Original Review, Subsequent Review, and Additional Findings, the Company determined that it improperly accounted for the following transactions in 2006, 2007 and 2008:

Original Review:

· The Company recognized revenue in the second quarter of 2007 on a $2.6 million sale of its Dr. Vetz’ PetFlex brand product with respect to which the applicable criteria for revenue recognition were not met.  Based upon the facts discovered during the Audit Committee investigation, the Company has now concluded that a $1.0 million deposit received by the Company in that transaction was provided to the purchaser through a loan from a person who at the time was a consultant to and a former officer of NutraCea, and that the evidence originally relied upon to determine and support the purchaser’s ability to pay the remaining $1.6 million receivable balance was subsequently determined to be inaccurate.  The Company reversed this sale which resulted in a reduction of revenue of $2.6 million, a reduction of cost of goods sold of $0.6 million, and a reduction of net income of $2.0 million.  The deposit is recorded as a other non-current liability in the Consolidated Financial Statements.  This liability will be extinguished upon the resolution of certain legal matters.

· The Company determined that a $2.0 million sale of its RiceNShine product in December 2007 did not meet accounting requirements for revenue recognition in a bill and hold transaction and that the transaction should not have been recognized as revenue in the Company’s 2007 results.  The Company reversed this sale which resulted in a reduction of revenue of $2.0 million, a reduction of cost of goods sold of $1.3 million, and a reduction of net income of $0.7 million.  The revenues, costs of goods sold, and net income from this sale were ultimately recognized in the four quarters of 2008 and the first quarter of 2009 as follows (in millions):

		Q1-2008		Q2-2008		Q3-2008		Q4-2008		Q1-2009
Revenues	$	0.70	$	0.70	$	0.40	$	0.10	$	0.10
Cost of Goods		0.50		0.50		0.30		-		-
Net Income	$	0.20	$	0.20	$	0.10	$	0.10	$	0.10

Subsequent Review and Additional Findings:

· The Company recorded revenue of $1.6 million in the fourth quarter of 2006 from a sale of Dr. Vetz’ Pet Flex product to an infomercial customer.  The Company recorded an $800,000 reserve for this receivable in the second quarter of 2007.  In the third quarter of 2007 the customer returned the product and the Company recorded a sales return of $1.6 million and reversed the reserve it had recorded in the second quarter of 2007.   The Company has now determined that it will reverse this sale in 2006 instead of in 2007 because (i) the Company does not have adequate evidence to conclude that the receivable relating to this sale was collectable in the quarter it was recognized and (ii) the Company did not have sufficient experience in the infomercial market to adequately understand the distribution channel, the fluctuating nature of sales into this channel or the to estimate potential for product return.  The effect of the reversal will be to (1) reduce total revenue by $1.6 million in 2006, (2) reduce cost of sales by $268,000 in 2006, (3) reduce net income by $1.4 million in 2006 and (4) increase net income by $1.4 million in 2007.

· In June 2007 the Company granted to Pacific Holdings Advisors Limited (“PAHL”) a perpetual and exclusive license and distribution rights (“License”) for the production and sale of SRB and SRB derivative products in certain countries in Southeast Asia.  PAHL agreed to pay the Company a $5 million one-time license fee (“License Fee”), which was due and payable on the fifth anniversary of the commencement of SRB production at a facility established by PAHL or a joint venture of PAHL and the Company.  The Company recorded this $5 million License Fee in the second quarter of 2007.  Contemporaneous with the grant of the License, the Company and PAHL jointly formed Grain Enhancements, LLC (“GE”).  Pursuant to GE’s limited liability company agreement, PAHL sublicensed its rights under the License to GE.

Upon further analysis of these transactions, the Company has concluded that the License Fee did not qualify as revenue to the Company under generally accepted accounting principles.   Through our review of the transactions, including the License and other agreements that the Company entered into in connection with the formation of GE, we determined that the transactions should have been considered as one arrangement with multiple deliverables instead of stand-alone transactions.  The various obligations under this one arrangement would have precluded immediate revenue recognition of the License Fee.  Accordingly, this transaction was reversed, which decreased the Company’s license fee revenue in 2007 by $5 million and increase the Company’s net loss in 2007 by $5 million.

50

In March 2008, Medan, LLC (“Medan”), a wholly-owned subsidiary of the Company, purchased (“First Purchase”) from Fortune Finance Overseas LTD (“FFOL”) for $8.175 million 9,700 outstanding shares of capital stock of PT Panganmas Int Nusantara (“PIN”), an Indonesian company.  In June 2008, Medan purchased directly from PIN 3,050 additional shares of PIN capital stock for $2.5 million.  Following these purchases, Medan and FFOL own 51% and 49%, respectively of PIN’s outstanding capital stock.  The capital contributions that the Company made to Medan funded the purchase of the PIN shares.

The determination of the purchase price of the PIN shares was agreed to by management based upon an economic feasibility study of the PIN project that the Company obtained from a third party valuation firm.  Based upon this study, the Company recorded the value of the PIN shares on its balance sheet at $10.675 million, which was the price the Company paid for the PIN shares.  Upon further review, the Company has determined that there was not sufficient evidence at the time of their acquisition to support the $10.675 million valuation of the PIN shares.  Accordingly, the Company has decided to restate its consolidated balance sheet to reduce the value of the PIN shares by $5 million to $5.675 million as outlined below.

In March 2008, PAHL paid to the Company $5 million for its License Fee described above.  A principal shareholder of FFOL is also a principal shareholder of PAHL, and the Company’s receipt of payment for the License Fee was made at the same time the Company decided to make the First Purchase of the PIN shares.  Based in part upon the related ownership of FFOL and PAHL, the timing of the payments, the sub-license of PAHL’s rights under the License to GE and the Company’s current determination of the value of the PIN shares, the Company now believes the First Purchase of the PIN shares and the payment of the License Fee should be viewed as a combined event with related parties, causing the Company to account for the First Purchase of the PIN shares as a payment of $3.175 million instead of $8.175 million.

In accounting for the PIN and GE transactions described above, the Company used the equity method.  The planned business of PIN was the construction and operation of a wheat flour mill in Indonesia including the production of stabilized wheat co-products. Constructing and operating wheat flour mills does not fit the strategic direction we have defined for NutraCea.  On July 23, 2009, we sold to FFOL the Company’s entire balance of 12,750 shares of capital stock of PIN, which shares represented 51% of the currently issued and outstanding capital stock of PIN.  FFOL agreed to pay $1,675,000 to Medan to purchase these shares thus purchasing all of our interest in PIN.  The sale of our shares of capital stock of PIN resulted in a $3,996,000 impairment charge representing the difference between the carrying value of our investment and the cash to be received from FFOL.  This impairment change was recorded as of December 31, 2008.

· In April 2007, the Company began leasing the office space that it currently occupies as its corporate headquarters in Phoenix, Arizona.  As part of the lease arrangement, the landlord provided certain moving and rental incentives to the Company.  The rental incentives provided funds which the Company used for leasehold improvements of the office space.  The Company did not properly account for the incentives provided by the landlord.  The Company accounted properly for these transactions as part of its restatement of the Consolidated Financial Statements for fiscal 2007, the second, third, and fourth quarters of fiscal 2007, and the first three quarters of fiscal 2008.  The restatement increased rent expense by $139,000 for the second quarter of 2007 and decreased rent expense by $42,000 for the third and fourth quarters of 2007 and for each of the first three quarters of 2008.

· In the second quarter of 2007, the Company recognized revenue on an approximately $2.1 million sale to a nutraceutical distributor.  The customer made payments during the third and fourth quarters of 2007, and a balance of approximately $1.4 million remained at the end of 2007.  The Company established a reserve for doubtful accounts for the remaining amount as of December 31, 2007. Based upon facts discovered in the Additional Findings, the Company concluded that the sale did not meet the criteria for revenue recognition, and therefore restated the transaction.  The restatement resulted in a reduction to the 2007 revenue of approximately $1.4 million and a reduction to the 2007 bad debt expense of approximately $1.4 million.

51

The following table summarizes the impact of the restated items on our statement of operations for the periods noted and should be read in conjunction with the accompanying Consolidated Financial Statements and notes thereto (amounts in thousands except per share data).

	Nine Months
	Ended 9/30/2008			12/31/07			12/31/06
Net (loss) income, as previously reported	$	(17,378	)	$	(11,911	)	$	1,585
Change to revenues for product revenue recognition		1,839			(4,435	)		(1,551	)
Change to revenues for license fee revenue recognition					(5,000	)
Change to cost of goods sold for product revenue recognition		(1,247	)		1,015			268
Change for decrease in bad debt expense		62			2,979
Change for (increase)/decrease in other operating expenses		390			(1,015	)
Change for increase/(decrease) in other income		119			391
Impact of restatement items		1,163			(6,065	)		(1,283	)
Net (loss) income, as restated	$	(16,215	)	$	(17,976	)	$	302
Earnings (loss) per share
Basic, as previously reported	$	(0.12	)	$	(0.09	)	$	0.02
Impact of restatement items, net of taxes	$	0.01		$	(0.05	)	$	(0.02	)
Basic, as restated	$	(0.11	)	$	(0.14	)	$	0.00
Diluted, as previously reported	$	(0.12	)	$	(0.09	)	$	0.02
Impact of restatement items, net of taxes	$	0.01		$	(0.05	)	$	(0.02	)
Diluted, as restated	$	(0.11	)	$	(0.14	)	$	0.00

The effect of the above mentioned restated items on our previously reported fiscal 2007 and 2006 consolidated balance sheets is provided below (amounts in thousands):

52

CONSOLIDATED BALANCE SHEET
As of December 31, 2007
	As Previously						As
	Reported			Adjustments			Restated
ASSETS
Current Assets:
Cash and cash equivalents	$	41,298		$	(100	)	$	41,198
Restricted cash		758						758
Marketable securities		-						-
Trade receivables		5,345			(3,065	)		2,280
Less: allowance for doubtful accounts		(2,999	)		2,979			(20	)
Inventory		1,808			91			1,899
Notes receivable, current portion		2,936						2,936
Deposits and other current assets		2,545			659			3,204
Total Current Assets		51,691			564			52,255
Restricted cash		1,791						1,791
Notes receivable, net of current portion		5,039			(5,000	)		39
Property, plant and equipment, net		19,328			584			19,912
Investment in equity method investments		1,191						1,191
Intangible assets, net		5,743						5,743
Goodwill		39,510						39,510
Total non-current assets		72,602			(4,416	)		68,186
Total Assets	$	124,293		$	(3,852	)	$	120,441
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable and accrued liabilities	$	7,506		$	(810	)	$	6,696
Notes payable - current portion		23						23
Deferred rent incentive - current portion		-			168			168
Deferred revenue		90			1,920			2,010
Total Current Liabilities		7,619			1,278			8,897
Deferred rent incentive - net of current portion		-			1,218			1,218
Other non-current liabilities		-			1,000			1,000
Notes payable - net of current portion		77						77
Total Liabilities		7,696			3,496			11,192
Commitments and contingencies
Minority interest
Stockholders Equity (deficit):
Common Stock		177,813						177,813
Accumulated deficit - prior year		(49,305	)		(1,283	)		(50,588	)
Net income /(loss) - current year		(11,911	)		(6,065	)		(17,976	)
Accumulated deficit		(61,216	)		(7,348	)		(68,564	)
Accumulated other Comprehensive Income (Loss)		-			-			-
Total shareholders'' equity (deficit)		116,597			(7,348	)		109,249
Total Liabilities and Equity	$	124,293		$	(3,852	)	$	120,441

53

CONSOLIDATED BALANCE SHEET
As of December 31, 2006
	As Previously						As
	Reported			Adjustments			Restated
ASSETS
Current Assets:
Cash and cash equivalents	$	14,867		$	-		$	14,867
Restricted cash		-			-			-
Marketable securities		368			-			368
Trade receivables		7,093			-			7,093
Adjustment to AR					(1,551	)		(1,551	)
Less: allowance for doubtful accounts		-			-			-
Inventory		796			-			796
Adjustment to inventory		-			268			268
Notes receivable, current portion		1,694			-			1,694
Deposits and other current assets		1,383			-			1,383
Total Current Assets		26,201			(1,283	)		24,918
Restricted cash		-			-			-
Notes receivable, net of current portion		682			-			682
Adjustment to long term notes receivable		-			-			-
Property, plant and equipment, net		8,961			-			8,961
Investment in equity method investments		-			-			-
Intangible assets, net		5,097			-			5,097
Goodwill		32,314			-			32,314
Total non-current assets		47,054			-			47,054
Total Assets	$	73,255		$	(1,283	)	$	71,972
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable and accrued liabilities	$	2,778		$	-		$	2,778
Notes payable - current portion		-			-			-
Deferred revenue		103			-			103
Total Current Liabilities		2,881			-			2,881
Notes payable - net of current portion		-			-			-
Total Liabilities		2,881			-			2,881
Commitments and contingencies
Convertible, Series B Preferred Stock		439			-			439
Convertible, Series C Preferred Stock		5,051			-			5,051
Stockholders Equity (deficit)
Common Stock		114,111			-			114,111
Accumulated deficit - prior year		(50,890	)		-			(50,890	)
Net income /(loss) - current year		1,585			(1,283	)		302
Accumulated deficit		(49,305	)		(1,283	)		(50,588	)
Accumulated other Comprehensive Income (Loss)		78			-			78
Total shareholders' equity (deficit)		70,374			(1,283	)		69,091
Total Liabilites and Equity	$	73,255		$	(1,283	)	$	71,972

The effect of the above mentioned restated items on our previously reported results of operations and cash flows for fiscal 2007 and 2006 is provided below (amounts in thousands except for per share data):

54

CONSOLIDATED STATEMENT OF OPERATIONS
For the Fiscal Year Ended December 31, 2007
	As Previously						As
	Reported (1)			Adjustments			Restated
Revenue
Product sales	$	18,372		$	(5,986	)	$	12,386
Less returns		(1,551	)		1,551			-
Royalty and licensing fees		5,340			(5,000	)		340
Total revenue		22,161			(9,435	)		12,726
Cost of goods sold		9,898			(1,015	)		8,883
Gross margin		12,263			(8,420	)		3,843
Operating expenses
Research and development		769						769
Selling, general, and administrative		17,243			1,015			18,258
Bad debt		3,233			(2,979	)		254
Impairment of intangible assets		1,300						1,300
Separation agreement with former CEO		1,000						1,000
Professional fees		3,848						3,848
Total operating expenses		27,393			(1,964	)		25,429
Loss from operations		(15,130	)		(6,456	)		(21,586	)
Other Income (expense)
Interest income		2,809			391			3,200
Interest expense		(1	)					(1	)
Gain on settlement		1,250						1,250
Loss on disposal of assets		(347	)					(347	)
Loss on equity method investments		(309	)					(309	)
Loss on sale of marketable securities		(163	)					(163	)
Total other income/(expense)		3,239			391			3,630
Income tax expense		(20	)					(20	)
Minority Interest								-
Net income/(loss)	$	(11,911	)	$	(6,065	)	$	(17,976	)
Earnings per share:
Basic income /(loss) per share	$	(0.09	)	$	(0.05	)	$	(0.14	)
Fully diluted income /(loss) per share	$	(0.09	)	$	(0.05	)	$	(0.14	)
Shares Outstanding:
Weighted average basic number of shares outstanding		125,938						125,938
Weighted average diluted number of shares outstanding		125,938						125,938

(1) Certain reclassifications have been made to prior period amounts to conform to classifications adopted in the current year.

55

CONSOLIDATED STATEMENT OF OPERATIONS
For the Fiscal Year Ended December 31, 2006
	As Previously						As
	Reported (1)			Adjustments			Restated
Statement of Operations
Revenue
Net product sales	$	17,105		$	(1,551	)	$	15,554
Less returns		-						-
Royalty and licensing fees		985			-			985
Total revenues		18,090			(1,551	)		16,539
Cost of goods sold		9,130			(268	)		8,862
Gross margin		8,960			(1,283	)		7,677
Operating expenses
Research and development		377						377
Selling, general, and administrative		6,657						6,657
Bad debt		9						9
Professional fees		865						865
Total operating expenses		7,908			-			7,908
Gain/(loss) from operations		1,052			(1,283	)		(231	)
Other income (expense)
Interest income		545						545
Interest expense		(7	)					(7	)
Total other income/(expense)		538			-			538
Total income before income tax		1,590			(1,283	)		307
Income tax expense		5						5
Net income/(loss)	$	1,585		$	(1,283	)	$	302
Earnings per share:
Basic income /(loss) per share	$	0.02		$	(0.02	)	$	0.00
Fully diluted income /(loss) per share	$	0.02		$	(0.02	)	$	0.00
Shares Outstanding:
Weighted average basic number of shares outstanding		76,692						76,692
Weighted average diluted number of shares outstanding		102,636						102,636

(1) Certain reclassifications have been made to prior period amounts to conform to classifications adopted in the current year.

56

CONSOLIDATED STATEMENT OF CASH FLOWS
For the Fiscal Year Ended December 31, 2007
	As Previously			Adjusting			As
	Reported			Entries			Restated
Cash flow from operating activities:
Net Income (loss)	$	(11,911	)	$	(6,065	)	$	(17,976	)
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation and amortization		2,202			70			2,272
Provision for doubtful accounts and notes		3,229			(2,979	)		250
Goodwill impairment		1,300			-			1,300
Loss on retirement of assets		347			-			347
Stock-based compensation		2,166			-			2,166
Loss on equity method investments		309			-			309
Loss on sale of marketable securities		290			-			290
Changes in operating assets and liabilities:
(Increase) decrease in
Trade accounts receivable		(886	)		1,514			628
Inventories		(971	)		177			(794	)
Other current assets		(1,167	)		(659	)		(1,826	)
Accounts payable and accrued liabilities		2,739			(810	)		1,929
Deferred rent incentive		-			1,386			1,386
Other non-current liabilities		-			1,000			1,000
Deferred revenue		-			1,920			1,920
Net cash used in operating activities		(2,353	)		(4,446	)		(6,799	)
Cash flows from investing activities
Issuance of notes receivable		(7,828	)		5,000			(2,828	)
Proceeds of payments from notes receivable		5,410			-			5,410
Purchases of property, plant and equipment		(11,652	)		(654	)		(12,306	)
Investment in Grainnovation, Inc.		(2,169	)		-			(2,169	)
Investment in Vital Living, Inc.		(5,143	)		-			(5,143	)
Investment in joint venture		(1,500	)		-			(1,500	)
Restricted cash		(2,239	)		-			(2,239	)
Proceeds from issuance of long-term notes		69			-			69
Proceeds from sale of fixed assets		16			-			16
Purchases of other assets, intangibles and goodwill		(2,225	)		-			(2,225	)
Net cash provided by (used in) investing activities		(27,261	)		4,346			(22,915	)
Cash flows from financing activities
Proceeds from private placement financing, net of expenses		46,805			-			46,805
Proceeds from exercise of common stock options and warrants		9,240			-			9,240
Net cash provided by financing activities		56,045			-			56,045
Net increase (decrease) in cash		26,431			(100	)		26,331
Cash, beginning of period		14,867						14,867
Cash, end of period	$	41,298		$	(100	)	$	41,198

57

CONSOLIDATED STATEMENT OF CASH FLOWS
For the Fiscal Year Ended December 31, 2006
	As Previously						As
	Reported			Adjustments			Restated
Cash flow from operating activities:
Net Income (loss)	$	1,585		$	(1,283	)	$	302
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation and amortization		1,150			-			1,150
Stock-based compensation		1,091			-			1,091
Net changes in operating assets and liabilities:
(Increase) decrease in
Trade accounts receivable		(4,578	)		1,551			(3,027	)
Inventories		(202	)		(268	)		(470	)
Other current assets		(1,301	)		-			(1,301	)
Accounts payable and accrued liabilities		1,531			-			1,531
Advances to related parties		(3	)		-			(3	)
Other non-current liabilties		98			-			98
Net cash used in operating activities		(629	)		-			(629	)
Cash flows from investing activities
Issuance of notes receivable		(2,376	)		-			(2,376	)
Purchases of property, plant and equipment		(4,682	)		-			(4,682	)
Purchases of other assets, intangibles and goodwill		(2,640	)		-			(2,640	)
Net cash provided by (used in) investing activities		(9,698	)		-			(9,698	)
Cash flows from financing activities
Proceeds from private placement financing, net of expenses		15,934			-			15,934
Principal payments on notes payable, net of discount		(15	)		-			(15	)
Proceeds from exercise of common stock options and warrants		5,784			-			5,784
Net cash provided by financing activities		21,703			-			21,703
Net increase (decrease) in cash		11,376			-			11,376
Cash, beginning of period		3,491						3,491
Cash, end of period	$	14,867		$	-		$	14,867

Results of Operations

The following is a detailed discussion of our consolidated financial condition as of December 31, 2008 and 2007 and the results of operations for fiscal years ended December 31, 2008, 2007 and 2006, which should be read in conjunction with, and is qualified in its entirety by, the Consolidated Financial Statements and notes thereto included elsewhere in this report. The Consolidated Financial Statements (see Part II - Item 8. FINANCIAL STATEMENTS) represent annual results for NutraCea.

Year Ended DECEMBER 31, 2008 Compared to Year Ended DECEMBER 31, 2007

Total Revenue and Gross Profit

For the period ended December 31, 2008, total revenues were $35,224,000 compared to $12,726,000 in the comparable period. This represents an increase of $22,498,000 or 177%. The acquisition of Irgovel contributed revenues of $20,201,000. The NutraCea segment experienced an increase in total revenue of $2,297,000 or 18%.  Included in the 2008 NutraCea segment results are sales returns of $667,000 due primarily to prior year sales to one customer in our private label product line.  The increase in revenue in the NutraCea segment is primarily due to increased sales in our core SRB product lines and the recognition of RiceNShine revenue in 2008 associated with the bill and hold transaction originally recorded in 2007 (see Note 2 Audit Committee Review and Restatement of Consolidated Financial Statements to the Consolidated Financial Statements contained herein).

Royalty, label and licensing fees revenue for the period ended December 31, 2008 was $48,000 compared to $340,000 in the comparable period. The decrease of $292,000 is primarily the result of recognizing $300,000 from Herbal Science in the comparable period. 

58

In arriving at total revenues, gross revenues are reduced by provisions for estimates, including discounts, performance and promotions, price adjustments and returns.

Cost of goods sold for the period ended December 31, 2008 was $30,416,000 as compared to $8,883,000 for the period ended December 31, 2007.  This represents an increase of $21,533,000 or 242%.  The acquisition of Irgovel contributed costs of goods sold of $15,783,000.  Our NutraCea segment experienced an increase of $5,750,000 or 65% primarily due to historically high raw bran prices, higher energy and transportation costs, continued investment in production capacity, low capacity utilization rates, charges related to slow moving product, and the phasing out of the high margin infomercial product line.    During the year 2008 our NutraCea segment operated at 30% of capacity.  Our Mermentau plant was idle May through July due to the rice mill that supplies the plant not milling rice because of business conditions at their mill not related to our operations.  Our Lake Charles plant began operations in May 2008; however, full production levels have not been reached.  Additionally, hurricane weather disrupted normal operations at all three of our gulf cost facilities, Lake Charles, Mermentau, and Freeport. Based on the level of demand for SRB and our ability to meet that demand with our production facilities in California, the Company permanently closed its Freeport facility in May 2009 and temporarily idled the Mermentau and Lake Charles facilities in May 2009.

Gross profit for the period ended December 31, 2008 was $4,808,000 as compared to $3,843,000 for the period ended December 31, 2007. The acquisition of Irgovel contributed $4,418,000 to gross profit.  The NutraCea segment experienced a decrease of $3,453,000 primarily due to historically high raw bran prices, higher energy and transportation costs, continued investment in production capacity, low capacity utilization rates, charges related to slow moving product, and the phasing out of the high margin infomercial product line.  While we were not able to pass through 100% of the raw material price increases, we successfully implemented some pricing increases in the fourth quarter and continue to evaluate our pricing strategy, cost structure, and underperforming production assets on a go-forward basis.  Gross margins were 14% for the period ended December 31, 2008 as compared to 30% for the comparable period ended December 31, 2007.

The following table illustrates the gross profit contribution by each of our segments for the years ended December 31:

																	Increase/
	December 31, 2008												December 31, 2007				(Decrease)
	Consolidated		%		NutraCea		%		Irgovel		%		NutraCea		%
Net product sales	$	35,176,000			$	14,975,000			$	20,201,000			$	12,386,000			$	22,790,000
Royalty and licensing		48,000				48,000				-				340,000				(292,000	)
Total revenues	$	35,224,000		100	$	15,023,000		100	$	20,201,000		100	$	12,726,000		100	$	22,498,000
Cost of sales		30,416,000		86		14,633,000		97		15,783,000		78		8,883,000		70		21,533,000
Gross profit	$	4,808,000		14	$	390,000		3	$	4,418,000		22	$	3,843,000		30	$	965,000

Operating expenses

Sales, General and Administrative (SG&A) expenses were $23,785,000 and $18,258,000 in 2008 and 2007, respectively. The acquisition of Irgovel added $3,746,000 of incremental SG&A. Excluding this amount, the NutraCea segment SG&A expense increased by $1,781,000 or 10%.  The majority of increase was due to expanded investment in personnel and production capacity.  Depreciation and amortization increased $846,000 due to the completion of our Lake Charles facility and the leasehold improvements completed at our corporate office.  Sales and Marketing expense decreased $1,385,000 due to exiting the infomercial sales channel and targeting marketing dollars more effectively.  Stock Option and Warrant expense was $2,510,000 and $2,166,000 for the twelve months ended December 31, 2008 and 2007, respectively which represents stock options and warrants granted to individuals or companies for services rendered in lieu of cash (see Note 6 Stock-based Compensation to the Consolidated Financial Statements contained herein).   Below is a breakdown of SG&A for the years ended December 31:

59

					Increase
	2008		2007		(Decrease)
Payroll and Benefits	$	8,049,000	$	6,478,000	$	1,571,000
Sales & Marketing		1,190,000		2,575,000		(1,385,000	)
Operations		1,076,000		1,035,000		41,000
Depreciation and Amortization		2,030,000		1,184,000		846,000
Stock Option and Warrant Expense		2,510,000		2,166,000		344,000
Other SG&A		5,184,000		4,820,000		364,000
Total NutraCea Segment SG&A		20,039,000		18,258,000		1,781,000
Irgovel SG&A		3,746,000		-		3,746,000
Total Consolidated SG&A	$	23,785,000	$	18,258,000	$	5,527,000

Research and Development (R&D) expenses were $1,509,000 and $769,000 in 2008 and 2007, respectively.  The increase was attributed to higher product development costs and employee related expenses due to increased R&D activities and expanded scientific staff compared to the same period last year.  Additionally, we paid $400,000 to Herbal Science for on-going research programs to commercialize SRB isolates.  The Company expects to continue research and development expenditures to establish the scientific basis for health claims of existing products and to develop new products and applications.

Bad debt expense was $2,222,000 for the twelve months ended December 31, 2008, an increase of $1,968,000 over 2007.  A significant portion of bad debt expense in 2008, $2,198,000, was related to VLI (see Note 11 Notes Receivable to the Consolidated Financial Statements) and customers we no longer do business with or product lines we no longer sell.  We expect to experience more normalized bad debt expense going forward.

Professional fees were $4,922,000 and $3,848,000 for the twelve months ended December 31, 2008 and 2007, respectively.  Professional fees are expenses associated with consultants, accounting, SOX 404 compliance, and outside legal counsel.  The increase of $1,074,000 or 28% was mainly due to the settlement agreement with Halpern (see note 18 Commitments and Contingencies to the Consolidated Financial Statements included herein).

Impairment of goodwill was $33,231,000 and $1,300,000 in the twelve months ended December 31, 2008 and 2007, respectively (see Note 26 Impairment of Goodwill to the Consolidated Financial Statements included herein).  Impairment of our investment in PIN was $3,996,000 in 2008 (see Note 12 Acquisition and Joint Ventures to the Consolidated Financial Statements) and our gain on deconsolidation of VLI was $1,199,000 (see Note 12 Acquisition and Joint Ventures to the Consolidated Financial Statements contained herein).

Other income (expense)

Total other income (expense) decreased by $4,560,000 to ($930,000) for the year ended December 31, 2008 as compared to $3,630,000 for the year ended December 31, 2007.  Below is the detail by each of our segments for the years ended December 31:

													Increase
	2008									2007			(Decrease)
	Consolidated			NutraCea			Irgovel			NutraCea
Interest income	$	850,000		$	716,000		$	134,000		$	3,200,000		$	(2,350,000	)
Interest expense		(728,000	)		(315,000	)		(413,000	)		(1,000	)		(727,000	)
Gain on settlement		47,000			47,000			-			1,250,000			(1,203,000	)
Loss on equity investments		(240,000	)		(240,000	)		-			(309,000	)		69,000
Loss, net of gains, on retirement of assets		(399,000	)		(399,000	)		-			(347,000	)		(52,000	)
Other income (expense)		(460,000	)		(297,000	)		(163,000	)					(460,000	)
Loss on sale of marketable securities		-			-			-			(163,000	)		163,000
Total other (expenses) income	$	(930,000	)	$	(488,000	)	$	(442,000	)	$	3,630,000		$	(4,560,000	)

60

Interest income decreased $2,350,000 due to lower cash balances available for investment in 2008.

Interest expense was $728,000 and $1,000 for the year ended December 31, 2008 and 2007, respectively.  The increase of $727,000 is primarily due to increased debt levels.  The most significant items were the issuance of Series D Preferred Stock in October 2008 and the establishment of a new credit facility with Wells Fargo (see Liquidity and Capital Resources for further discussion).

Gain on settlement decreased $1,203,000 as a result of the settlement in 2007 of a lawsuit related to our investment in Langley Park (see Note 5 Marketable Securities of the Consolidated Financial Statements).

Income taxes

Income tax expense for the year ended December 31, 2008 increased $44,000 to $64,000 from $20,000 for the prior year due to a payment of Brazil and state of California corporate income taxes.

As of December 31, 2008 the Company recorded a deferred tax liability of $4,187,000.  Deferred taxes arise from temporary differences in the recognition of certain expenses for tax and financial reporting purposes. At December 31, 2008 and 2007, management determined that realization of these benefits is not assured and has provided a valuation allowance for the entire amount of such benefits. At December 31, 2008, net operating loss carry-forwards were approximately $81,831,000 for federal tax purposes that expire at various dates from 2011 through 2022 and $59,445,000 for state tax purposes that expire in 2010 through 2017.

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

YEAR ENDED DECEMBER 31, 2007 AND DECEMBER 31, 2006

Total Revenue and Gross Profit

Consolidated revenues for the year ended December 31, 2007 were $12,726,000, a decrease of $3,813,000, or 23%, from consolidated revenues of $16,539,000 in 2006. The decreased revenue was a result of an $8,061,000 decrease in the infomercial products line partially offset by an increase of $601,000 due to the consolidation of VLI, and $2,122,000 in revenue growth in our core SRB related products.

Cost of goods sold for the period ended December 31, 2007 was $8,883,000 as compared to $8,862,000 for the period ended December 31, 2006.  This represents an increase of $21,000. Cost of goods sold on our various product lines vary widely and the gross margins are impacted from period to period by sales mix and utilization of production capacity.

Gross profit decreased $3,834,000 to $3,843,000 in 2007, from $7,677,000 in 2006 due primarily to the decrease in revenue in our high margin infomercial products line.  Gross margins were 30% for the period ended December 31, 2007 as compared to 46% for the comparable period ended December 31, 2006.  The following table illustrates the gross profit contribution for the years ended December 31:

									Increase/
	December 31, 2007				December 31, 2006				(Decrease)
	NutraCea		%		NutraCea		%
Net product sales	$	12,386,000			$	15,554,000			$	(3,168,000	)
Royalty and licensing		340,000				985,000				(645,000	)
Total revenues		12,726,000		100		16,539,000		100		(3,813,000	)
Cost of sales		8,883,000		69.8		8,862,000		53.6		21,000
Gross profit	$	3,843,000		30.2	$	7,677,000		46.4	$	(3,834,000	)

61

Operating expenses

Sales, General and Administrative (SG&A) expenses were $18,258,000 and $6,657,000 for the twelve months ended December 31, 2007 and 2006, respectively.  The increase of $11,601,000 was primarily due to expanded investment in personnel, infrastructure, and sales and marketing activities to meet anticipated future demands (with certain exceptions as noted below).  Stock Option and Warrant expense was $2,166,000 and $1,091,000 for the twelve months ended December 31, 2007 and 2006, respectively which represents stock options and warrants granted to individuals or companies for services rendered in lieu of cash (see Note 6 Stock-based Compensation to the Consolidated Financial Statements contained herein).  Included in our 2007 SG&A expense is $884,000 due to the inclusion in our results of operations the results of VLI for the period of April 20, 2007 through December 31, 2007 (see Note 12 Acquisition and Joint Ventures to the Consolidated Financial Statements included herein).  Below is a breakdown of SG&A for the years ended December 31:

					Increase
	2007		2006		(Decrease)
Payroll and Benefits	$	6,478,000	$	2,328,000	$	4,150,000
Sales & Marketing		2,575,000		622,000		1,953,000
Operations		1,035,000		321,000		714,000
Depreciation and Amortization		1,184,000		608,000		576,000
Stock Option and Warrant Expense		2,166,000		1,091,000		1,075,000
Other SG&A		4,820,000		1,687,000		3,133,000
Total Consolidated SG&A	$	18,258,000	$	6,657,000	$	11,601,000

Research and Development (R&D) expenses increased $392,000 in 2007 to $769,000 from $377,000 in 2006, due to on-going product development activities and an increase in R&D staff.

Professional fees increased $2,983,000 from $865,000 in 2006 to $3,848,000 in 2007. The increase in professional fees is primarily due to the Grain Enhancements, LLC joint venture development, the consolidation of VLI in 2007, and increased accounting and SOX 404 compliance.  We incurred $750,000 associated with developing our joint venture with Grain Enhancements (see Note 12 Acquisition and Joint Ventures to the Consolidated Financial Statements).  Included in professional fees for 2007 is $624,000 due to the inclusion of the results of VLI for the period of April 20, 2007 through December 31, 2007 (see Note 12 Acquisition and Joint Ventures to the Consolidated Financial Statements included herein).

Other income (expense)

Total other income (expense) increased by $3,092,000 to $3,630,000 for the year ended December 31, 2007 as compared to $538,000 for the year ended December 31, 2006.

							Increase
	December 31, 2007			December 31, 2006			(Decrease)
	NutraCea			NutraCea
Interest income	$	3,200,000		$	545,000		$	2,655,000
Interest expense		(1,000	)		(7,000	)		6,000
Gain on settlement		1,250,000			-			1,250,000
Loss on equity method investments		(309,000	)		-			(309,000	)
Loss, net of gains, on retirement of assets		(347,000	)		-			(347,000	)
Loss on sale of marketable securities		(163,000	)		-			(163,000	)
Total other (expenses) income	$	3,630,000		$	538,000		$	3,092,000

Interest income increased $2,655,000 to $3,200,000 from $545,000 due to the higher cash balances available for investment.

62

Gain on a settlement increased $1,250,000 due to the settlement of a lawsuit in relation to the investment in Langley Park (see Note 5 Marketable Securities to the Consolidated Financial Statements contained herein).

Income taxes

Income tax expense for the year ended December 31, 2007 increased $15,000 to $20,000 from $5,000 for the prior year due to a payment for State of California corporate income taxes.

Deferred taxes arise from temporary differences in the recognition of certain expenses for tax and financial reporting purposes. At December 31, 2007 and 2006, management determined that realization of these benefits is not assured and has provided a valuation allowance for the entire amount of such benefits. At December 31, 2007, net operating loss carry-forwards were approximately $55,957,000 for federal tax purposes that expire at various dates from 2011 through 2021 and $33,596,000 for state tax purposes that expire in 2010 through 2016.

The Company has an unrecorded income tax benefit of $9,015,000 resulting from the exercise of options during 2007. This benefit can only be recognized if the net operating losses are used in future periods or if net operating losses expire, and will be recorded in equity.

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

LIQUIDITY AND CAPITAL RESOURCES

Our cash and cash equivalents were $4,867,000 and $41,198,000 at December 31, 2008 and 2007, respectively.

At December 31, 2008, we had $5,197,000 of restricted cash; $2,353,000 and $2,844,000 classified as current and non-current assets respectively (see Note 16 Restricted Cash to the Consolidated Financial Statements included herein).  The restricted cash amount includes a balance of approximately $1,792,000 which is restricted by contract as security on our corporate office lease in Phoenix.  The amount of restricted cash required under the office lease decreases annually over the period of five years per the terms of the lease agreement.  The lease expires in 2016.  The restricted cash amount also includes a balance of $1,500,000 associated with our credit and security agreement with Wells Fargo.  Under the terms of the agreement, the Company is required to maintain the restricted cash balance unless it meets certain levels of debt service coverage ratios and is not in default of the agreement.  The remaining amount of approximately $1,905,000 represents restricted cash to cover certain acquired litigation matters under the purchase agreement terms of the acquisition of Irgovel.

Cash used in operating activities was $16,560,000 for the year ended December 31, 2008, compared to net cash used in operations in the same period of 2007 of $6,799,000, an increase of $9,761,000.  This increase in cash used by operations resulted primarily from our $64,572,000 net loss, offset by non-cash charges of: $5,962,000 for depreciation and amortization, the impairment of goodwill of $33,231,000, the impairment of Senior Notes and Preferred Stock of $1,600,000, the impairment of PIN of $3,996,000, stock-based compensation of $2,510,000, and a gain on deconsolidation of $2,799,000.

The changes in our operating assets and liabilities and the associated impacts on our net cash used in operations during the period ended December 31, 2008 as compared to the changes during the year ended December 31, 2007 are primarily due to the increase in accounts payable and accrued liabilities of $3,607,000, an increase in inventories of $1,494,000, an increase in deferred tax liability of $1,264,000, and a decrease in deferred revenue of $1,874,000.

63

Cash used in investing activities was $48,339,000 and $22,915,000 for the years ended December 31, 2008 and 2007, respectively.  This increase of $25,424,000 primarily was due to our current plant expansion projects and our investments in subsidiaries.  We invested $26,446,000 in the purchase of property, plant and equipment at several locations including our Lake Charles, Louisiana and Phoenix, Arizona facilities, which was an increase of $14,140,000 over the year ended December 31, 2007. Additionally, we invested $15,014,000 (net of cash acquired) in the acquisition of Irgovel and invested $5,812,000 in PIN and Rice RX.  The following table lists the amounts invested in subsidiaries and joint ventures during the twelve months ended:

						Increase
	2008			2007		(Decrease)
Investment in Grainnovation, Inc.	$	-		$	2,169,000	$	(2,169,000	)
Investment in Vital Living, Inc.		(3,852,000	)		5,143,000		(8,995,000	)
Investment in Grain Enhancements, LLC		-			1,500,000		(1,500,000	)
Investment in Irgovel, net of cash required		15,014,000			-		15,014,000
Investment in PIN and Rice Rx		5,812,000			-		5,812,000
Total investment in subsidiaries	$	16,974,000		$	8,812,000	$	8,162,000

Cash provided from financing activities was $30,066,000 and $56,045,000 for the years ended December 31, 2008 and 2007, respectively.  In 2008, we raised $18,775,000 (net of expenses) through a registered offering of common stock and warrants and $4,945,000 through the registered offering of Series D Preferred Stock and warrants.  We also established a credit facility with Wells Fargo.  As of December 31, 2008 the total balance outstanding on the credit facility was $5,000,000 of which $1,500,000 is held as restricted cash.  In 2007, the Company sold common stock in connection with a private placement in which we raised a total of $46,805,000 (net of expenses).  A further description of these transactions is included below.

Our working capital position was ($4,798,000) and $43,358,000 as of December 31, 2008 and 2007, respectively.

The Company has experienced recurring losses and negative cash flows from operations.  Due to defaults under its credit agreement with Wells Fargo, the Company’s credit lines were reduced to approximately $3,500,000, which was the level of the current outstanding loans and obligations at that time.  NutraCea entered into a forbearance agreement with Wells Fargo pursuant to which Wells Fargo agreed to forebear from exercising its rights and remedies with respect to the existing defaults.  The Company has determined it is probable that we will not be in compliance with the terms of the Forbearance agreement as of October 31, 2009, and therefore the entire loan balance has been classified as a current liability.

NutraCea is behind on its payments to vendors and has defaulted on several agreements due to non-payment.  Expenses have been reduced where possible.  In the past the Company has turned to the equity markets for additional liquidity.  This is not a likely source of funds at this time due to the Company’s financial position and the state of the equity markets.

The Company’s management intends to provide the necessary cash to continue operations through the monetization of certain assets and the growth of revenues.  The monetization of assets is expected to include some or all of the following:

· sale or a sale/ lease back of certain of the Company’s facilities;

· sale of a minority interest in one or more of the Company’s  subsidiaries;

· sale of certain trademarks to strategic buyers that could become long-term buyers of bulk SRB; or

· sale of surplus equipment.

The growth of revenues is expected to include the following:

· licensing of the Company’s intellectual properties;

· growing sales in existing markets, including bulk SRB, rice bran oil and baby cereal; and

· aligning with strategic partners who can provide channels for additional sales of our products.

64

We have already taken steps to pursue several of these potential sources of cash.  Successful monetization of one or more of the assets identified above could yield sufficient cash to enable the Company to remain a going concern.  Some of these sales could result in non-cash write downs of asset values.  These potential write downs have not been recorded in the accompanying financial statements.  Although management believes that they will be able to obtain the funds necessary for us to continue as a going concern there can be no assurances that the means for maintaining this objective will prove successful.

Our ability to meet long term business objectives likely will be dependent upon our ability to raise additional financing through public or private equity financings, establish increasing cash flow from operations, enter into collaborative or other arrangements with corporate sources, or secure other sources of financing to fund long-term operations.  There is no assurance that external funds will be available on terms acceptable to us in sufficient amount to finance operations until we do reach sufficient positive cash flow to fund our capital expenditures.  In addition, any issuance of securities to obtain such funds would dilute percentage ownership of our shareholders.  Such dilution could also have an adverse impact on our earnings per share and reduce the price of our common stock. Incurring additional debt may involve restrictive covenants and increased interest costs that will strain our future cash flow.  Our inability to obtain sufficient financing may require us to delay, scale back or eliminate some or all of our product development and marketing programs, eliminate or restructure portions of our operations, restructure existing operations to attempt to ensure future viability, or pursue other alternatives such as filing for bankruptcy, pursuing dissolution and liquidation or seeking to merge with another company or sell all or substantially all of our assets.  In addition, potential debt or equity funders may require that we initiate bankruptcy proceedings before providing us with additional debt or equity funding.

Equity financing

Issuance of preferred stock

During October 2008, we issued in a registered offering to two institutional investors, for the purchase price of $5,000,000, shares of our Series D Convertible Preferred Stock ("Preferred Stock") and five-year warrants to purchase approximately 4,545,000 shares of our Common Stock. The securities were offered in "units" at a price of $1,000 per unit.  The units immediately separated upon issuance.  Each unit consisted of one share of Preferred Stock convertible into approximately 1,818 shares of Common Stock at an initial conversion price per share of Common Stock of $0.55, and a warrant to purchase 909 shares of our Common Stock at an exercise price of $0.55 per share. The investors also received additional warrants that grant them the right, for a period of 60 days after the initial issuance, to purchase an additional $5,000,000 of Preferred Stock and associated warrants on the same terms as the initial issuance.  The investors did not exercise this right and it expired. For the sale of 5,000 units we received an aggregate of $4,500,000 net of fees and expenses.

The Preferred Stock is considered to be a financial instrument that is a mandatorily redeemable security under SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, and as such, should be measured at fair value and classified, recorded, and presented as a liability in the financial statements.   Additionally, SFAS No. 155, Accounting for Certain Hybrid Financial Instruments allows for hybrid financial instruments meeting certain criteria to be recorded at fair value and the return paid to the holders as interest expense rather than dividends. Holders of the preferred stock shall have no voting right except as required by applicable law and has a liquidation preference of $5,000,000. There is no established public trading market for the Preferred Stock.

The Preferred Stock accrues preferred dividends, classified as interest under SFAS No. 150, at 8% per annum. These dividends are payable quarterly in arrears, commencing on January 1, 2009. Subject to the satisfaction of certain conditions, the dividends are payable in shares of NutraCea Common Stock, valuing the shares at a 10% discount to the trailing 30-day volume weighted average stock price, but may be paid in cash at NutraCea's election. On December 31, 2008, we paid the investors in cash, the preferred dividends for the period October 17 to December 31, 2008, in the amount of $82,417.

Under the terms of the Preferred Stock, NutraCea was required to redeem all of the Preferred Stock (unless converted) in 9 equal monthly installments commencing on February 1, 2009. The redemption amount is payable in shares of NutraCea Common Stock, but may be paid in cash at NutraCea's election. Subject to certain limitations, we may redeem the Preferred Stock at any time upon 10 days notice at a price equal to 110% of the aggregate stated value of the Preferred Stock being redeemed plus accrued and unpaid dividends thereon.

65

In December 2008 one investor converted 55 shares of the Preferred Stock into 100,111 shares of our common stock in accordance with the terms of the Preferred Stock.  At December 31, 2008 there were 4,945 shares of the Preferred Stock outstanding.

On January 30, 2009, we paid the accrued dividends in cash.  In the period February through April, we paid the redemption price for the redeemed Preferred Stock and the accrued dividends thereon in shares of our common stock.

On May 7, 2009, NutraCea entered into and consummated two Exchange Agreements with the holders of its Preferred Stock.  The agreements provided for the cancellation of all of the 2,743 then outstanding shares of its Preferred Stock and outstanding warrants to purchase a total of 4,545,455 shares of its common stock held by these holders (“Prior Warrants”), in exchange for 2,743 shares of its Series E Convertible Preferred Stock (“Series E Preferred Stock”) and new warrants to purchase 4,545,455 shares of its common stock (“New Warrants”).  The terms of the New Warrants are substantially similar to the terms of the Prior Warrants, except that the per share exercise price of the New Warrants was $0.30 and the termination date of the New Warrants is May 7, 2014.  The per share exercise price of the New Warrants was reduced to $0.20 on July 7, 2009 and the share amounts were increased to 6,818,183 pursuant to their anti-dilution provisions when we issued an option to purchase 5,000,000 shares of common stock to our President. The terms of the Series E Preferred Stock is substantially similar to the terms of the Series D Preferred Stock, except that it required redemption and payment of accrued dividends in three equal monthly installments on June 1, 2009, July 1, 2009 and August 1, 2009 and provided for a dividend to accrue at an annual rate of 7%.   We redeemed the Series E Preferred Stock and paid the accrued dividends thereon in June, July and August 2009.  As of August 28, 2009, we redeemed all outstanding Series E Preferred Stock and paid all dividends accrued thereon with payments of our common stock.

Cash raised in equity financing

In April 2008 we issued in a registered offering, common stock and warrants for aggregate gross proceeds of approximately $20,000,000 ($18,775,000 after offering expenses).  We issued an aggregate of 22,222,223 shares of our common stock and warrants to purchase an aggregate of 6,666,664 shares of our common stock combined in “units” at a price of $0.90 per unit.  Each unit consists of one share of our common stock and a five year warrant to purchase 0.30 of a share of NutraCea common stock at an exercise price of $1.20 per share.  The exercise price of the warrants is each subject to anti-dilution adjustments upon certain stock issuances at a price per share less than the exercise price.  An advisor for the financing received a customary 6.0% cash fee, based upon the aggregate gross proceeds received from the investors, reasonable expenses and a warrant to purchase 1,333,333 shares of our common stock at an exercise price of $1.20.  Using the Black-Scholes-Merton method, the fair value of these warrants to purchase 7,999,997 shares of common stock is approximately $3,102,000. If exercised, we would receive approximately $9,600,000.

On February 15, 2007, we sold an aggregate of 20,000,000 shares of our common stock at a price of $2.50 per share in connection with a private placement for aggregate gross proceeds of $50,000,000 ($46,805,000 after offering expenses). Additionally, the investors were issued warrants to purchase an aggregate of 10,000,000 shares of our common stock at an exercise price of $3.25 per share.  An advisor for the financing received a customary 6% cash-fee, based upon the aggregate gross proceeds received from the investors, reasonable expenses and a warrant to purchase 1,200,000 shares of common stock at an exercise price per share of $3.25.  The warrants have a term of five years and are exercisable after August 16, 2007.  In addition, the exercise price of the warrants is each subject to anti-dilution adjustments upon certain stock issuances at a price less than the exercise price.

Other financing

In December 2008 we entered into a Credit and Security Agreement (“Credit Agreement”) with Wells Fargo Bank, NA (“Wells Fargo”).  The Credit Agreement consists of three separate credit facilities as follows:

1. A revolving line of credit of $2,500,000 for working capital which bears interest at prime plus 2.5% which matures on November 30, 2011.  At December 31, 2008 the balance due on this credit line was $0.

2. A real estate term loan of $5,000,000 for general business purposes secured by our Phoenix, Arizona manufacturing building which bears interest at prime plus 3.0% and matures December 31, 2018.  At December 31, 2008 the balance due on this loan was $5,000,000 of which $1,500,000 is held as restricted cash.

3. A term loan of $2,500,000 for general business purposes which bears interest at prime plus 3.0% which matures on November 30, 2011.  We may draw on this loan on or before June 30, 2010 on the condition that NutraCea has positive cash flow for three consecutive quarters and is current with its trade vendors.  At December 31, 2008 the balance due on this loan was $0.

66

The above credit facilities are secured by the Phoenix, Arizona manufacturing building and all personal property of NutraCea other than NutraCea’s intellectual property. NutraCea may terminate any of the above facilities at any time upon 90 days notice, subject to payment of fees and repayment of the outstanding credits.  NutraCea may terminate the above facilities at any time with less than 90 days notice, subject to a payment of a penalty, payment of fees and repayment of the outstanding credits.  Wells Fargo may terminate the facilities at any time upon an event of default as defined in the agreement.  In the event of a default the interest rate will increase to 3.0% above the applicable interest rate for each facility.

On July 31, 2009, NutraCea and NutraPhoenix, LLC, a wholly-owned subsidiary of NutraCea, entered into a Forbearance Agreement and Amendment (“Forbearance Agreement”) to the Credit Agreement with Wells Fargo.  The Forbearance Agreement relates to the credit facilities under the Credit Agreement.

The Forbearance Agreement identifies certain existing defaults under the Credit Agreement and provides that Wells Fargo will forbear from exercising its rights and remedies under the Credit Agreement on the terms and conditions set forth in the Forbearance Agreement, until the earlier of January 31, 2010 or until the date that any new default occurs under the Credit Agreement.  In addition, by October 31, 2009, NutraCea must obtain financing of at least $1,250,000 in the form of equity or subordinated debt to be used as working capital.

The Forbearance Agreement increased the interest rates applicable to each credit facility to the default rates under the Credit Agreement, which is 3.0% above the applicable interest rate for each credit facility.  In addition, the Forbearance Agreement amended the Credit Agreement by (i) decreasing the maximum amount which could be advanced under the line of credit to $1,500,000 from $2,500,000, (ii) terminating the term loan, and (iii) and terminating any obligations Wells Fargo has to make any further advances to NutraCea in connection with the real estate loan.  Pursuant to the Forbearance Agreement, NutraCea also granted to Wells Fargo a first priority lien on certain real property located in Dillon, Montana.

The Company has determined it is probable that we will not be in compliance with the terms of the forbearance agreement as of October 31, 2009, and therefore the entire loan balance has been classified as a current liability.

Purchase commitments:

On March 9, 2007, NutraCea entered into an exclusive equipment purchase and supply agreement with Insta-Pro International (“Insta-Pro”) to purchase custom extruders over a period of 5 years.  The agreement required NutraCea to maintain a deposit of $200,000 and pay exclusivity fees of $200,000 if it fails to order and take delivery of 10 extruders during the current 12 month period of the term.  On April 7, 2009 NutraCea and Insta-Pro terminated this agreement.  Under the termination and settlement agreement NutraCea agreed to terminate its exclusive right to purchase the Insta-Pro extruders and forfeited its interest in the $200,000 deposit.

Long-term financing needs

On June 25, 2008 we signed an agreement to form a joint venture NutraCea Offshore Ltd., with Bright Holdings (Hong Kong) Company, Ltd. (“Bright”), to develop, construct, and operate facilities in China to produce, market, distribute and sell rice oil, defatted rice bran and other products derived from rice bran to meet the growing demands of consumers inside China as well as beyond its borders.  NutraCea will have an approximate 72% interest in the joint venture, but will designate 80% of the board members and contribute 80% of the capital investment.  NutraCea and Bright’s capital contributions to the joint venture are to total approximately $64,000,000, of which NutraCea will be required to contribute approximately $51,200,000.

67

We plan to meet these funding needs by raising additional capital through sales of equity or debt or a combination thereof.  There can be no assurance, however, that such funding would be available on favorable terms or any terms.

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 risks, 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.

CONTRACTUAL OBLIGATIONS AND KNOWN FUTURE CASH REQUIREMENTS

As part of the normal course of business, the Company incurs certain contractual obligations and commitments which will require future cash payments. Set forth below is information concerning our known contractual obligations as of December 31, 2008 that are fixed and determinable:

	Payments Due by Period
	Total		2009		2010		2011		2012		2013		5 years and more
	($ in thousands)
Long-term debt
Mortgage Loans (1)	$	5,000	$	5,000,000	$	-	$	-	$	-	$	-	$	-
Operating leases (2)		13,555		1,766		1,776		1,721		1,611		1,649		5,033
Other Purchase obligations (3)		6,661		1,651		1,197		1,192		526		399		1,697
Interest Payments on Long-Term Debt.  (4)		1,810		375		371		278		208		176		403
Total contractual obligations (5)	$	27,026	$	4,292	$	3,844	$	3,691	$	2,845	$	2,724	$	9,633

(1) Includes mortgage on Phoenix, AZ property.

(2)  The Company has obligations under long-term non-cancelable operating leases, primarily for office rental and site leases, also for office equipment and two cars in Brazil.

(3) Amounts relate to other contractual obligations where the Company has an enforceable and legally binding agreement to purchase goods or services that specifies all significant terms, including: quantity, pricing and timing.

(4)   Interest payments are estimated based on final maturity dates of debt securities outstanding at December 31, 2008 and do not reflect anticipated future refinancing, early redemptions or new debt issues.  Variable rate interest obligations are estimated based on rates as of December 31, 2008.

(5)  These amounts do not include current liabilities, derivative instruments (Preferred Stock and Warrants), and incentive compensation because the company is not able to reasonably estimate the timing or amount of the future payments.  In addition, the amounts do not include liabilities such as employee benefit plans and income taxes.

68

In December 2008 we entered into the Credit Agreement with Wells Fargo.  The Credit Agreement consists of three separate credit facilities as follows:

1. A revolving line of credit of $2,500,000 for working capital which bears interest at prime plus 2.5% which matures on November 30, 2011.  At December 31, 2008 the balance due on this credit line was $0.

2. A real estate term loan of $5,000,000 for general business purposes secured by our Phoenix, Arizona manufacturing building which bears interest at prime plus 3.0% and matures December 31, 2018.  At December 31, 2008 the balance due on this loan was $5,000,000 of which $1,500,000 is held as restricted cash.

3. A term loan of $2,500,000 for general business purposes which bears interest at prime plus 3.0% which matures on November 30, 2011.  We may draw on this loan on or before June 30, 2010 on the condition that NutraCea has positive cash flow for three consecutive quarters and is current with its trade vendors.  At December 31, 2008 the balance due on this loan was $0.

The above credit facilities are secured by the Phoenix, Arizona manufacturing building and all personal property of NutraCea other than NutraCea’s intellectual property. NutraCea may terminate any of the above facilities at any time upon 90 days notice, subject to payment of fees and repayment of the outstanding credits.  NutraCea may terminate the above facilities at any time with less than 90 days notice, subject to a payment of a penalty, payment of fees and repayment of the outstanding credits.  Wells Fargo may terminate the facilities at any time upon an event of default as defined in the agreement.  In the event of a default the interest rate will increase to 3.0% above the applicable interest rate for each facility.

On July 31, 2009, NutraCea and NutraPhoenix, LLC, entered into a Forbearance Agreement to the Credit Agreement with Wells Fargo.  The Forbearance Agreement relates to the credit facilities under the Credit Agreement.

The Forbearance Agreement identifies certain existing defaults under the Credit Agreement and provides that Wells Fargo will forbear from exercising its rights and remedies under the Credit Agreement on the terms and conditions set forth in the Forbearance Agreement, until the earlier of January 31, 2010 or until the date that any new default occurs under the Credit Agreement.  In addition, by October 31, 2009, NutraCea is required to obtain financing of at least $1,250,000 in the form of equity or subordinated debt to be used as working capital. If we are not able to satisfy this condition or are otherwise in default under the terms of the Forbearance Agreement, Wells Fargo could condition any further forbearances or providing or consenting to any additional funding on our first taking certain actions, which could include initiating bankruptcy proceedings.

The Forbearance Agreement increased the interest rates applicable to each credit facility to the default rates under the Credit Agreement, which is 3.0% above the applicable interest rate for each credit facility.  In addition, the Forbearance Agreement amended the Credit Agreement by (i) decreasing the maximum amount which could be advanced under the line of credit to $1,500,000 from $2,500,000, (ii) terminating the term loan, and (iii) and terminating any obligations Wells Fargo has to make any further advances to NutraCea in connection with the real estate loan.  Pursuant to the Forbearance Agreement, NutraCea also granted to Wells Fargo a first priority lien on certain real property located in Dillon, Montana.

In October 2007, we executed a promissory note with the lessor of our new West Sacramento warehouse for $105,000 at 8% due over four years with payments of $2,572 per month for the build-out of tenant improvements.  At December 31, 2008 the current portion of this note was approximately $23,000 and the remaining long-term portion was approximately $52,000.

In December 2008 we entered into a purchase agreement to acquire a customer list (“Customer List Purchase Agreement”) for $3,100,000.  The Company paid $1,000,000 at the time of purchase and the remaining principal amount of $2,100,000 accrued interest at a rate of 8% per annum and was due in twelve quarterly payments of $175,000 beginning March 1, 2009.  The principal balance due as of December 31, 2008 was $1,861,000.

On May 14, 2009 we amended the Customer List Purchase Agreement due to NutraCea’s failure to comply with the payment terms of the original agreement.  The Customer List Purchase Agreement was amended to allow NutraCea to continue to take orders from the customers on the list.  The payment schedule was amended to require the Company to pay $90,000 by June 1, 2009 and to have all cash receipts from customers on the list be deposited into a bank account controlled by the seller of the list.  Any profits (amount in excess of the cost of goods sold) generated from the cash receipts will be applied to the outstanding principal amount.  The quarterly minimum amount required under this amendment is $90,000 beginning June 1, 2009.  The Company is required to fund any shortfall to the minimum quarterly amount.  The Company has made all payments required under the amended agreement.

69

Our Irgovel subsidiary has notes payable for Brazilian federal and social security taxes under a Brazilian government program, for equipment purchases, and working capital.  These notes are payable over periods through July 2018 and bear interest at rate from 6.0% to 21.4%.

CRITICAL ACCOUNTING POLICIES

A summary of our significant accounting policies is included in Note 3 of Part II - Item 8, FINANCIAL STATEMENTS. We believe the application of these accounting policies on a consistent basis enables us to provide timely and reliable financial information about our earnings results, financial condition and cash flows.

The preparation of financial statements in accordance with generally accepted accounting principles requires management to make judgments, estimates and assumptions regarding uncertainties that affect the reported amounts presented and disclosed in the financial statements. Management reviews these estimates and assumptions based on historical experience, changes in business conditions and other relevant factors that they believe to be reasonable under the circumstances. In any given reporting period, actual results could differ from the estimates and assumptions used in preparing our financial statements.

Critical accounting policies are those that may have a material impact on our financial statements and also require management to exercise significant judgment due to a high degree of uncertainty at the time the estimate is made. Management has discussed the development and selection of our accounting policies, related accounting estimates and the disclosures set forth below with the Audit Committee of our Board of Directors. We believe our critical accounting policies include those addressing revenue recognition, allowance for doubtful accounts, inventories, and long lived assets, intangible assets, and goodwill.

Revenue Recognition

The Company recognizes revenue for product sales when title and risk of loss pass to its customers and when provisions for estimates, including discounts, and price adjustments are reasonably determinable. Provisions for routine sales discounts, volume allowances, and adjustments are made in the same period the sales are recorded. No revisions were made to the methodology used in determining these provisions during the calendar year ended December 31, 2008. Deposits are deferred until either the product has been shipped or conditions relating to the sale have been substantially performed.

There are no refund rights on sales and we determine that collectability of the sale amount is reasonably assured.  Occasionally, we will grant exclusive use of our labels by customers in specific territories in exchange for a nonrefundable fee. Under EITF 00-21, “Revenue Recognition with Multiple Deliverables”, each label licensing provision is considered to be a separate unit of accounting. Each agreement is individually evaluated to determine appropriate revenue recognition in accordance with Staff Accounting Bulletin No. 104, “Revenue Recognition” (“SAB 104”). If all of the following four SAB 104 basic criteria are met, revenue will be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. If any of the above criteria cannot be satisfied then such a transaction is not recorded as revenue, or is recorded as deferred revenue and recognized only when the sales cycle is complete and payment is either received or becomes reasonably assured.  Changes in judgments and estimates regarding the application of SAB 104 might result in a change in the timing or amount of revenue recognized by such transactions.

Allowance for Doubtful Accounts

The allowance for doubtful accounts is based on our assessment of the collectability of specific customer accounts and the aging of accounts receivable and notes receivable.  We analyze historical bad debts, the aging of customer accounts, customer concentrations, customer credit-worthiness, current economic trends and changes in our customer payment patterns when evaluating the adequacy of the allowance for doubtful accounts.  From period to period, differences in judgments or estimates utilized may result in material differences in the amount and timing of our bad debt expenses.

70

We continuously monitor collections from our customers and maintain an allowance for doubtful accounts based upon our historical experience and any specific customer collection issues that we have identified. As of December 31, 2008 and 2007, the Company recorded actual bad debt expense of $2,222,000 and $254,000 respectively, while the allowance for doubtful accounts was $365,000 and $20,000 respectively.  We continue to evaluate our credit policy to ensure that the customers are worthy of terms and will support our business plans.

Inventories

Inventories are stated at the lower of cost or market, with cost determined by the first-in, first-out method. Provisions for potentially obsolete or slow-moving inventory are made based on our analysis of inventory levels, historical obsolescence and future sales forecasts.

Long-Lived Assets, Intangible Assets and Goodwill

Long-lived assets, consisting primarily of property and equipment, patents and trademarks, and goodwill, comprise a significant portion of our total assets. Property, plant and equipment are stated at cost less accumulated depreciation.  Intangible asset are stated at cost less accumulated amortization.

The carrying values of long-lived assets, which include property, plant and equipment and intangible assets with finite lives, are evaluated periodically in relation to the expected future cash flows of the underlying assets and monitored for other potential triggering events. Adjustments are made in the event that estimated undiscounted net cash flows are less than the carrying value. The cash flow projections are based on historical experience, management’s view of growth rates within the industry, and the anticipated future economic environment.

Goodwill is tested for impairment at least annually or when events or other changes in circumstances indicate that the carrying amount of the assets may not be recoverable based on management’s assessment of the fair value of the Company’s identified reporting units as compared to their related carrying value. If the fair value of a reporting unit is less than its carrying value, additional steps, including an allocation of the estimated fair value to the assets and liabilities of the reporting unit, would be necessary to determine the amount, if any, of goodwill impairment.

Our impairment analysis requires management to make assumptions and to apply judgment to estimate future cash flows and asset fair values, including estimating the profitability of future business strategies.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Our cash and cash equivalents have been maintained only with maturities of 30 days or less. Our short-term investments have interest reset periods of 30 days or less. These financial instruments may be subject to interest rate risk through lost income should interest rates increase during their limited term to maturity or resetting of interest rates. As of December 31, 2008 our NutraCea segment had notes payable of $6,939,000 outstanding bearing interest of 8% payable over 4 years and our Irgovel segment had notes payable of $3,939,000 outstanding bearing interest from 2.8% to 21.4% payable over 2.3 to 9.5 years (see Note 15 Notes Payable and Long-term Debt to the Consolidated Financial Statements included herein). Future borrowings, if any, would bear interest at negotiated rates and would be subject to interest rate risk. We do not believe that a hypothetical adverse change of 10% in interest rates would have a material effect on our financial position.

Item 8. Financial Statements and Supplementary Data.

Index to Consolidated Financial Statements

· Report of Perry-Smith LLP, Independent Registered Public Accounting Firm

· Consolidated Balance Sheets as of December 31, 2008 and 2007

· Consolidated Statements of Operations for the three years ended December 31, 2008

· Consolidated Statement of Comprehensive Income (Loss) for the three years ended December 31, 2008

· Consolidated Statement of Changes in Shareholder’s Equity for the three years ended December 31, 2008

71

· Consolidated Statements of Cash Flows for the three years ended December 31, 2008

· Notes to Consolidated Financial Statements

· The financial statements and financial information required by Item 8 are set forth below on pages F-1 through F-70of this report.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A. Controls and Procedures

Audit Committee Investigation and Restatement of the Consolidated Financial Statements

Restatement

As discussed in the Explanatory Note to this Annual Report and Note 2 Audit Committee Review and Restatement of Consolidated Financial Statements of the audited financial statements contained herein, the Company’s Consolidated Financial Statements for fiscal 2007 and 2006 and quarterly financial information for the first three quarterly periods in fiscal 2008 and all of fiscal 2007 included in Item 8, “Financial Statements and Supplementary Data,” of this Annual Report have been restated to correct errors and irregularities of the type identified in the Audit Committee-led investigation and other accounting errors and irregularities identified by the Company in the course of the restatement process.

The Audit Committee concluded that the errors and irregularities were primarily the result of an ineffective control environment which, among other things, permitted the following to occur:

· recording of improper accounting entries; and

· withholding information from, and providing of improper explanations and supporting documentation to, the Company’s Audit Committee and Board of Directors, as well as its independent registered public accountants.

            Management, with the assistance of numerous experienced accounting consultants (other than its firm of independent registered public accountants) that the Company had retained near the onset of the investigation to assist the Chief Financial Officer with the restatement efforts, continued to review the Company’s accounting practices and identified additional errors and irregularities, which have been corrected in this restatement and are included in the discussion under “Management’s Report on Internal Control Over Financial Reporting” presented below.

Evaluation of Disclosure Controls and Procedures

An evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (as such term is defined in Rule 13a-15(e)) under the Securities Exchange Act of 1934 (“Exchange Act”) was performed as of December 31, 2008, under the supervision and with the participation of our current management, including our current Interim Chief Executive Officer and Principal Financial Officer. Our disclosure controls and procedures have been designed to ensure that information we are required to disclose in our reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Interim Chief Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosures.

Based on this evaluation, our current Interim Chief Executive Officer and our Principal Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2008 because of the material weaknesses described below. The Company performed additional analyses and other post-closing procedures to ensure that our Consolidated Financial Statements contained within this Annual Report were prepared in accordance with GAAP. Accordingly, management believes that the Consolidated Financial Statements included in this Annual Report fairly present in all material respects our financial position, results of operations and cash flows for the periods presented.

72

Management Report on Internal Control over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act and for the assessment of the effectiveness of internal control over financial reporting. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. The Company’s internal control over financial reporting includes those policies and procedures that:

(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

(iii) provide reasonable assurance regarding prevention, or timely detection, of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

     Under the supervision and with the participation of current management, including our current Interim Chief Executive Officer and Principal Financial Officer, we conducted an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008. In making this assessment, management used the criteria set forth in the framework established by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) entitled “Internal Control-Integrated Framework.”

A “material weakness” is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. A “control deficiency” exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis.

Management identified the following material weaknesses in the Company’s internal control over financial reporting as of December 31, 2008:

1. The Company did not maintain an effective control environment based on the criteria established in the COSO framework. The Company failed to design controls to prevent or detect instances of inappropriate override of, or interference with, existing policies, procedures and internal controls. The Company did not establish and maintain a proper tone as to internal control over financial reporting. More specifically, senior management failed to emphasize, through consistent communication and behavior, the importance of internal control over financial reporting and adherence to the Company’s code of business conduct and ethics, which, among other things, resulted in information being withheld from, and improper explanations and inadequate supporting documentation being provided to the Company’s Audit Committee, its Board of Directors and independent registered public accountants.

2. The Company did not maintain an effective control over revenue recognition policies.  Management failed to properly analyze, account and record significant sales contracts for proper revenue recognition.

3. The Company failed to retain the resources necessary to analyze significant transactions, prepare financial statements and respond to regulatory comments in a timely manner.

The Company required an extended period to complete its 2008 Annual Report on Form 10-K and to respond to comments presented by The United States Securities and Exchange Commission. Additionally, the Company is delinquent with respect to its filings of 2009 Quarterly Reports on Form 10-Q.

73

The effectiveness of NutraCea’s internal control over financial reporting as of December 31, 2008 has been audited by Perry-Smith LLP, an independent registered public accounting firm, as stated in their report, which is included in this Annual Report on Form 10-K.

PLAN FOR REMEDIATION OF MATERIAL WEAKNESSES

Remediation Initiatives

While presently in the development phase, the remediation plan is generally expected to include a comprehensive review, and development or modification as appropriate, of various components of the Company’s compliance program, including ethics and compliance training, hotline awareness, corporate governance training, awareness of and education relative to key codes of business conduct and policies, as well as departmental specific measures.

To remediate the material weaknesses described above, the Company plans to implement the remedial measures described below. In addition, the Company plans to continue its evaluation of its controls and procedures and may, in the future, implement additional enhancements.

Control environment

The Company’s failure to maintain an adequate control environment and have appropriate staffing resources contributed significantly to each of the material weaknesses described above and the Company’s inability to prevent or detect material errors in its Consolidated Financial Statements and disclosures. The Company intends to implement the following remediation measures:

The Company has reinforced and plans to continue to reinforce on a regular basis with its employees the importance of raising any concerns, whether they are related to financial reporting, compliance with the Company’s ethics policies or otherwise, and using the existing communication tools available to them, including the Company’s hotline. It is the Company’s intention to foster an environment that should facilitate the questioning of accounting procedures and reinforce the ability and expectation of employees to raise issues to the Board of Directors if their questions or concerns are not resolved to their satisfaction.

We plan to provide training to our management on an ongoing, periodic basis with respect to, among other things, corporate governance, compliance and SOX. Such training are planned to include (i) in-house memoranda and other written materials, as well as presentation and discussion in management meetings, and (ii) potential modules/tutorials offered within the curriculum provided by a third party ethics and compliance vendor.

Revenue recognition and complex transactions

The Company plans to implement proper process of consultation with outside consultants in analyzing complex transactions.  The Company will enforce the need for proper documentation and analysis of each significant transaction as noted in each agreement.  Accounting position papers will be prepared on a timely manner and will be cleared with the Company’s independent auditors for appropriate accounting.

We recognize that continued improvement in our internal controls is necessary and are committed to continuing our significant investments as necessary to make these improvements in our internal controls over financial reporting.

Management has not identified any changes in the Company’s internal control over financial reporting that occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B. Other Information

None.

74

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The names, the ages as of August 31, 2009 and certain other information about our executive officers and directors are set forth below:

Name	Age	Position
James C. Lintzenich (1)(2)	55	Interim Chief Executive Officer, Interim Principal Financial Officer, Interim Chief Accounting Officeer and Director
W. John Short	60	President
Leo G. Gingras	51	Chief Operating Officer
Kody Newland	52	Senior Vice President of Sales
David Bensol (1)(2)	53	Director and Chairman of the Board
Edward L. McMillan (1)(3)	63	Director
Steven W. Saunders (2)	53	Director
Kenneth L. Shropshire (2)(3)	54	Director
	(1)	Member of the Audit Committee
	(2)	Member of the Compensation Committee
	(3)	Member of the Nominating/Governance Committee

James C. Lintzenich, has served as our Interim Chief Executive Officer since March 2009, our Interim Principal Financial Officer and Interim Chief Accounting Officer since August 2009 and as one of our directors since October 2005. Mr. Lintzenich was a director of RiceX from June 2003 to October 2005.  From August 2000 to April 2001 Mr. Lintzenich served as President and Chief Operating Officer of SLM Corporation (Sallie Mae), an educational loan institution. From December 1982 to July 2000, Mr. Lintzenich held various senior management and financial positions including Chief Executive Officer and Chief Financial Officer of USA Group, Inc., a guarantor and servicer of educational loans. Mr. Lintzenich currently serves on the Board of Directors of the Lumina Foundation for Education and the Ball State University Foundation.

W. John Short, has served as our President since July 2009.  Mr. Short has held senior positions with financial services and consumer products businesses in North America, South America, Asia and Europe including over a decade in international corporate banking with Citibank N.A. in New York, Venezuela, Ecuador and Hong Kong.  From January 2004 through December 2005 Mr. Short was engaged as an advisor by the Government of El Salvador to assist in the restructuring of that country’s apparel industry in relation to the elimination of global apparel quotas.  From April 2006 through December 2007, as CEO and Managing Member of W John Short & Associates, LLC, Mr. Short was engaged as Chief Executive Officer of Skip’s Clothing Company. In 2008 and 2009, as CEO and Managing member of W John Short & Associates, LLC, Mr. Short was engaged as a management consultant, Advisory Board Member and/or Director to several companies including SRI Global Imports Inc., G4 Analytics Inc and Unifi Technologies Inc.

Leo G. Gingras, has served as our Chief Operating Officer since April 2007, and from February 2007 until April 2007 he served as Special Assistant to our former Chief Operating Officer.  Prior to joining NutraCea, Mr. Gingras served as Vice President of Soy Processing and Technical Services for Riceland Foods, a major rice and soybean processor, from November 2000 until March 2007.  Before November 2000, Mr. Gingras held various positions at Riceland Foods, including Manager of Oil Operations and Quality Assurance Manager.  During his appointments at Riceland Foods, Mr. Gingras oversaw several hundred employees and business units with sales over $320 million.  Prior to Mr. Gingras’ employment at Riceland Foods, he was the Research and Development Manager at Lou Ana Foods, Inc., a company with annual sales of $120 million that processes, packages and markets edible oils.

75

Kody K. Newland, has served as our Senior Vice President of Sales and Marketing since February 2006. From 1997 to 2006 Mr. Newland was Vice President of Sales for American Modern Insurance Group Inc., a subsidiary of The Midland Company, a provider of specialty insurance products. From 1983 to 1997 Mr. Newland held various sales and marketing positions with the Foremost Corporation of America (now a division of the Zurich Company), a property and casualty insurance company.

David S. Bensol, has served as one of our directors since March 2005. Mr. Bensol has been President of Bensol Realty Corp, a commercial real estate company, since 1978, and a management consultant since January 2000. Mr. Bensol was the former CEO of Critical Home Care, a home medical equipment provider that recently merged with Arcadia Resources, Inc. (AMEX: KAD) Mr. Bensol was the Executive Vice President and Director of Arcadia Resources from May 2004 until his resignation from those positions in December 2004. In 2000, Mr. Bensol founded what eventually became Critical Home Care, through a series of acquisitions and mergers. From 1979 to 1999 Mr. Bensol founded several public and private companies which became industry leaders in the areas of home medical equipment providers, acute care pharmacy providers and specialty support surface providers. Mr. Bensol received a BS Pharm. from St. Johns University, New York, and became a registered pharmacist in 1978.

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

Steven W. Saunders, has served as one of our directors since October 2005. He was a director of RiceX from August 1998 to October 2005. Mr. Saunders has been President of Saunders Construction, Inc., a commercial construction firm, since February 7, 1991, and President of Warwick Corporation, a business-consulting firm, since 1992.

Kenneth L. Shropshire, has served as one of our directors since April 2006. Mr. Shropshire has been a professor at the Wharton School of the University of Pennsylvania since 1986; in this capacity serving as a David W. Hauck professor since 2001, the chair of the Department of Legal Studies from 2000 to 2005, and the faculty director of the Sports Business Initiative since 2004. Mr. Shropshire was counsel to the law firm of Van Lierop, Burns & Bassett, LLP, from 1998 to 2004 and has been a practicing attorney in Los Angeles, California, focusing on sports and entertainment law. Mr. Shropshire has also taught coursework at the University Of Pennsylvania School Of Law, the University of San Diego School of Law and Southwestern University School of Law.  Mr. Shropshire currently is a member of the Board of Directors of Valley Green Bank.

76

The term of office of each person elected as a director will continue until the next annual meeting of shareholders or until his or her successor has been elected and qualified.

Audit Committee

Our Board of Directors has a separately-designated standing audit committee (“Audit Committee’).  The Audit Committee assists the full Board of Directors in its general oversight of our financial reporting, internal controls, and audit functions, and is directly responsible for the appointment, compensation and oversight of the work of our independent registered public accounting firm.  The current members of the Audit Committee are James Lintzenich, David Bensol, and Edward McMillan (Chairman).  Our Board of Directors has determined that Messrs. Bensol and McMillan are “independent” as defined by the applicable NASDAQ rules and by the Sarbanes-Oxley Act of 2002 and the regulations of the Securities and Exchange Commission (“SEC”), and that Mr. Lintzenich qualifies as an “audit committee financial expert” as defined in such regulations. Mr. Lintzenich is not “independent” under these standards because he is serving as our Interim Chief Executive Officer and our Interim Principal Financial Officer and Interim Chief Accounting Officer.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, requires NutraCea’s directors, executive officers and beneficial owners of more than 10% of a registered class of NutraCea’s equity securities to file with the Securities and Exchange Commission (“SEC”), initial reports of ownership and reports of changes in ownership of NutraCea’s common stock and other equity securities. Directors, executive officers and greater than 10% beneficial owners are required by SEC regulation to furnish NutraCea with copies of all Section 16(a) reports they file. Based solely on the review of the copies of such forms furnished to NutraCea and written representations that no other reports were required, NutraCea believes that all reporting requirements under Section 16(a) for the fiscal year ended December 31, 2008 were met in a timely manner by the directors, executive officers and greater than 10% beneficial owners, except as follows:  (i) Todd Crow reported the extension of the expiration date on stock options to purchase a total of 84,478 shares of common stock, which extension occurred on October 4, 2008 in connection with his resignation as our chief financial officer, on Form 4 on April 7, 2009 instead of on the required reporting date of October 6, 2008, (ii) Edward McMillan reported the extension of the expiration date on stock options to purchase a total of 76,699 shares of common stock, which extension occurred on October 4, 2008 on Form 4 on April 6, 2009 instead of on the required reporting date of October 6, 2008 and (iii) James Lintzenich reported the extension of the expiration date of warrants to purchase a total of 1,371,411 shares of common stock held indirectly by Mr. Lintzenich through the James C. Lintzenich Revocable Trust, which extension occurred on October 4, 2008, on Form 4 on April 6, 2009 instead of on the required reporting date of October 6, 2008.

Code of Business Conduct and Ethics

The Board has adopted a Code of Business Conduct and Ethics that applies to all directors, officers and employees of NutraCea. NutraCea will provide any person, without charge, a copy of this Code. Requests for a copy of the Code may be made by writing to NutraCea at 5090 North 40th Street, Fourth Floor, Phoenix, Arizona 85018, Attention: Chief Financial Officer.

Item 11.  Executive Compensation

Compensation Discussion and Analysis

Overview of Compensation Program and Philosophy

Our compensation program is intended to support the achievement of our specific annual and long-term operational and strategic goals by attracting and rewarding superior management personnel to achieve the ultimate objective of increasing shareholder value.  The Compensation Committee of our Board of Directors has responsibility for establishing, implementing and monitoring adherence to our compensation philosophy. Our Compensation Committee seeks to ensure that the total compensation paid to our executive officers is fair, reasonable and competitive.

Our Compensation Committee has the responsibility to evaluate both performance and compensation in an effort to ensure that we maintain our ability to attract and retain individuals of superior ability and managerial talent in key positions and that compensation provided to key employees remains competitive relative to the compensation paid to similarly situated executives of our peer companies. To that end, our Compensation Committee believes executive compensation packages we provide to our executive officers should include both cash and stock-based compensation that rewards individual and corporate performance.

77

Before the establishment of our Compensation Committee in 2006, our Board of Directors established our compensation policies.

Role of Executive Officers in Compensation Decisions

Our Compensation Committee has the responsibility to make all compensation decisions for our executive officers.  On at least an annual basis, the Compensation Committee approves all compensation and awards to our executive officers that are not already determined pursuant to existing employment agreements or that have not already been approved by our Board of Directors.  Our Chief Executive Officer provides input and arranges for our Compensation Committee to have access to our records and personnel for purposes of its deliberations. During 2008, Brad Edson, our former Chief Executive Officer, reviewed the performance of each executive officer (other than his own, which is reviewed by our Compensation Committee) and provided input and observations to our Board of Directors and Compensation Committee.  The conclusions reached and recommendations based on these reviews are presented to our Board of Directors. Our Compensation Committee can exercise its discretion in modifying any recommended adjustments or awards to executive officers.

Setting Executive Compensation

Based on the foregoing objectives, our Compensation Committee and our Board of Directors have structured our annual and long-term incentive-based cash and non-cash executive compensation in an effort to motivate our executive officers to achieve the business goals set by us and reward them for achieving such goals.  Our Compensation Committee believes that we compete with many companies for top executive-level talent. Accordingly, our Compensation Committee strives to implement compensation packages for our executive officers that are competitive. Variations to this objective may occur as dictated by the experience level of the individual and market factors. A significant percentage of total compensation for our executive officers is allocated to incentives as a result of the philosophy mentioned above. Nevertheless, strictly speaking, there is no pre-established policy or target for the allocation between either cash and non-cash or short-term and long-term incentive compensation. Income from such incentive compensation is realized as a result of our performance and/or, the individual’s performance, depending on the type of award, compared to established goals. Our compensation committee has not used industry benchmarks nor hired compensation consultants when determining the compensation to be paid to executive officers.

Principal Components of Compensation of Our Named Executive Officers

The principal components of the compensation paid to our named executive officers consist of:

· base salary;

· bonuses, paid in cash;

· cash incentive compensation under the terms of individual senior management incentive compensation plans established for our executive officers;

· a 401(k) safe harbor contribution that is fully vested and a discretionary year end matching contribution under our 401(k) plan; and

· equity compensation, generally in the form of stock or stock options.

Base Salary

Our Chief Operating Officer

We hired Leo Gingras in February 2007 to serve as a special assistant to our then Chief Operating Officer and then as our Chief Operating Officer in April 2007.  In determining Mr. Gingras’ annual base salary of $220,000 under his employment agreement, our Compensation Committee and our Board of Directors considered the compensation sought by Mr. Gingras, his extensive experience directly related to our business, and the base salaries of our other executive officers.  In January 2008, our Compensation Committee and our Board of Directors approved an amendment to Mr. Gingras’ employment contract to extend the term through February 8, 2010.  The amendment did not change the base salary terms of Mr. Gingras’ employment agreement.  On July 27, 2009, we entered into a new employment with Mr. Gingras that increased his salary to $250,000 per year in 2009 and to $275,000 per year beginning in 2010.  The Compensation Committee increased Mr. Gingras’ base salary in order for Mr. Gingras to agree to extend his employment term to June 2012.

78

           Our Senior Vice President of Sales

We hired Kody Newland in February 2006 to serve as our Senior Vice President of Sales and entered into an employment agreement with him that provides for a base salary of $150,000 with annual cost of living adjustments.  When determining Mr. Newland’s compensation in February 2006, our Board of Directors considered the base salary sought by Mr. Newland, Mr. Newland’s wide-ranging sales experience, and the base salaries of our other executive officers.  In January 2008, our Compensation Committee and our Board of Directors approved an amendment to Mr. Newland’s employment contract to extend the term through February 28, 2010.  The amendment did not change the base salary terms of Mr. Newland’s employment agreement.

Our Former Chief Executive Officer

We hired Brad Edson as our President in December 2004, and he became our Chief Executive Officer in October 2005 concurrently with our acquisition of RiceX.  Mr. Edson’s employment agreement with us provides for an initial base salary of $50,000 per year in year one, $150,000 in year two and $250,000 in year three with base salary thereafter being subject to an annual increase of 10% each year that Mr. Edson is employed with us.  When structuring Mr. Edson’s salary, our board considered the salary of our then Chief Executive Officer, the amount of equity compensation that Mr. Edson required, the value that Mr. Edson could bring to NutraCea and our low cash position at the time.  Based upon these criteria, the Board determined that providing Mr. Edson with base salary that started low and that grew substantially over time would allow NutraCea to preserve its available cash while ultimately providing Mr. Edson with the cash compensation appropriate for his position.  In January 2008, our Compensation Committee and our Board of Directors approved an amendment to Mr. Edson’s employment contract to extend the term through December 31, 2010.  The amendment did not change the base salary terms of Mr. Edson’s original employment agreement. In August 2008 our Board of Directors approved an amendment to Mr. Edson’s employment contract to clarify that the employee is eligible for a discretionary bonus at such times and in such amounts as determined by Employer’s Compensation Committee or Board of Directors.  Mr. Edson resigned from his positions as Chief Executive Officer, President and Director of the Company effective as of March 9, 2009.

Our Former Chief Financial Officers

We hired Todd C. Crow as our Chief Financial Officer in October 2005 concurrent with our acquisition of RiceX.  Mr. Crow served as the Chief Financial Officer of RiceX and we assumed his employment contract with RiceX pursuant to the terms of the acquisition. Mr. Crow’s base salary in 2007 until May 2008 when Jeff Sanders became our Chief Financial Officer reflects his base salary under his original employment agreement that we assumed.  Mr. Crow served as a consultant from May 2008 to July 2008 and was paid a consulting fee similar to the salary he received under his original employment agreement.  When Mr. Crow became our Chief Financial Officer again in July 2008 upon the resignation of Mr. Sanders, he has paid $220,000 per year, which was the salary received by Mr. Sanders to serve as our Chief Financial Officer.  Following Mr. Crow’s resignation as our Chief Financial Officer in November 2008, we paid an entity wholly owned by Mr. Crow consulting fees pursuant to an independent contractor agreement.   See Severance and Change of Control Payments below for a description of his fees under the independent contractor agreement.

We hired Jeffrey W. Sanders as our Chief Financial Officer in April 2008.  Mr. Sanders’ three-year employment agreement with us provided for an annual base salary of $220,000. Our Compensation Committee considered the prior experience of Mr. Sanders and the base salary of our other executive officers when determining Mr. Sanders’ base salary.  Mr. Sanders resigned his employment with us on July 18, 2008.

We hired Olga Hernandez-Longan as a financial consultant in October 2008 and then as our Chief Financial Officer in November 2008.  Ms. Hernandez-Longan’s three-year employment agreement with us provides for annual base salary of $230,000, with annual cost of living adjustments.  In determining Ms. Hernandez-Longan’s annual base salary, our Compensation Committee and Board of Directors considered the compensation she sought, her experience, and the compensation paid to our other executive officers.  On July 9, 2009, Ms. Hernandez-Longan resigned as Chief Financial Officer of NutraCea effective as of July 31, 2009. 

79

Bonus Compensation

Each of the employment agreements between NutraCea and our named executive officers provides that our Board of Directors or Compensation Committee may grant discretionary bonuses.  Before 2008, we generally did not pay regular bonuses to our executive officers. However, we have from time to time paid signing or retention bonuses in connection with our initial hiring or appointment of an executive officer.  Whether a signing bonus and relocation expenses are paid and the amount thereof is determined on a case-by-case basis under the specific hiring circumstances. For example, we will consider paying signing bonuses to compensate for amounts forfeited by an executive upon terminating prior employment or to create additional incentive for an executive to join our company in a position for which there is high market demand.  In 2007 we paid to Mr. Gingras a $150,000 signing bonus when he became an employee.  As Mr. Gingras’ signing bonus was significant, the Compensation Committee required that he forfeit a pro rata portion of the bonus if he is employed with us for less than three years.

In addition to Mr. Gingras’ $150,000 signing bonus, when Mr. Gingras began employment with us we agreed to pay him $20,000 at the end of 2007 if he remained employed by us through 2007.  Mr. Gingras received this bonus in January 2008.  The Compensation Committee determined that this bonus was appropriate given the experience that Mr. Gingras would bring to our team and our desire for him to begin work promptly to replace our then Chief Operating Officer, who we expected would be retiring from this position soon.  In June 2008 our Board of Directors approved a $50,000 discretionary cash bonus to Mr. Gingras.  Our Board of Directors paid this bonus in recognition of Mr. Gingras’ contributions in building and expanding our Stage 1 and Stage II facilities and integrating NutraCea and Irgovel, which we acquired in February 2008.  In July 2009, pursuant to Mr. Gingras’ new employment agreement, we agreed to pay Mr. Gingras a bonus equal to $100,000 with $50,000 payable on or before November 30, 2009 and the remaining $50,000 payable on or before March 31, 2010.  If Mr. Gingras’s voluntarily terminates his employment with us or is terminated for “cause” (as defined in the employment agreement), Mr. Gingras must return the full amount of this bonus.  Our Board of Directors and Compensation Committee granted this bonus to Mr. Gingras in order for Mr. Gingras to agree to extend his term of employment with us by two years.

Our Board of Directors approved two discretionary cash bonuses to Brad Edson in 2008.  We paid Mr. Edson a $280,000 bonus in May 2008 and a $70,000 bonus in November 2008.  Our Board of Directors determined that these bonuses were appropriate due to Mr. Edson’s success in completing capital stock financings for us in April and October 2008.  At the time of these financings, we required significant additional capital to expand our operations and to meet current capital requirements.

In January 2008, we paid a $10,000 discretionary cash bonus to Kody Newland.  This bonus was paid in connection with the amendment to Mr. Newland’s employment agreement with us to extend his term of employment by two years.  The decision to pay this bonus was made based upon negotiations between NutraCea and Mr. Newland regarding the amendment to his employment agreement.

Compensation under Individual Senior Management Incentive Compensation Plans

We entered into an employee incentive compensation plan with Brad Edson when Mr. Edson executed his employment agreement with us.  Under the plan, Mr. Edson is entitled to an annual incentive bonus based upon objective performance criteria of NutraCea during a fiscal year.  The annual bonus is equal to one percent of our gross sales over $25,000,000 in a year, but only if we report a positive EBITDA (earnings before interest, taxes, depreciation and amortization) for the year, disregarding the effect of non-cash charges.  The bonus amount is limited to a maximum of $750,000 in any calendar year.  Mr. Edson has not earned a bonus under the incentive compensation plan because we have not had gross sales of $25,000,000 in any year.  Given his low initial base salary, Mr. Edson required that we provide him with an incentive compensation plan as a condition to his accepting employment with us in December 2004.  Also, since low sales were a primary impediment to our success at the time, our board determined that paying compensation to Mr. Edson that was tied to our revenues would align NutraCea’s and Mr. Edson’s goals.  In January 2008, our Compensation Committee approved an amendment to Mr. Edson’s incentive compensation plan to remove the $750,000 annual cap on this bonus.  The Compensation Committee determined that since NutraCea and our shareholders would benefit from greater sales, Mr. Edson’s sales-based incentive compensation should provide marginal benefit to Mr. Edson, regardless of how large our sales grew.

80

Equity Compensation

Our Board of Directors’ historical practice has been to grant equity-based awards to attract, retain, motivate and reward our employees, particularly our named executive officers, and to encourage their ownership of an equity interest in us. Through July 15, 2009, such grants have consisted primarily of stock options, specifically non-qualified stock options, that is, options that do not qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended.  Prior to 2008, we granted awards of stock options to our executive officers only upon their appointment as executive officers, with our obligation to grant the options typically memorialized in the offer letter or employment agreement, or an addendum to an employment agreement, entered into with the applicable executive officer.  Each of our named executive officers other than Mr. Crow received stock option grants under these circumstances.

The terms of the initial stock options granted to our executives varied executive by executive. Mr. Edson’s initial stock option was fully vested when granted as required by Mr. Edson in order to begin employment with us.  Margie Adelman’s, our former Senior Vice President and Secretary, initial stock option grant vested as to 25% of the shares when she was hired and vested as to 25% of the shares on the one year anniversary of her hire date.  Our Board of Directors determined that the remainder of her shares should only vest if we achieved certain performance results.  Accordingly, the remaining 50% of the shares underlying her initial option grant would vest only if we achieve during her employment with us both (i) gross sales over $25,000,000 in a year and (ii) a positive EBITDA (earnings before interest, taxes, depreciation and amortization) for the year, disregarding the effect of non-cash charges.  We did not grant new stock options to Mr. Crow when he became our chief financial officer.  However, pursuant to the terms of the RiceX acquisition we assumed all outstanding RiceX stock options, including the stock options held by Mr. Crow.  The terms of the stock options initially granted to Messrs. Gingras and Newland were determined based upon negotiations with Mr. Gingras and Mr. Newland and were consistent with the stock options granted to and held by our other executive officers.

In January 2008, our Compensation Committee and directors approved the grant of new stock options to each of our executive officers (“2008 Options”).  Mr. Edson received an option to purchase 1,000,000 shares, Mr. Gingras received an option to purchase 350,000 shares and Mr. Crow, Mr. Newland and Ms. Adelman each received an option to purchase 100,000 shares.  Our Compensation Committee and Board of Directors determined the number of option shares underlying each executives options based upon the relative positions and responsibilities of the executives.  The current level of option holdings by the executives was not considered when these grants were made.  Each of the 2008 Options were performance based in order to incentivize the executives to achieve positive financial results and to align the interests of our executives with our shareholders.  One half of the underlying shares will vest only if our gross revenues exceeds 85% of targeted gross revenues in 2008 and 2009 and the other half of the underlying shares will vest only if our net income exceeds 85% of targeted net income for 2008 and 2009.  The performance targets were not achieved in 2008.  The performance requirement was waived for Mr. Crow as part of his severance agreement.  Additionally, we believe it is unlikely that the 2009 performance targets will be achieved.

In connection with our employment of Mr. Sanders as our Chief Financial Officer in April 2008, NutraCea granted to Mr. Sanders employee stock options to purchase 350,000 and 250,000 shares of common stock at a price per share equal to $0.10 over the closing market price on the date of the grant under our 2005 Plan.  The option to purchase 350,000 shares of common stock would have begun to vest on January 23, 2009 and would have vested as to twenty-five percent (25%) of the shares on that date.  Following that date, the shares would have vested as to eight and one-third percent (8 1/3%) of the shares on each successive three month anniversary from the vesting start date.  Subject to the performance criteria determined by the Board of Directors prior to the grant, the option to purchase 250,000 shares which would have begin to vest as to twenty-five percent (25%) of the shares on April 23, 2009, and thereafter thirty-seven and one-half percent (37.5%) of the shares shall vest and become exercisable on each successive one year anniversary from the vesting start date.  In determining the size and vesting provisions of these options, our Board of Directors and Compensation Committee considered the terms of the options grants made to our other executive officers.

In connection with our employment of Ms. Hernandez-Longan as our Chief Financial Officer in 2008, our Compensation Committee and Board of Directors approved the grant of two stock options to Ms. Hernandez-Longan under our 2005 Plan.  The first stock option was exercisable for 350,000 shares and vests as to 25% of the shares on July 8, 2009 and vests as to 1/12th of the shares every three months thereafter, so long as she continues to be employed by us on each vesting date.  The second stock option is exercisable for 250,000 shares and, so long as Ms. Hernandez-Longan remained employed by us on each vesting date, vests as to 25% of the shares on October 8, 2009 if we achieve income and revenue targets for 2008, 37.5% of the shares on October 8, 2010 if we achieve income and revenue targets for 2009 and 37.5% of the shares on October 8, 2011 if we achieve income and revenue targets for 2010.  Our Compensation Committee determined the size of these stock option grants by considering the size of the stock options held by our other executive officers and the requirements of Ms. Hernandez-Longan.  Also, our Compensation Committee required that one of the stock option grants be performance based to both incentivize Ms. Hernandez-Longan to achieve near and long-term financial results and to provide her with a similar mix of performance and non-performance based stock options as the had been granted to the other executive officers.

81

In June 2008, we granted to Mr. Gingras 50,000 shares of restricted stock that vests evenly throughout the remaining term of his employment contract.  Our Board of Directors granted this stock to Mr. Gingras in recognition of Mr. Gingras’ contributions in building and expanding our Stage 1 and Stage II facilities and integrating NutraCea and Irgovel.  In July 2009, in connection with Mr. Gingras entering into an employment agreement extending the term of Mr. Gingras’ prior employment agreement to June 30, 2012 as well as setting forth revised terms and conditions to Mr. Gingras employment, NutraCea granted to Mr. Gingras an employee stock option to purchase 1,500,000 shares of common stock at a price per share equal to $0.22.  The option vested as to 375,000 shares on July 28, 2009.  Following that date, 93,750 shares shall vest on the last business day of each calendar quarter during the term of the employment agreement.  In connection with the above option grant, Mr. Gingras agreed to cancel options to purchase an aggregate of 500,000 shares that were previously granted to Mr. Gingras.

We do not have any program, plan or practice that requires us to grant equity-based awards on specified dates. Authority to make equity-based awards to executive officers rests with our Compensation Committee, which considers the recommendations of our Chief Executive Officer. If we become listed on a national securities exchange like NASDAQ in the future, we will be subject to NASDAQ listing standards that, in general, require shareholder approval of equity-based plans.

Each of our executive officers is eligible to receive grants of stock options, stock bonuses and restricted stock under our 2005 Equity Incentive Plan, or the 2005 Plan.

Severance and Change of Control Payments

Our Board of Directors and Compensation Committee approved severance arrangements in each of the employment agreements of our named executive officers and accelerated vesting provisions upon our change in control in the 2008 Options.  We believe that companies should provide reasonable severance benefits to key employees, recognizing that it may be difficult for them to find comparable employment within a short period of time.  We further want our named executive officers to be free to think creatively and promote our best interests without worrying about the impact of those decisions on their employment.  Accordingly, we implement severance and change of control arrangements in our executives’ compensation package to align executive and shareholder interests by enabling executives to consider corporate transactions that are in the best interests of our shareholders without undue concern about whether the transaction may jeopardize their employment or the continued vesting of their stock options.  For a description of the termination and change in control arrangements that we have made with our executive officers, see “Executive Employment Agreements” and “Potential Payments Upon Termination or Change in Control.”

We also have entered into resignation-related severance and consulting agreements with Mr. Edson, Mr. Crow and Ms. Adelman in connection with their resignations in 2008 and 2009, each of which are discussed in more detail below.   Mr. Crow’s consulting agreement was suspended in March 2009 and Ms. Adelman’s consulting agreement was terminated in September 2009.

On March 9, 2009, we entered into an employment severance agreement with Mr. Edson in connection with his resignation as our Chief Executive Officer and member of our Board of Directors.  The agreement provides for, among other things, a cash severance payment equal to six months of Mr. Edson’s base salary, reimbursement of $20,000 of legal fees incurred by Mr. Edson in connection with his resignation, the continuance of medical and dental coverage through April 30, 2009 and reimbursement of COBRA payments to continue his and his dependent’s medical and dental coverage through October 31, 2010.  We also entered into a consulting agreement with Mr. Edson upon his resignation under which we agreed to pay Mr. Edson $15,000 a month for two months.  Mr. Edson negotiated this agreement with the assistance of his own independent outside counsel.  The Compensation Committee believed that this separation package was fair, reasonable and appropriate given our desire to obtain as part of this agreement full resolution of the termination of Mr. Edson’s employment with us.

82

In connection with Mr. Crow’s resignation as our Chief Financial Officer in November 2008, we entered into an employment severance agreement with him.  Under this agreement, we paid him a $220,000 cash severance payment and agreed to provide Mr. Crow with continued medical and dental benefit coverage through March 31, 2009 and to reimburse his COBRA payments through September 30, 2010.  In addition we extended by three years the expiration dates for two stock options to purchase a total of 84,478 shares of our common stock, waived the performance vesting conditions of a stock option to purchase 100,000 shares of our common stock that were granted to Mr. Crow in January 2008 and waived the 90 day expiration after termination of employment conditions of stock options to purchase 806,389 shares of our common stock.

We also entered into an independent contractor agreement with Crow & Associates, LLC upon Mr. Crow’s resignation.  Crow & Associates, LLC is owned by Mr. Crow.  The term of the agreement is 18 months and provides for our payment of $15,000 per month for the first 12 months of the term and $7,500 per month for the remaining six months of the term.  If Mr. Crow exercises stock options for more than 110,000 shares of our common stock during the term, the independent contractor agreement will terminate upon the exercise date.  In addition, the agreement will terminate upon a “change of control” or upon Mr. Crow’s death or permanent disability, in which case, we are required to pay to Crow & Associates, LLC the remaining amounts owed under the agreement in a lump sum.  Our Compensation Committee believed that these consulting fees were fair and reasonable considering Mr. Crow’s severance benefits under his employment agreement and our need, based upon Mr. Crow’s institutional knowledge and expertise, to continue to consult with Mr. Crow following his resignation.  In March 2009, we suspended the independent contractor agreement pending the results of the SEC formal investigation and the securities class action lawsuit mentioned in the beginning of this report under Significant Events - Securities Class Action, Shareholder Derivative Litigation, and SEC Investigation.   

On November 11, 2008, we entered into a severance and release agreement with Ms. Adelman and terminated Ms. Adelman’s employment with us.  Under this agreement, we paid Ms. Adelman $20,000 for moving expenses and terminated all of her stock options that were not fully vested.  We also entered into a one year consulting agreement with Ms. Adelman that provides for our payment to her of $15,827.73 each month.  Our Compensation Committee believed that these consulting fees were fair and reasonable given our desire to resolve the termination of Ms. Adelman’s employment with us while allowing us to receive ongoing services from Ms. Adelman. This consulting agreement was terminated by NutraCea in September 2009.

Other Benefits

We believe that establishing competitive benefit packages for our employees is an important factor in attracting and retaining highly qualified personnel. Executive officers are eligible to participate in all of our employee benefit plans, such as medical, dental, vision, group life insurance and our 401(k) plan, in each case on the same basis as other employees. We provide a three percent contribution and a discretionary year end matching contribution under our 401(k) plan, but we do not offer additional retirement benefits.

Perquisites

Each of our executive officers receives similar perquisites. Under the terms of the employment agreements with our executive officers, we are obligated to reimburse each executive officer for all reasonable travel, entertainment and other expenses incurred by the officer in connection with the performance of his duties and obligations under the agreement.  When necessary and appropriate, upon the hire of new executives, we may pay additional amounts in reimbursement of relocations costs.  The most significant ongoing perquisite that our executive officers receive is an automobile allowance.

Tax and Accounting Considerations

Effective January 1, 2006, we adopted the fair value recognition provisions of SFAS No. 123R.  Under SFAS No. 123R, we are required to estimate and record an expense for each award of equity compensation over the vesting period of the award.  Compensation expense relating to the expense of stock options and stock bonuses under FAS 123(R) are one of the many factors considered in the determination of stock option and stock bonus awards.

We currently intend that all cash compensation paid to our executive officers will be tax deductible for us. However, with respect to equity-based awards, while any gain recognized by our executive officers and other employees from non-qualified stock options generally should be deductible, subject to limitations imposed under Section 162(m) of the Internal Revenue Code, to the extent that in the future we grant incentive stock options, any gain recognized by the optionee related to such options will not be deductible by us if there is no disqualifying disposition by the optionee.

83

We may not be able to deduct a portion of the equity compensation earned by our executive officers.  Section 162(m) of the Internal Revenue Code generally prohibits us from deducting the compensation of an executive officer that exceeds $1,000,000 in a year unless that compensation is based on the satisfaction of objective performance goals.  None of the stock options held by our executive officers qualify as performance based compensation under Section 162(m).  Accordingly, if any of our executive officers recognizes income in excess of $1,000,000, including amounts includible in income from the exercise of stock options currently outstanding, this excess will not be tax deductible by us.

Under certain circumstances, an accelerated vesting or the cash out of stock options or the payment of severance awards in connection with a change of control might be deemed an “excess parachute payment” under Section 280G of the Internal Revenue Code. To the extent payments are considered to be “excess parachute payments,” the executive receiving the benefit may be subject to an excise tax and we may be denied a tax deduction. We do not consider the potential impact of Section 280G when designing our compensation programs.

Compensation Committee Interlocks and Insider Participation

The members of the Compensation Committee for the 2008 fiscal year were David Bensol (Chairman), James Lintzenich,  Kenneth L. Shropshire and Steven W. Saunders. All members of the Compensation Committee during 2008 were independent directors, and none of them were our employees or former employees. During 2008, none of our executive officers served on the Compensation Committee (or equivalent), or the Board of Directors of another entity whose executive officer(s) served on our Compensation Committee or Board of Directors.  In 2009 the Compensation Committee consists of David Bensol, James Lintzenich, Kenneth L. Shropshire and Steven W. Saunders.  In March 2009 Mr. Lintzenich was appointed our Interim Chief Executive Officer.  While serving in such position, Mr. Lintzenich will not be an independent director.  Upon his appointment as Interim Chief Executive Officer, he ceased serving as chairman of the Compensation Committee.  Mr. Lintzenich will not participate with the other members of the Compensation Committee in any matters relating to his compensation or where he has a conflict of interest.

Compensation Committee Report

           The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based on its review and discussions with management, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in our Annual Report on Form 10-K for the year ended December 31, 2008 and its proxy statement relating to our 2009 annual meeting of shareholders.

Respectfully Submitted by the Compensation Committee

David Bensol

James Lintzenich

Kenneth L. Shropshire

Steven Saunders

Summary Compensation Table

The following table sets forth information regarding compensation earned in or with respect to our fiscal years 2008, 2007 and 2006 by:

· each person who served as our Chief Executive Officer in 2008;

· each person who served as our Chief Financial Officer in 2008;

· our three most highly compensated executive officers, other than our Chief Executive Officer and our Chief Financial Officer, who were serving as executive officers at the end of 2008 and, at that time, were our only other executive officers; and

· each other person that served as an executive officer in 2008.

84

We refer to these officers collectively as our named executive officers:

						Stock		Option		All Other
Name and Principal		Salary		Bonus		Awards		Awards		Compensation		Total
Position	Year	($)(1)		($)		($) (2)		($) (3)		($)(4)(5)(6)		($)
Olga Hernandez-Longan, former Chief Financial Officer(7)	2008	$	51,413	$	-	$	-	$	5,356	$	41,708	$	98,477
Leo G. Gingras,	2008		228,462		70,000		7,026		146,004		22,832		474,324
Chief Operating Officer	2007		177,479		152,538		-		438,550		13,051		781,618
Kody Newland,	2008		166,929		10,000		-		48,024		20,093		245,046
Senior Vice President	2007		152,412		1,793		-		182,488		18,648		355,341
of Sales	2006		121,754				-		250,228		14,544		386,526
Bradley Edson, former	2008		287,004		350,000		-		-		25,005		662,009
President and Chief	2007		255,769		3,173		-		-		24,909		283,851
Executive Officer(8)	2006		159,723				-		-		22,307		182,030
Todd C. Crow, former	2008		205,465		-		-		290,663		289,659		785,787
Chief Financial	2007		159,362		1,863		-		-		26,584		187,809
Officer(9)	2006		153,427		-		-		-		19,062		172,489
Jeff Sanders, former Chief Financial Officer(10)	2008		55,353		-		-		-		3,935		59,288
Margie Adelman,	2008		177,420		-		-		-		56,084		233,504
former Senior Vice	2007		157,901		1,830		-		-		22,352		182,083
President	2006		154,504				-		-		16,324		170,828
Total	2008	$	1,172,046	$	430,000	$	7,026	$	490,047	$	459,316	$	2,558,435

1)   Includes the following consulting fees paid to certain of the named executive officers in 2008:  $15,923 to Ms. Hernandez-Longan; $40,385 to Crow and Associates, LLC an entity owned by Mr. Crow; and $26,003 to Ms. Adelman.

2) Stock awards reported are amounts recognized for financial statement reporting purposes with respect to the fiscal year in accordance with FAS 123R, disregarding estimated forfeitures.  The assumptions used to calculate the value of stock awards are set forth in the notes to our Consolidated Financial Statements included in this Annual Report on Form 10-K for 2008.

3) The amounts in this column represent the dollar amount recognized for financial statement reporting purposes with respect to the fiscal year in accordance with SFAS 123(R), disregarding estimated forfeitures. The assumptions used to calculate the value of option awards are set forth in the notes to our Consolidated Financial Statements included in our Annual Report on Form 10-K for 2008.  Mr. Sanders and Ms. Adelman received options to purchase our common stock in 2008, but these options terminated before vesting when these individuals ceased being executive officers in 2008. On July 18, 2008, as part of Mr. Crow’s severance arrangement, we extended the exercise period on options to purchase a total of 84,478 shares of common stock that were scheduled to expire on October 4, 2008.  Additionally, we waived for Mr. Crow all performance requirements for the option to purchase 100,000 shares of common stock that we issued to him on January 8, 2008, which options became fully vested upon his termination, and waived the requirement that stock options terminate 90 days after employment termination for stock options to purchase 806,389 shares of our common stock.

4)  All other compensation consists of the following amounts for 2006:

85

2006	Mr. Edson:		Mr. Crow:		Mr. Newland:		Ms. Adelman:
Automobile allowance	$	7,200	$	9,600	$	7,200	$	7,200
Life Insurance & Long-term Disability premium payments		381		400		318		381
Payment for unused personal time		8,294		3,362		3,606		2,522
401(k) matching contribution		6,432		4,700		3,421		6,221
Auto insurance payments				1,000
Total	$	22,307	$	19,062	$	14,545	$	16,324

5)  All other compensation consists of the following amounts for 2007:

2007	Mr. Edson:		Mr. Crow:		Mr. Gingras:		Mr. Newland:		Ms. Adelman:
Automobile allowance	$	7,200	$	9,600	$	6,300	$	7,200	$	7,200
Life Insurance & Long-term Disability premium payments		381		381		381		318		381
Payment for unused personal time		3,222		3,105		3,966		2,988		3,813
401(k) matching contribution		14,106		12,646		2,404		8,142		10,958
Auto insurance payments				852
Total	$	24,909	$	26,584	$	13,051	$	18,648	$	22,352

6) All other compensation consists of the following amounts for 2008:

2008	Mr. Edson:		Ms. Hernandez-Longan:		Mr. Sanders:		Mr. Crow:		Mr. Gingras:		Mr. Newland:		Ms. Adelman:
Automobile allowance	$	10,200	$	1,600	$	2,550	$	-	$	9,350	$	9,350	$	8,500
Life Insurance & Long-term Disability premium payments		1,294		108		216		1,053		1,294		1,149		1,042
Payment for unused personal time		6,611		-		1,169		10,170		5,288		3,889		20,274
401(k) safe harbor contribution		6,900		-		-		6,900		6,900		5,705		5,406
Personnel Apartment								11,750
Relocation cash payment				40,000										20,000
Buy-out of automobile lease								38,384
Auto insurance payments								434
Severance medical and dental benefits paid								968						862
Cash Severance payment								220,000
Total	$	25,005	$	41,708	$	3,935	$	289,659	$	22,832	$	20,093	$	56,084

7) Ms. Hernandez-Longan served as a consultant from October 8, 2008 to November 6, 2008 when she was appointed as our Chief Financial Officer.  Effective July 31, 2009, Ms. Hernandez-Longan resigned as our Chief Financial Officer.

8) Effective March 9, 2009, Mr. Edson resigned as our President and Chief Executive Officer, and also resigned as a member of our Board of Directors, effective as of the same date.

9) In 2008, Mr. Crow served as our Chief Financial Officer from January 1, 2008 to May 13, 2008 and as our interim Chief Financial Officer from July 21, 2008 to November 6, 2008.  He also served as a consultant to NutraCea from May 13, 2008 to July 21, 2008 and from November 6, 2008 through the end of 2008.

10) Mr. Sanders served as our Chief Financial Officer from May 13, 2008 until his resignation on July 21, 2008.  He served as a special assistant to our Chief Executive Officer from April 23, 2008 to May 13, 2008.

86

2008 Grants of Plan-Based Awards

Set forth in the table below is information regarding stock and stock option award granted to our named executive officer in 2008.  These stock and stock option grants represent all of the grants of awards to our named executive officers under any plan during or with respect to 2008.

	Grant	Estimated Future Payouts under Non-Equity Incentive Plan Awards			Estimated Possible Payouts Under Equity Incentive Plan Awards						All Other Stock Awards: # of Shares of Stock		All Other Option Awards: # of Shares Underlying Options (1)		Exercise Price of Option Awards ($/Sh)		Grant Date Fair Value of Stock and Option Awards (2)
Name	Date				Threshold		Target		Maximum
Olga Hernandez-Longan	10/8/2008					250,000		250,000		250,000		-		-	$	0.70	$	25,818
	10/8/2008					-		-		-		-		350,000		0.70		64,276
Leo Gingras	1/8/2008					350,000		350,000		350,000		-		-		1.49		260,229
	6/26/2008					-		-		-		50,000		-		n/a		7,026
Kody Newland	1/8/2008					100,000		100,000		100,000		-		-		1.49		74,351
Bradley D. Edson	1/8/2008					1,000,000		1,000,000		1,000,000		-		-		1.49		743,510
			(3	)		-		-		-		-		-		-		-
Todd Crow (4)	1/8/2008					100,000		100,000		100,000		-		-		1.49		74,351
	10/4/2008					-		-		-		-		38,399		0.30		10,143
	10/4/2008					-		-		-		-		46,079		0.30		12,171
	11/4/2008					-		-		-		-		38,399		0.30		9,238
	11/6/2008					-		-		-		-		691,191		0.30		166,284
	11/4/2008					-		-		-		-		76,799		0.30		18,476
Jeff Sanders (5)	4/23/2008					250,000		250,000		250,000		-		-		1.14		-
	4/23/2008					-		-		-		-		350,000		1.14		-
Margie Adelman (5)	1/8/2008					100,000		100,000		100,000		-		-		1.49		-

(1) The vesting terms of the stock options are outlined in the table below entitled “Outstanding Equity Awards at 2008 Fiscal Year-End.”

(2) Reflects the grant date estimated fair value of the stock grants and stock options as calculated in accordance with SFAS No. 123R. For additional information on the valuation assumptions used in the calculation of these amounts, refer to the notes contained in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for 2008.

(3) Under Mr. Edson’s employment agreement he was entitled to receive a cash incentive bonus equal to one percent of our gross sales over $25,000,000 in a year, but only if we report positive EBITDA (earnings before interest, taxes, depreciation and amortization) for the year.  There were no thresholds, maximums or targets with respect to this compensation.  Mr. Edson did not receive any compensation under this arrangement in 2008, and the arrangement terminated when Mr. Edson resigned on March 9, 2009.  See below under “Employment Agreements and Arrangements – Resignation Related Agreements with Former Executive Officers”.

(4) On July,23, 2008, we extended the expiration dates from October 4, 2008 to October 4, 2011 for two options held by Mr. Crow to purchase 38,399 and 46,079 shares of our common stock, resulting in the deemed cancellation of the old options and grant of replacement options. On the date of the deemed cancellation and re-grant, the closing market price of our common stock was $0.44.

(5) The stock options granted to Ms. Adelman and Mr. Sanders expired when they ceased to be executive officer and did not vest.

87

2008 Option Exercises and Stock Vested

In 2008, none of our named executive officers exercised any stock options or similar awards we granted to them.

Outstanding Equity Awards as Of December 31, 2008

The following table provides information as of December 31, 2008 regarding equity awards held by each of our named executive officers.

	Option Awards										Stock Awards
					Equity Incentive Plan										Equity Incentive Plan Awards:
	# of Securities Underlying Unexercised Options		# of Securities Underlying Unexercised Options		Awards: # of Securities Underlying Unexercised Unearned		Option Exercise Price		Option Expiration		Number of Shares of Stock That Have Not Vested		Market Value of Shares of Stock That Have Not Vested		Number of Shares of Stock That Have Not Vested		Market Value of Shares of Stock That Have Not Vested
	(# Exercisable)		(# Un-exercisable)		Options (#)		($/sh)		Date		(#)		($)		(#)		($)
Olga Hernandez-Longan(1)		-		-		250,000	$	0.70	10/8/2013			-	$	-		-	$	-
		-		350,000		-		0.70	10/8/2013			-		-		-		-
Leo G. Gingras(2)(3)		159,712		90,288		-		2.63	2/8/2017			-		-		-		-
		-		-		175,000		1.49	1/8/2013			-		-		-		-
		-		-		-		-	-			34,615		13,846		-		-
Kody Newland (2)		-		-		50,000		1.49	1/8/2013			-		-		-		-
		500,000		-		-		1.00	2/27/2016			-		-		-		-
Bradley D. Edson (2)		-		-		500,000		1.49	1/8/2013			-		-		-		-
		6,000,000		-		-		0.30	12/15/2014			-		-		-		-
Todd C. Crow(4)		46,079		-		-		0.30	11/6/2011			-		-		-		-
		38,399		-		-		0.30	1/29/2012			-		-		-		-
		691,191		-		-		0.30	11/6/2011			-		-		-		-
		153,597		-		-		0.30	11/6/2011			-		-		-		-
		95,998		-		-		0.30	11/6/2011			-		-		-		-
		100,000		-		-		1.49	1/8/2013			-		-		-		-
		537,678		-		-		0.30	3/31/2015			-		-		-		-
Jeff Sanders		-		-		-		N/A		N/A		-		-		-		-
Margie Adelman		-		-		50,000		1.49	11/11/2008			-		-		-		-
		1,000,000		-		-		0.30	1/23/2015			-		-		-		-

(1) For the first option listed for Ms. Hernandez-Longan, 25% of the shares subject to the option were to vest on October 8, 2009 and 37.5% of the shares subject to the option were to vest on October 8, 2010 and October 8, 2011, subject to our achievement in each case of certain performance targets.  For the second option listed for Ms. Hernandez-Longan, 25% of the shares subject to the option were to vest on July 8, 2009 and 8.3% of the shares subject to the option were to vest on each successive three month period thereafter.

(2) The options expiring on January 8, 2013 will vest as follows: (1) 25% of the option shares vest on December 31, 2008 so long as we achieve for 2008 gross revenue that equals or exceeds 85% of gross revenue budgeted for 2008, (2) 25% of the option shares vest on December 31, 2009 so long as we achieve for 2009 gross revenue that equals or exceeds 85% of gross revenue budgeted for 2009, (3) 25% of the option shares vest on December 31, 2008 so long as we achieve for 2008 net income that equals or exceeds 85% of net income budgeted for 2008, and (4) 25% of the option shares vest on December 31, 2009 so long as we achieve for 2009 net income that equals or exceeds 85% of net income budgeted for 2009. As the performance criteria were not satisfied for the stock options listed above that expire on January 8, 2013, the number of unearned shares for these options in the table represents one half of the number of option shares originally underlying the stock options.

(3) For the option expiring on February 8, 2017, 2.8% of the shares subject to the option vest monthly over three years.  For the 50,000 share stock award, approximately 2,564 shares vest each month for 20 months.

(4) For a description of the amendments made to Mr. Crow’s stock options in connection with his resignation as our Chief Financial Officer, see “Resignation Related Agreements with Former Executive Officers” below.

88

Executive Employment Agreements

The following is a brief description of the employment agreements NutraCea entered into with each of the named executive officers and current executive officers.  The resignation related agreements we entered into with each of Mr. Edson, Mr. Crow and Ms. Adelman are described below.

James C. Lintzenich, our Interim Chief Executive Officer and Principal Financial Officer

Mr. Lintzenich is paid a salary of $15,000 per month to serve as our Interim Chief Executive Officer and as our Principal Financial Officer.  There are no other material terms to Mr. Lintzenich’s employment relationship with NutraCea.

W. John Short, our President

On July 6, 2009 we entered into an employment agreement with W. John Short, our President.  The term of the employment agreement extends through June 30, 2012, and the term extended automatically for successive one-year terms unless either NutraCea or Mr. Short notifies the other in writing at least 180 days prior to the expiration of the then-effective term of its intention not to renew the employment agreement.  Mr. Short’s annual salary is $300,000, which salary shall increase to $350,000 per year on June 30, 2010.  Mr. Short is entitled to a one-time cash bonus of $150,000 and reimbursement for moving expenses for the relocation of his primary residence to Phoenix, Arizona.  Mr. Short may be eligible to earn an annual bonus each year up to 75% of his annual salary and a discretionary bonus each year up to 100% of his annual salary, with the actual amount and requirements of these bonuses to be determined by our Board of Directors or Compensation Committee.  In addition, Mr. Short may earn an initial bonus of $100,000 if NutraCea raises $7,000,000 on or before December 31, 2009.

If the employment of Mr. Short is terminated by NutraCea without “cause” (as defined in the employment agreement) or is terminated by Mr. Short with “good reason” (as defined in the employment agreement), then Mr. Short will be entitled to receive an amount equal to the monthly base salary multiplied by the number of months remaining on the term of the employment agreement plus any bonuses earned.

In connection with Mr. Short becoming an employee of NutraCea, NutraCea granted to Mr. Short employee stock options to purchase 1,200,000, 2,400,000 and 1,400,000 shares of common stock at a price per share equal to $0.20.  The stock option to purchase 1,200,000 shares of common stock shall vest as to 400,000 shares on August 15, 2009.  Following that date, 66,666 2/3 shares subject to that stock option will vest on the last business day of each calendar quarter until June 30, 2012.  The stock option to purchase 2,400,000 shares shall vest as to 800,000 shares on August 15, 2009.  Following that date, 133,333 1/3 shares will vest on the last business day of each calendar quarter until June 30, 2012.  The stock option to purchase 1,400,000 shares shall vest on July 1, 2012.  If NutraCea offers Mr. Short the role of Chief Executive Officer and Mr. Short refuses to be appointed, the stock options for 2,400,000 and 1,400,000 shares shall immediately terminate.

Leo Gingras, our Chief Operating Officer

On February 8, 2007, we entered into an employment agreement with Leo Gingras, our Chief Operating Officer.  Mr. Gingras served as special assistant to our former Chief Operating Officer until he became our Chief Operating Officer on April 11, 2007.  Pursuant to the employment agreement, we agreed to pay Mr. Gingras an annual salary of $220,000.  In addition, we paid to Mr. Gingras a sign-on bonus of $150,000.  If Mr. Gingras voluntarily resigns before March 15, 2010, Mr. Gingras will be required to repay to NutraCea a proportionate amount of this sign-on bonus based upon the time he is employed by us between March 15, 2007 and March 15, 2010.  The employment agreement further requires that NutraCea pay to Mr. Gingras a bonus of $20,000 for 2007 and a $600 per month car allowance.  In connection with him becoming one of our employees, Mr. Gingras was issued an option to purchase 250,000 shares of NutraCea’s common stock at an exercise price of $2.63 per share.

89

On January 8, 2008, Mr. Gingras’ employment agreement was amended to provide an employment term that ends on February 8, 2010, to increase the monthly car allowance to $850 and to provide for an annual cost of living adjustment for his base salary.  Concurrently with the execution of this amendment, we granted to Mr. Gingras an option to purchase 350,000 shares of our common stock at an exercise price per share of $1.49.

On July 28, 2009, we entered into a new employment agreement with Mr. Gingras to serve as our Chief Operating Officer.  The term of his employment is from July 23, 2009 to June 30, 2012. Pursuant to this employment agreement we agreed to pay Mr. Gingras a base salary at a rate of $250,000 per year from July 28, 2009 to December 31, 2009, which base salary shall increase to $250,000 per year in 2010.  In addition, we agreed to pay Mr. Gingras a $100,000 bonus, $50,000 of which is payable on or before November 30, 2009 and $50,000 of which is payable on or before March 31, 2010.  If Mr. Gingras terminates his employment voluntarily or NutraCea terminates Mr. Gingras for cause before June 30, 2011, he is required to return to NutraCea the entire bonus.  The employment agreement further provides that Mr. Gingras is entitled to discretionary bonuses.  In connection with his execution of this employment agreement, his options to purchase 250,000 and 350,000 shares of our common stock were cancelled and we issued to Mr. Gingras an option to purchase 1,500,000 shares of our common stock at a per share exercise price of $0.22.

For a description of the termination and change in control provisions of Mr. Gingras' employment agreement, see “Potential Payments Upon Termination or Change in Control.”

Kody Newland

On February 27, 2006, NutraCea entered into a two year employment agreement with Kody Newland, NutraCea’s Senior Vice President of Sales, pursuant to which NutraCea is to pay Mr. Newland a base salary of $150,000 per year which will be reviewed annually and adjusted to compensate for cost of living.  The term of agreement may be extended by mutual agreement of the parties on a month to month basis.  The agreement provided that Mr. Newland is eligible for future incentive bonuses based solely on the discretion of NutraCea’s Chief Executive Officer or President and the approval of NutraCea’s Compensation Committee.  In addition, the agreement included a car allowance of $600 per month.  In connection with Mr. Newland’s employment with us, we issued to him an option to purchase 500,000 shares of NutraCea’s common stock at an exercise price per share of $1.00.

On January 8, 2008, we amended Mr. Newland’s employment agreement to extend the initial term to February 27, 2010 and to increase the monthly car allowance to $850.  In connection with this amendment, we granted to Mr. Newland an option to purchase 100,000 shares of our common stock at an exercise price per share of $1.49.

For a description of the termination and change in control provisions of Mr. Newland's employment agreement, see “Potential Payments Upon Termination or Change in Control.”

Brad Edson, our former President and Chief Executive Officer

On December 17, 2004, we entered into an employment agreement with our former President and Chief Executive Officer, Bradley D. Edson, pursuant to which we agreed to pay Mr. Edson a base salary of $50,000 in year one; a base salary of $150,000 in year two; a base salary of $250,000 in year three; and a base salary that increases by 10% a year for each year thereafter.  The initial term of this agreement was three years and automatically extends for up to two additional one year terms unless either NutraCea or Mr. Edson gives written notice to terminate this agreement at least 180 days before the end of the preceding term.  This agreement provided that Mr. Edson was entitled to an annual incentive bonus based upon performance (“Edson Incentive Bonus”) and to be provided a car allowance of $600 per month.  The incentive bonus was payable annually within 10 days of the completion of our annual independent audit.  The bonus was one percent of our “Gross Sales over $25,000,000,” but only if we report a positive EBITDA for the period.  The bonus amount was limited to a maximum of $750,000 in any calendar year.  In addition, Mr. Edson was issued a warrant to purchase 6,000,000 shares of our common stock at an exercise price of $0.30 per share in connection with his initial employment with us.  The warrant is immediately exercisable as to all underlying shares and expires ten years from the date of issuance.

90

On January 8, 2008, we amended the employment agreement to remove the $750,000 cap on the Edson Incentive Bonus and extended the initial term of the agreement to December 31, 2010.  In connection with this amendment, we granted to Mr. Edson an option to purchase 1,000,000 shares of our common stock at an exercise price per share of $1.49.

For a description of the termination and change in control provisions of Mr. Edson’s employment agreement, see “Potential Payments Upon Termination or Change in Control.”

As described in more detail below, in connection with Mr. Edson’s resignation as our President and Chief Executive Officer, and as a member of our board of directors, we entered into an employment severance agreement and a consulting agreement with Mr. Edson that supersedes the terms of his employment agreement with NutraCea.

Jeffrey W. Sanders, former Chief Financial Officer

On April 23, 2008, we entered into an employment agreement with Jeffrey W. Sanders as our Chief Financial Officer.  Under his employment agreement, Mr. Sanders received an annual base salary of $220,000.  In addition, Mr. Sanders was entitled to reimbursement for moving expenses up to $30,000 for the relocation of Mr. Sanders’ primary residence to Phoenix, Arizona.  Mr. Sanders may have been eligible to earn an annual bonus each year up to the amount of his annual salary, with the actual amount and requirements of this bonus to be determined by NutraCea’s Board of Directors or Compensation Committee.  

Mr. Sanders resigned as our Chief Financial Officer effective as of July 21, 2008.

Olga Hernandez-Longan, former Chief Financial Officer

On November 6, 2008, we entered into an employment agreement with Olga Hernandez-Longan, as our Chief Financial Officer.  Ms. Hernandez-Longan served as a financial management and compliance consultant for us from October 8, 2008 until she became our Chief Financial Officer on November 6, 2008.  Under her employment agreement, Ms. Hernandez-Longan received an annual base salary of $230,000, which salary would be reviewed annually and be adjusted for cost of living increases.  In addition, the agreement included a car allowance of $800 per month and provides that Ms. Hernandez-Longan will be reimbursed for up to $40,000 for moving expenses.  The term of her employment agreement was three years, which term would automatically be extended for additional one year terms unless either NutraCea or Ms. Hernandez-Longan gave written notice to terminate the agreement at least 90 days before the end of the preceding term.  In connection with her employment with us, Ms. Hernandez-Longan was granted options to purchase 350,000 and 250,000 shares of our common stock, each with a per share exercise price of $0.70.  On July 9, 2009, Ms. Hernandez-Longan resigned as Chief Financial Officer of NutraCea effective as of July 31, 2009.

91

For a description of the termination and change in control provisions of Ms. Longan’s employment agreement, see “Potential Payments Upon Termination or Change in Control.”

Todd C. Crow, former Chief Financial Officer

In September 2005, we entered into an amendment to the employment agreement with Todd C. Crow, pursuant to which we assumed the employment agreement between Mr. Crow and RiceX.  The employment agreement, as amended, provides that Mr. Crow will serve asChief Financial Officer of NutraCea and RiceX.  Mr. Crow’s employment agreement, as amended, provides that Mr. Crow will receive an annual base salary of $150,000, which salary will be reviewed annually and be adjusted to compensate for cost of living.  The term will be automatically extended for an additional one-year term unless either party delivers notice of election not to extend the employment at least 90 days prior to the expiration of the initial term.  The agreement terminated on October 4, 2008.

As described in more detail below, in connection with Mr. Crow’s resignation as our Chief Financial Officer, we entered into an employment severance agreement and a consulting agreement with Mr. Crow that supersedes the terms of his employment agreement with NutraCea.

Margie D. Adelman, former Senior Vice President and Secretary

On January 25, 2005, we entered into a three year employment agreement with Margie D. Adelman, our Senior Vice President and Secretary, pursuant to which we agreed to pay Ms. Adelman a base salary of $150,000 per year. The agreement also provides that Ms. Adelman is entitled to a one-time initial bonus of $25,000 and will be eligible for future incentive bonuses based solely on the discretion of our Chief Executive Officer or President and the approval of our Compensation Committee. Ms. Adelman was issued a warrant to purchase 1,000,000 shares of our common stock at an exercise price of $0.30 per share, 500,000 shares of which vested upon signing and 500,000 shares of which vested on January 25, 2006. In addition, Ms Adelman was issued a warrant to purchase 1,000,000 shares of NutraCea’s common stock at an exercise price of $0.30 that will vest if we achieve both annual gross sales over $25,000,000 and report a positive annual EBITDA, excluding the effect of noncash charges, during Ms. Adelman’s employment with NutraCea. All warrants expire ten years from the date of issuance. On February 26, 2006, the agreement was modified to include a car allowance of $600 per month and a cost of living increase to her base salary for the balance of the term of her agreement.

As described in more detail below, in connection with Mr. Adelman’s resignation as an employee of NutraCea, we entered into an employment severance agreement and a consulting agreement with Ms. Adelman that supersedes the terms of her employment agreement with NutraCea.

Resignation Related Agreements with Former Executive Officers

Bradley Edson

On March 9, 2009, we entered into an employment severance agreement with Mr. Edson that provides for a cash severance payment equal to six months of Mr. Edson’s base salary, or $156,000.  One half of the severance payment was paid when Mr. Edson resigned as our President and Chief Executive Officer and one half of the cash severance payment was payable in three equal monthly payments, beginning on April 1, 2009.  We also agreed to pay for the continuance of Mr. Edson’s medical and health coverage through April 30, 2009 and thereafter, to reimburse Mr. Edson for his COBRA payments to continue medical and health coverage for himself and his dependents for six months through October 31, 2009.  We estimate that our payment and reimbursement obligations with respect to Mr. Edson’s post-employment medical and health coverage to be approximately $10,500.  Under the employment severance agreement, the indemnification provisions of Mr. Edson’s employment agreement remain in effect and we reimbursed Mr. Edson for $20,000 of legal fees incurred by Mr. Edson in connection with the negotiation of the employment severance agreement.  We also entered into a consulting agreement with Mr. Edson upon his resignation.  Under this consulting agreement, Mr. Edson agreed to provide us with consulting services for two months at a fee of $15,000 a month, for total payments of $30,000.

92

Todd Crow

In connection with Mr. Crow’s resignation as our Chief Financial Officer in November 2008, we entered into an Employment Severance Agreement with Mr. Crow.  Under the Employment Severance Agreement, we made a cash severance payment to Mr. Crow of $220,000 upon his resignation, provided Mr. Crow with continued medical and dental benefit coverage through March 31, 2009 and agreed to reimburse his COBRA payments through September 30 2010.  We estimate that our payment and reimbursement obligations with respect to Mr. Crow’s post-employment medical and dental coverage to be approximately $19,745.  In addition, we made the following amendments to Mr. Crow’s stock options:  (i) options to purchase a total of 1,562,942 shares of our common stock were amended to provide that they would remain exercisable for one year after the date of Mr. Crow’s death or disability, (ii) the expiration dates for two options to purchase a total of 84,478 shares of our common stock were extended by three years and (iii) the performance vesting requirements for the option to purchase 100,000 shares of our common stock that was granted to Mr. Crow on January 8, 2008 were waived and the option became fully vested upon his termination.

We also entered into an independent contractor agreement with Crow & Associates, LLC upon Mr. Crow’s resignation.  Crow & Associates, LLC is owned by Mr. Crow.  Under the independent contractor agreement, Crow & Associates provided us with advice regarding accounting practices and systems and filing reports with the Securities and Exchange Commission.  The term of the agreement was 18 months and provided for our payment of $15,000 per month for the first 12 months of the term and $7,500 per month for the remaining six months of the term, or $225,000 in total payments over the term. In 2008 we paid Crow and Associates, LLC $40,385 for consulting services. In March 2009, we suspended the independent contractor agreement between NutraCea and Crow and Associates pending the results of the SEC formal investigation and the securities class action lawsuit mentioned in the beginning of this report under Significant Events - Securities Class Action, Shareholder Derivative Litigation, and SEC Investigation.

Margie Adelman

On November 11, 2008, we entered into a severance and release agreement with Ms. Adelman and terminated Ms. Adelman’s employment with us.  Under this agreement, we paid Ms. Adelman $20,000 for moving expenses and terminated all of her stock options that were not fully vested.  We also entered into a one year consulting Agreement with Ms. Adelman that provides for our payment to her of $15,827.73 each month, or a total of $189,932 over the term, in exchange for her consultation regarding business development and public relations.  We terminated the consulting agreement with Ms. Adelman in September 2009.

Jeffrey Sanders

Mr. Sanders resigned as our Chief Financial Officer effective as of July 21, 2008.   In connection with his resignation, his stock option terminated and he did not receive a severance payment.

Olga Hernandez-Longan

Ms. Hernandez-Longan resigned as our Chief Financial Officer effective as of July 31, 2009.   In connection with his resignation, her stock options terminated and she did not receive a severance payment.

Equity Compensation Arrangements

2005 Equity Incentive Plan

We currently grant stock options and stock bonuses to our executive officers pursuant to our 2005 Equity Incentive Plan, or the 2005 Plan.  Under the terms of the 2005 Plan, we may grant options to purchase common stock and shares of common stock to officers, directors, employees or consultants providing services to us on such terms as are determined by the Board of Directors.  A total of 10,000,000 shares of our common stock are reserved for issuance under the 2005 Plan.  As of December 31, 2008, 50,000 restricted common stock shares were issued under the 2005 Plan, 1,460,899 shares underlie outstanding stock options granted pursuant to the 2005 Plan and 8,539,101 shares were available for future grants under the 2005 Plan.  Our Board of Directors administers the 2005 Plan, determines vesting schedules on plan awards and may accelerate these schedules for award recipients.  The 2005 Plan has a term of 10 years and stock options granted under the plan may not have terms in excess of 10 years.  All options will terminate in their entirety to the extent not exercised on or prior to the date specified in the written notice unless an agreement governing any change of control provides otherwise.

93

Vesting of Stock Options Granted in 2008

In January 2008, our Board of Directors granted stock options to Mr. Edson, Mr. Gingras, Mr. Newland, Mr. Crow and Ms. Adelman to purchase 1,000,000, 350,000, 100,000, 100,000 and 100,000 shares of our common stock, respectively.  The stock options granted to Messrs. Edson, Gingras and Newland vest as follows:  (1) 25% of the option shares vest on December 31, 2008 so long as NutraCea achieves for 2008 gross revenue that equals or exceeds 85% of gross revenue budgeted for 2008, (2) 25% of the option shares vest on December 31, 2009 so long as NutraCea achieves for 2009 gross revenue that equals or exceeds 85% of gross revenue budgeted for 2009, (3) 25% of the option shares vest on December 31, 2008 so long as NutraCea achieves for 2008 net income that equals or exceeds 85% of net income budgeted for 2008, and (4) 25% of the option shares vest on December 31, 2009 so long as NutraCea achieves for 2009 net income that equals or exceeds 85% of net income budgeted for 2009.  The stock options granted to Mr. Crow and Ms. Adelman vest as follows:  (1) 50% of the option shares vest on December 31, 2008 so long as the Company achieves for 2008 gross revenue that equals or exceeds 85% of gross revenue budgeted for 2008, (2) 50% of the option shares vest on December 31, 2009 so long as the Company achieves for 2009 net income that equals or exceeds 85% of net income budgeted for 2009.

In October 2008, our Board of Directors granted to Ms. Hernandez-Longan options to purchase 250,000 and 350,000 shares of our common stock.  The 350,000 share option grant vests as to 25% of the shares on July 8, 2009 and vests as to 8.33% of the shares every three months thereafter, so long as she continues to be employed by us on each vesting date.  If Ms. Hernandez-Longan is employed by us on each vesting date, the 250,000 share option vests as to 25% of the shares on October 8, 2009 if we achieve income and revenue targets for 2008, 37.5% of the shares on October 8, 2010 if we achieve income and revenue targets for 2009 and 37.5% of the shares on October 8, 2011 if we achieve income and revenue targets for 2010.

2008 Option Exercises and Stock Vested

In 2008, none of our named executive officers exercised any stock options or similar awards we granted to them.

	Stock Awards
Name of Executive Officer	Number of
	Shares	Value
	Acquired on	Realized on
	Vesting (#)	Vesting ($)
Leo Gingras	15,384.60	7,025.64

Pension Benefits

None of our named executive officers are covered by a pension plan or other similar benefit plan that provides for payments or other benefits at, following, or in connection with retirement.

Nonqualified Deferred Compensation

None of our named executive officers are covered by a defined contribution or other plan that provides for the deferral of compensation on a basis that is not tax-qualified.

Potential Payments Upon Termination or Change in Control

We have entered into employment agreements and stock option agreements with our named executive officers that require us to provide compensation to them upon termination of their employment with us or a change in control of NutraCea.  Regardless of the manner in which a named executive officer’s employment terminates, the executive officer will be entitled to receive amounts earned during the term of employment.  Such amounts include:

· the portion of the officer’s current annual base salary which has accrued through the date of termination;

· vested stock options; and

· payment for accrued but unused vacation.

94

In addition to these payments, the amount of compensation payable to each named executive officer upon voluntary termination, involuntary termination without cause, termination following a change of control and in the event of disability or death of the executive is discussed below.  For a description of amounts paid or payable to each of Mr. Edson, Mr. Crow, Ms. Hernandez-Longan , Mr. Sanders and Ms. Adelman in connection with their resignations from NutraCea, please see “Resignation Related Agreements with Former Executive Officers” above.

Olga Hernandez-Longan

Ms. Hernandez-Longan resigned as our Chief Financial Officer effective as of July 31, 2009.  For a description of actual amounts paid to Ms. Longan in connection with her resignation please see "Employment Agreements and Arrangements - Resignation Related Agreements with Former Executive Officers". The description below of Ms. Hernandez-Longan’s employment termination and change of control benefits are different from the actual benefits that were paid in connection with her resignation.

Termination Without Cause, Resignation for Good Reason or Death.  In the event Ms. Hernandez-Longan’s employment is terminated without “cause,” she resigns for “good reason” or she dies, Ms. Hernandez-Longan is entitled to:

· 100% of her base salary through the end of the term of the agreement, to be paid immediately following termination.

“Cause” is defined as (i) a breach of a material term of her employment agreement, which remains uncured for thirty days after a written notice of breach and written demand for performance are delivered to her by our Chief Executive Officer or Board of Directors; (ii) Ms. Hernandez-Longan’s gross negligent or engagement in material willful or gross misconduct in the performance of her duties; (iii) Ms. Hernandez-Longan has committed, as determined by the Board of Directors of NutraCea, or has been convicted by a court of law of, fraud, moral turpitude, embezzlement, theft, or material dishonesty or other similar criminal conduct, and such misconduct is committed in connection with her employment with NutraCea; (iv) a conviction by a court of law of a felony involving fraud, moral turpitude, embezzlement, theft, or dishonesty or other similar criminal conduct or a felony; (v) habitual misuse of alcohol or drugs; or (vi) Ms. Hernandez-Longan’s breach of her proprietary information agreement with NutraCea.

“Good Reason” is defined as (i) any material breach by NutraCea of her employment agreement; (ii) the assignment of duties that are not consistent or commensurate with and her position as Chief Financial Officer of NutraCea; (iii) the relocation of her primary office location to outside of the Phoenix metropolitan area; (iv) the reduction of her base salary; (v) the failure of NutraCea to obtain an agreement to assume Ms. Hernandez-Longan’s employment agreement from NutraCea’s successor at least forty-five (45) days in advance of a change of control merger or sale of substantially all of NutraCea’s assets; or (vi) Ms. Hernandez-Longan’s termination as Chief Financial Officer.

Termination in Connection with a Change in Control.  In the event Ms. Hernandez-Longan is terminated without cause (as defined about) within 60 days before and 90 days after a “change in control”:

· her option to purchase 350,000 shares will immediately vest and become exercisable;

· she will no longer be required to remain employed by NutraCea for her option to purchase 250,000 shares to vest and be exercisable, but NutraCea will need to achieve the original performance criteria for the option to vest and become exercisable.

“Change in control” is defined as (i) our merger or consolidation with any other corporation which results in our voting stock outstanding immediately before the transaction failing to represent more than fifty percent (50%) of the total voting power represented by the surviving entity immediately after the merger or consolidation or (ii) our sale or disposal of all or substantially all of our assets.

95

Leo Gingras-Rights under Old Employment Agreement

Below sets forth the compensation payable to Mr. Gingras under his employment agreement with us at December 31, 2008 for involuntary termination without cause, voluntary termination for good reason and termination in connection with a change of control and in the event of death.

Termination Without Cause.  In the event we terminate Mr. Gingras’ without “cause,” Mr. Gingras is entitled to:

· an amount equal to twelve months of his base salary.

“Cause” is defined as (i) a material breach of the terms of his employment agreement, (ii) a determination by the Board of Directors that Mr. Gingras has been grossly negligent or has engaged in material willful or gross misconduct in the performance of his duties, (iii) Mr. Gingras having failed to meet written standards established by us for performance of duties under the employment agreement, (iv) Mr. Gingras has committed, as determined by our Board of Directors, or has been convicted of fraud, moral turpitude, embezzlement, theft, or dishonesty or other criminal conduct, (v) Mr. Gingras has taken or failed to take any actions such that such action or failure constitutes legal cause for termination under California law, or (vi) Mr. Gingras misuses alcohol or any non prescribed drug.

Termination in Connection with a Change of Control (Option for 250,000 Shares).  If Mr. Gingras is terminated other than for “cause”, “death”, or “disability” in the 12 month period following a “change of control”, Mr. Gingras’ stock option to purchase 250,000 shares of our common stock will vest as to all unvested shares.

Change of control” is defined as (i) our merger or consolidation with any other corporation which results in our voting stock outstanding immediately before the transaction failing to represent more than fifty percent (50%) of the total voting power represented by the surviving entity immediately after the merger or consolidation or (ii) our sale or disposal of all or substantially all of our assets;

“Cause” is defined as (i) Mr. Gingras’ failure to perform his assigned duties or responsibilities after notice thereof from us describing his failure to perform such duties or responsibilities; (ii) Mr. Gingras engages in any act of dishonesty, fraud or misrepresentation; (iii) Mr. Gingras’ violation of any federal or state law or regulation applicable to our business; (iv) Mr. Gingras’ breach of any confidentiality agreement or invention assignment agreement; or (v) Mr. Gingras being convicted of, or entering a plea of nolo contendere to, any crime or committing any act of moral turpitude; and “disability” is defined as an inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.

Change of Control Benefit (Option for 350,000 Shares).  In the event of a “change of control”, Mr. Gingras’ stock option to purchase 350,000 shares of our common stock, which was granted to him on January 8, 2008, will immediately vest as to all unvested shares.  Under this option, “change of control” has the same definition for such term as is set forth in the 250,000 share option.

Leo Gingras-Rights Under New Employment Agreement

Below sets forth the compensation payable to Mr. Gingras under the employment agreement he has with us as of the date of the Annual Report on Form 10-K for involuntary termination without cause, voluntary termination for good reason and termination in connection with a change of control and in the event of death.

96

Termination Without Cause, Resignation for Good Reason or Death.  In the event Mr. Gingras’ employment is terminated without “cause,” he resigns for “good reason” or he dies, Mr. Gingras is entitled to:

· 100% of his base salary through the end of the term of the agreement, to be paid no later than ten days after Mr. Gingras and NutraCea enter into a mutual general release; and

· immediate vesting of all his unvested stock options.

“Cause” is defined as (i) a breach of a material term of his employment agreement, which remains uncured for thirty days after a written notice of breach and written demand for performance are delivered to Mr. Gingras; (ii) Mr. Gingras has been grossly negligent or engagement in material willful or gross misconduct in the performance of his duties; (iii) Mr. Gingras has committed, as reasonably determined by our Board of Directors, or has been convicted by a court of law of, fraud, moral turpitude, embezzlement, other similar criminal conduct, or any felony; (v) habitual misuse of alcohol, drugs or any controlled substance; or (vi) Mr. Gingras’ breach of her proprietary information agreement with NutraCea or failure to comply with reasonable written standards established by NutraCea for the performance of his duties.

“Good Reason” is defined as (i) any material breach by NutraCea of his employment agreement; (ii) a material reduction of his duties or responsibilities (or the assignment of duties or responsibilities to him that are) not consistent or commensurate with his position as Chief Operating Officer of NutraCea; or (iii) and reduction of his salary other than as part of a general reduction of the salaries of all or substantially all of our employees.

Termination in Connection with a Change in Control.  In the event Mr. Gingras or NutraCea terminates Mr. Gingras’ employment with NutraCea within 60 days before and 90 days after a “change in control”:

· His option to purchase 1,500,000 shares will immediately vest and become exercisable.

“Change in control” is defined as (i) our merger or consolidation with any other entity which results in our voting stock outstanding immediately before the transaction failing to represent more than fifty percent (50%) of the total voting power represented by the surviving entity immediately after the merger or consolidation or (ii) our sale or transfer of all or substantially all of our assets in one or more related transactions not in the ordinary course of business.

Kody Newland

Termination Without Cause.  In the event we terminate Mr. Newland without “cause,” Mr. Newland is entitled to:

· an amount equal to his base salary for the remainder of the term of his employment agreement, not to exceed 12 months.

“Cause” is defined in his employment agreement as (i) a determination by the Board of Directors that Mr. Newland has been grossly negligent or has engaged in material willful or gross misconduct in the performance of his duties and we have filed a civil lawsuit against him for the same claims, (ii) Mr. Newland has taken or failed to take any actions such that such action or failure constitutes legal cause for termination under California law, (iii) Mr. Newland has been convicted by a court of law of fraud, moral turpitude, embezzlement, theft, or dishonesty or other criminal conduct, (iv) Mr. Newland having materially breached the terms of his employment agreement and not cured the breach in 10 days after receipt of written notice or (v) Mr. Newland having failed to meet written standards established by us for performance of duties and not cured this failure within 10 days after receipt of written notice.

Change of Control Benefit (Options to Purchase 500,000 and 100,000 Shares).  In the event of a “change of control”, Mr. Newland’s stock options to purchase 500,000 shares and 100,000 shares of our common stock, respectively, will vest as to all unvested shares.

“Change of control” is defined as (i) our merger or consolidation with any other corporation which results in our voting stock outstanding immediately before the transaction failing to represent more than fifty percent (50%) of the total voting power represented by the surviving entity immediately after the merger or consolidation or (ii) our sale or disposal of all or substantially all of our assets.

97

Bradley Edson

Mr. Edson resigned as our President and Chief Executive Officer on March 9, 2009.  For a description of actual amounts paid or payable to Mr. Edson in connection with his resignation, please see "Resignation Related Agreements with Former Executive Officers" above. The description below of Mr. Edson’s employment termination and change of control benefits are different from the actual benefits that were paid or are payable in connection with his resignation.

Resignation for Good Reason.  In the event Mr. Edson resigns for “good reason,” Mr. Edson is entitled to:

· 100% of his base salary through the end of the term of the agreement, but no less than the base salary paid to him in the previous 12 months, to be paid immediately following termination;

· a proportionate share of any bonus he would be entitled to receive for the year in which the termination occurred, based upon the time he was employed by us that year, payable at the regular time such bonus is paid; and

· immediate vesting of all his unvested stock options.

“Good reason” is defined as (i) the assignment to Mr. Edson of duties that are inconsistent with his position and nature of employment, (ii) the reduction of the duties which are inconsistent with his position and nature of employment, (iii) a change in Mr. Edson’s title, (iv) a reduction in Mr. Edson’s compensation and benefits, (v) a successor company not agreeing to assume the agreement or (vi) a “change of control.”

“Change of control” is defined as (i) a merger or consolidation approved by our shareholders in which shares possessing more than 50% of the total combined voting power of our outstanding stock are transferred to a person or persons different from the persons holding those shares immediately before such merger or consolidation, (ii) the transfer of more than 50% of the total combined voting power of our outstanding stock to a person or persons different from the persons holding those shares immediately before such transaction, or (iii) the sale, transfer or other disposition of all or substantially all of our assets in our complete liquidation or dissolution.

Disability or Death. In the event Mr. Edson is terminated because of his disability or death, Mr. Edson is entitled to:

· six months of his base salary payable in regular installments;

· incentive compensation through the end of the fiscal year; and

· six months vesting of unvested options.

“Disability” is defined as Mr. Edson’s inability to carry on substantially all of his normal duties and obligations under the agreement for a continuous period of one hundred eighty (180) days due to accident, illness or other disability.

Resignation Without Good Reason and Termination for Cause. In the event Mr. Edson resigns without “good reason” or is terminated by us for “cause,” Mr. Edson is entitled to:

· a proportionate share of any bonus he would be entitled to receive for the year in which the termination occurred, based upon the time he was employed by us that year, payable at the regular time such bonus is paid; and

“Cause” is defined as the conviction of a felony, a crime involving moral turpitude causing material harm to our standing and reputation or fraud against us.

Termination Without Cause.  In the event the agreement is terminated by reason of Mr. Edson’s termination without “cause,” Mr. Edson is entitled to:

· 100% of his base salary through the end of the term of the agreement, but no less than the base salary paid to him in the previous 12 months, to be paid immediately following termination;

· incentive compensation through the end of the term of the agreement, payable at the regular time for such incentive compensation;

· immediate vesting of all his unvested stock options.

98

Change of Control Benefit (Option for 1,000,000 Shares).  In the event of a “change of control”, Mr. Edson’s stock option to purchase 1,000,000 shares of our common stock, which was granted to him on January 8, 2008, will immediately vest as to all unvested shares.

“Change of control” is defined as (i) our merger or consolidation with any other corporation which results in our voting stock outstanding immediately before the transaction failing to represent more than fifty percent (50%) of the total voting power represented by the surviving entity immediately after the merger or consolidation or (ii) our sale or disposal of all or substantially all of our assets.

Quantified Benefits

Three of our named executive officers, Mr. Crow, Mr. Sanders and Ms. Adelman, ceased to be executive officers before the end of 2008.  For a description of the payments and benefits they received in connection with their resignations, please see "Resignation Related Agreements with Former Executive Officers" above.

The following tables indicate the potential payments and benefits to which our named executive officers other than Mr. Crow, Mr. Sanders and Ms. Adelman would be entitled upon termination of employment or upon a change of control.  Calculations for the following tables are based on the following assumptions:  (i) the triggering event occurred on December 31, 2008; and (ii) salaries were paid through December 31, 2008.

We entered into a new employment agreement with Mr. Gingras on July 28, 2009 (“New Agreement”), which replaced the employment agreement pursuant to which Mr. Gingras was previously employed with us (“Old Agreement”).  The following tables include hypothetical payments and benefits that Mr. Gingras would have received under both the Old Agreement and the New Agreement, assuming that he had entered into the New Agreement on December 31, 2009.  The following tables do not reflect the benefits Mr. Gingras would have received upon a triggering event with respect to the stock option granted to him on July 27, 2009.

Voluntary Termination, Involuntary For Cause Termination

If on December 31, 2008 we terminated our named executive officers with cause or they voluntarily terminated their employment with us without good reason, they would have be entitled to receive as compensation, all amounts earned during the term of employment that were not previously paid.

Termination Because of Death or Disability

						Stock					Total
Name	Salary			Bonus		Options			Benefits		Benefits
Bradley Edson (1)	$	151,250	(2)		-		-	(3)		-	$	151,250
Olga Hernandez-Longan (5)		651,667	(4)		-		-			-		651,667
Leo Gingras
Old Agreement		220,000	(6)		-		-			-		220,000
New 2009 Agreement		791,667	(7)		-		-			-		791,667
Kody Newland		-			-		-			-		-

(1) (1) The compensation and benefits referenced in this table have been superseded by the terms of the employment severance agreement and consulting agreement that we entered into with Mr. Edson in March 2009, the terms of which are described under “Resignation Related Agreements with Former Executive Officers”

99

(2) Represents six months of base salary.

(3) Mr. Edson holds a stock option that vest as to all shares upon his death.  As the exercise price of these options was greater than the market price of our common stock on December 31, 2008, no value is attributed to the acceleration of the stock options.

(4) Represents 35 months of base salary.

(5) The benefits referenced in this table will not be payable to Ms. Hernandez-Longan because she resigned as Chief Financial Officer effective as of July 31, 2009.

(6) Represents 12 months of base salary payable in the event Mr. Gingras dies.

(7) Represents 35 months of base salary payable in the event Mr. Gingras dies.

Voluntary or Involuntary Termination as a Result of or Following a Change of Control

						Stock					Total
Name	Salary			Bonus		Options			Benefits		Benefits
Bradley Edson (1)	$	605,000	(2)		-		-			-	$	605,000
Olga Hernandez-Longan (3)		651,667	(4)		-		-	(5)		-		651,667
Leo Gingras
Old Agreement		220,000	(6)		-		-	(5)		-		220,000
New 2009 Agreement		791,667	(7)		-		-	(5)				791,667
Kody Newland		161,771	(8)		-		-	(5)		-		161,771

_____

(1) The compensation and benefits referenced in this table have been superseded by the terms of the employment severance agreement and consulting agreement that we entered into with Mr. Edson in March 2009, the terms of which are described under “Resignation Related Agreements with Former Executive Officers”

(2) Represents 24 months of base salary.

(3) The benefits referenced in this table will not be payable to Ms. Hernandez-Longan because she resigned as Chief Financial Officer effective as of July 31, 2009.

(4) Represents 35 months of base salary remaining on her term of employment

(5) Mr. Newland, Mr. Gingras and Ms. Hernandez-Longan hold stock options that vest as to all shares if they are terminated in connection with a change of control. As the exercise price of these options was greater than the market price of our common stock on December 31, 2008, no value is attributed to the acceleration of the stock options.

(6) Represents 12 months of base salary remaining on his term of employment

(7) Represents 35 months of base salary remaining on his term of employment

(8) Represents twelve months of base salary.

100

Voluntary Termination for Good Reason

Name	Salary			Bonus		Stock Options		Benefits		Total Benefits
Bradley Edson (1)	$	605,000	(2)	$	-		-	$	-	$	605,000
Olga Hernandez-Longan (3)		651,667	(4)		-		-		-		651,667
Leo Gingras
Old Agreement		-			-		-		-		-
New (2009) Agreement		791,667	(5)		-		-		-		791,667
Kody Newland		-			-		-		-		-

(1) The compensation and benefits referenced in this table have been superseded by the terms of the employment severance agreement and consulting agreement that we entered into with Mr. Edson in March 2009, the terms of which are described under “Resignation Related Agreements with Former Executive Officers”.

(2) Mr. Edson shall receive the immediate payout of all salary through the end of the term of his agreement, but in no event less than an amount equal to the last twelve months of salary paid to him.  Represents an amount Mr. Edson would have been entitled to receive if voluntary terminated for good reason.

(3) The benefits referenced in this table will not be payable to Ms. Hernandez-Longan because she resigned as Chief Financial Officer effective as of July 31, 2009.

(4) Represents 35 months of base salary remaining on her term of employment.

(5) Represents 35 months of base salary.

Involuntary Not For Cause Termination

Name	Salary			Bonus		Stock Options		Benefits		Total Benefits
Bradley Edson (1)	$	605,000	(2)	$	-		-	$	-	$	605,000
Olga Hernandez-Longan (3)		651,667	(4)								651,667
Leo Gingras
Old Agreement		220,000	(5)		-		-		-		220,000
New (2009) Agreement		791,667	(6)								791,667
Kody Newland		161,771	(7)		-		-		-		161,771

(1) The compensation and benefits referenced in this table have been superseded by the terms of the employment severance agreement and consulting agreement that we entered into with Mr. Edson in March 2009, the terms of which are described under “Resignation Related Agreements with Former Executive Officers”.

(2) Represents two years of base salary.

(3) The benefits referenced in this table will not be payable to Ms. Hernandez-Longan because she resigned as Chief Financial Officer effective as of July 31, 2009.

(4) Represents 35 months of base salary remaining on her term of employment.

(5) Represents 12 months of base salary remaining on his term of employment.

(6) Represents 35 months of base salary remaining on his term of employment.

(7) Represents twelve months of base salary.

101

Change of Control Not Involving a Termination
Name	Salary		Bonus		Stock Options			Benefits		Total Benefits
Bradley Edson (1)		-		-		-	(2)		-		-
Olga Hernandez-Longan (3)		-		-		-	(2)		-		-
Leo Gingras		-		-		-	(2)		-		-
Kody Newland		-		-		-	(2)		-		-

(1) The compensation and benefits referenced in this table have been superseded by the terms of the employment severance agreement and consulting agreement that we entered into with Mr. Edson in March 2009, the terms of which are described under “Resignation Related Agreements with Former Executive Officers” .

(2) Mr. Edson, Mr. Gingras, Mr. Newland and Ms. Hernandez-Longan hold stock options that vest as to all shares upon a change of control, regardless of whether these individuals are terminated.  As the exercise price of these options was greater than the market price of our common stock on December 31, 2008, no value is attributed to the acceleration of the stock options.

(3) The benefits referenced in this table will not be payable to Ms. Hernandez-Longan because she resigned as Chief Financial Officer effective as of July 31, 2009.

Director Compensation

Our directors receive the following consideration for serving as directors and as members of committees of our Board of Directors:

Cash Compensation
Annual		Chairman		Audit Committee Chairman		Compensation Committee Chairman		Corporate Governance Committee Chairman		Audit Committee Member		Corporate Governance Committee Member		Compensation Committee Member
$	40,000	$	25,000	$	10,000	$	7,000	$	7,000	$	4,000	$	2,000	$	2,000

Telephonic Meeting Fees	$1,000 per telephonic meeting; expenses for travel are reimbursed.
Annual Equity Grants	an option to purchase 35,000 shares of common stock each year pursuant to our 2005 Equity Incentive Plan.

The Company reimburses all directors for travel and other necessary business expenses incurred in the performance of their services for the Company and extends coverage to them under the Company’s directors’ and officers’ indemnity insurance policies.  In addition, directors are eligible to receive common stock and common stock options under the 2005 Equity Incentive Plan.

102

Director Compensation Table

The following director compensation table sets forth summary information concerning the compensation paid to our non-named executive officer directors in 2008 for services to our company.

	Fees Earned or Paid in Cash		Option Awards		Regrant of RiceX Warrants		Total Options & Warrants		Total
Name	($) (1)		($) (2)		($) (3)		(# of Shares)(4)		($)
David Bensol	$	102,667	$	109,920	$	-		205,000	$	212,587
Wesley K. Clark (5)		55,500		109,006		-		170,000		164,506
James C. Lintzenich		73,000		109,920		79,480		1,691,608		262,400
Edward L. McMillan		68,000		109,920		4,451		358,597		182,371
Steven W. Saunders		63,500		111,319		-		612,192		174,819
Kenneth L Shropshire		66,000		109,920				205,000		175,920
Total	$	428,667	$	660,005	$	83,931		3,242,397	$	1,172,603

(1)  Amounts shown in this column reflect the annual aggregate dollar amount of all fees earned or paid in cash for services as a director, including annual retainer fees, committee and/or chairmanship fees, and meeting fees.

(2)  Amounts shown do not reflect compensation actually received by the directors.  The amount shown is the expense recognized in NutraCea’s 2008 financial statements. For 2008, the grant date fair value of each option award on a grant-by-grant basis computed in accordance with 123(R) for all grants awarded to the named individuals as they are earned/vested. In accordance with SEC rules, no estimates were made for forfeitures in calculating these amounts. The grant date fair value of the options vested as of December 31 2008, calculated in accordance with SFAS 123(R), was $665,036.

(3) Amounts shown in this column reflect the amount of compensation recognized under 123(R) for the extension of the termination date for RiceX warrants held by the named individuals. and the incremental fair value related to the repricing or material modification of previously awarded options; in accordance with SFAS 123(R) for all grants awarded to the named individuals as they are earned/vested. In accordance with SEC rules, no estimates were made for forfeitures in calculating these amounts. The grant date fair value of the options vested as of December 31 2008, calculated in accordance with SFAS 123(R), was $83,926.

(4)  Represents as of December 31, 2008 the aggregate number of shares of our common stock subject to outstanding option awards held by our non-employee directors and Jim Lintzenich.

(5)  Wesley K. Clark resigned from our Board of Directors on October 19, 2009.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

The following table set forth certain information regarding beneficial ownership of our common stock as of August 31, 2009, by (i) each person or entity who is known by us to own beneficially more than 5% of the outstanding shares of that class or series of our stock, (ii) each of our directors, (iii) each of the named executive officers, and (iv) all directors and executive officers as a group.

The table is based on information provided to us or filed with the SEC by our directors, executive officers and principal shareholders. Beneficial ownership is determined in accordance with the rules of the SEC, and includes voting and investment power with respect to shares. Shares of common stock issuable upon exercise of options and warrants that are currently exercisable or are exercisable within 60 days after August 31, 2009, are deemed outstanding for purposes of computing the percentage ownership of the person holding such options or warrants, but are not deemed outstanding for computing the percentage of any other shareholder. Unless otherwise indicated, the address for each shareholder listed in the following table is c/o NutraCea, 5090 North 40th Street, Fourth Floor, Phoenix, Arizona 85018.

103

	Shares of Common
	Stock Beneficially Owned
Name and Address of Beneficial Owner	Number (1)		Percentage (1)
Bradley D. Edson (2)		6,255,000		3.14	%
James C. Lintzenich (3)		3,110,019		1.60	%
Steven W. Saunders (4)		2,079,595		1.07	%
Kody Newland (5)		564,200		*
Leo G. Gingras(6)		521,750		*
Edward L. McMillan (7)		419,337		*
David Bensol (8)		319,250		*
Kenneth L. Shropshire (9)		248,000		*
Wesley K. Clark (10)		207,000		*
John Short (11)		1,415,384		*
Todd Crow (12)		1,672,642		*
Jeffrey Sanders		-		*
Olga Hernandez-Longan		-		*
Margie Adelman (13)		1,069,707		*
All directors and executive officers as a group (14 persons)		17,881,884		9.13	%
* less than 1%

(1) Applicable percentage of ownership is based on 192,967,680 shares of our common stock outstanding as of August 31, 2009, together with applicable options and warrants for such shareholder exercisable within 60 days of August 31, 2009, which is October 30, 2009.

(2) Includes 6,000,000 shares issuable upon exercise of options. Balance of ownership is an estimate-requested information was never furnished by individual.

(3) Includes 1,713,608 shares issuable upon exercise of options and warrants.  1,371,411 of such shares underlie a warrant that expired on October 4, 2009.

(4) Includes 610,793 shares issuable upon exercise of a warrants or options.

(5) Includes 537,500 shares issuable upon exercise of options.

(6) Includes 468,750 shares issuable upon exercise of options

(7) Includes 401,597 shares issuable upon exercise of options and warrants.  76,799 of such shares underlie a warrant that expired on October 4, 2009.

(8) Includes 266,750 shares issuable upon exercise of options.

(9) Includes 248,000 shares issuable upon exercise of options.

(10) Includes 207,000 shares issuable upon exercise of options.

(11) Includes 1,415,384 shares issuable upon exercise of options.

(12) Includes 1,662,942 shares issuable upon exercise of options.

(13) Includes 1,000,000 shares issuable upon exercise of options.

104

Equity Compensation Plan Information

The following table sets forth, as of December 31, 2008, information with respect to our 2003 Stock Plan and 2005 Equity Incentive Plan, and with respect to certain other options and warrants, as follows:

						Number of securities
	Number of securities					remaining available for
	to be issued		Weighted average			future issuance under
	upon exercise of		exercise price of			equity compensation plans
	outstanding options,		outstanding options,			(excluding securities
	warrants and rights		warrants and rights			reflected in column (a)
Plan Category	(a)		(b)			(c)
Equity compensation plans approved by shareholders		1,510,899		$	1.04		8,489,101	(1)
Equity compensation plans not approved by shareholders		19,986,557			0.98		3,793	(2)
Total		21,497,456		$	0.98		8,492,894

(1) Represents shares reserved for future issuance under our 2005 Equity Incentive Plan.

(2) Represents shares reserved for future issuance under our 2003 Stock Compensation Plan.

Our Board of Directors adopted our 2003 Stock Compensation Plan, or the 2003 Plan, on October, 2003. Under the terms of the 2003 Plan, we may grant options to purchase common stock and shares of common stock to officers, directors, employees or consultants providing services to us on such terms as are determined by our Board of Directors.  A total of 10,000,000 shares of our common stock are reserved for issuance under the 2003 Plan.  As of December 31, 2008 a total of 9,996,207 shares were issued under the 2003 Plan, no shares underlie outstanding stock option granted pursuant to the 2003 Plan and 3,793 shares were available for future grants under the 2003 Plan.  Our Board of Directors administers the 2003 Plan and determines vesting schedules on plan awards.  The 2003 Plan has a term of 10 years and stock options granted under the plan may not have terms in excess of 10 years.  The Board may accelerate unvested options if we sell substantially all of our assets or are a party to a merger or consolidation in which we are not the surviving corporation. All options will terminate in their entirety to the extent not exercised on or prior to the date specified in the written notice unless an agreement governing any change of control provides otherwise.

A description of our 2005 Equity Incentive Plan is set forth above in Item 11 under “Equity Compensation Arrangements”.

As of December 31, 2008, options and warrants to purchase a total of 19,986,557 shares of our common stock were outstanding pursuant to compensation arrangements that have not been approved by our shareholders. The per share exercise prices of these options and warrants vary from $0.30 to $10.00.  Of these options to purchase 19,986,557 shares, as of December 31, 2008 options to purchase a total of 10,137,942 shares are held by the named executive officers (See table titled “Outstanding Equity Awards as of December 31, 2008” in Item 11 of this Form 10-K) and options to purchase a total of 2,993,998 shares of common stock held by our current directors (for directors Bensol, McMillan, Lintzenich, Saunders and  Shropshire, options to purchase 170,000, 135,000, 324,000, 1,656,608, 538,793, and 170,000 shares, respectively). Of the options to purchase 2,993,998 shares held by our non-employee directors, options to purchase a total of 1,909,000 shares held by directors McMillan, Lintzenich and Saunders were assumed by us when we acquired RiceX in October 2005.

Item 13. Certain Relationships and Related Transactions and Director Independence

As provided in our Audit Committee charter, our Audit Committee reviews and approves, unless otherwise approved by our Compensation Committee, any transaction or series of similar transactions to which we were or are to be a party in which the amount involved exceeds $120,000 and in which any director, director nominee, executive officer or holder of more than 5% of any class of our capital stock, or members of any such person’s immediate family, had or will have a direct or indirect material interest (each such transaction, a “Related Party Transaction”).  Each Related Party Transaction that occurred since January 1, 2008 has been approved by our Audit Committee or Compensation Committee.

Related Party Transactions

Other than compensation described above in “Executive Compensation”, we believe that there have been no Related Party Transactions since January 1, 2008.

105

Director Independence

The Board of Directors affirmatively determines the independence of each director and nominee for election as a director in accordance with guidelines it has adopted, which guidelines mirror the elements of independence set forth in NASDAQ and Securities Exchange Act rules. Based on these standards the Board of Directors determined that each of the following non-employee directors is independent:  David Bensol, Steven Saunders, Ed McMillan and Kenneth Shropshire.

Item 14. Principal Accountant Fees and Services

The following table presents fees for professional services rendered by our independent registered public accounting firm, Perry-Smith LLP (“Perry-Smith”), for the audit of our annual Consolidated Financial Statements for the years ended December 31, 2008 and 2007, and fees billed for audit-related services, tax services and all other services rendered to us by Perry-Smith for 2008 and 2007.

Fees	2008		2007
Audit Fees	$	550,000	$	388,000
Audit Related Fees	$	79,000		20,000
Tax Fees		58,000		132,000
All Other Fees		-		-
Total	$	687,000	$	540,000

Audit fees

Audit fees relate to services related to the audit of our financial statements review of financial statements included in our quarterly reports on Form 10-Q, services rendered in connection with the audit of management’s report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes Oxley Act of 2002 and consents and assistance in connection with other filings, including statutory audits and services, and public offering documents filed with the SEC.

Audit-Related Fees

Audit-Related Fees consist of fees for assurance and related services that were reasonably related to the performance of the audit or review of our Consolidated Financial Statements and are not reported under “Audit Fees.”

Tax fees

Tax fees include fees for services rendered in connection with preparation of federal, state and foreign tax returns and other filings and tax consultation services.

All other fees

There were no other fees in 2008 and 2007.

Pre-Approval Policies

Our Audit Committee pre-approves all audit and non-audit services provided by our independent accountants prior to the engagement of the independent accountants for such services.  All fees reported under the headings Audit Fees, Audit-Related Fees, Tax Fees and All Other fees above for 2008 and 2007 were approved by the Audit Committee before the respective services were rendered, which concluded that the provision of such services was compatible with the maintenance of the independence of the firm providing those services in the conduct of its auditing functions.

106

PART IV

Item 15. Exhibits, Financial Statement Schedules

(a)      Exhibits.

Exhibit Number	Exhibit Description
2.01(1)	Plan and Agreement of Exchange.
2.02(2)	Agreement and Plan of Merger and Reorganization, dated as of April 4, 2005, by and among the NutraCea, The RiceX Company and Red Acquisition Corporation.
2.03(3)	Asset Purchase Agreement, dated as of September 28, 2007, between NutraCea and Vital Living, Inc.
2.04(32)(33)	Quotas Purchase and Sale Agreement, dated January 31, 2008, between NutraCea and Quota Holders of Irgovel - Industria Riograndens De Oleos Begetais Ltda.
3.01.1(4)	Restated and Amended Articles of Incorporation as filed with the Secretary of State of California on December13, 2001.
3.01.2(5)	Certificate of Amendment of Articles of Incorporation as filed with the Secretary of State of California on August 4, 2003.
3.01.3(6)	Certificate of Amendment of Articles of Incorporation as filed with the Secretary of State of California on October 31, 2003.
3.01.4(5)	Certificate of Amendment of Articles of Incorporation as filed with the Secretary of State of California on September 29, 2005.
3.01.5(7)	Certificate of Amendment of Articles of Incorporation.
3.02(8)	Certificate of Designation of the Rights, Preferences, and Privileges of the Series A Preferred Stock as filed with the Secretary of State of California on December 13, 2001.
3.03(9)	Certificate of Determination, Preferences and Rights of Series B Convertible Preferred Stock as filed with the Secretary of State of California on October 4, 2005.
3.04(10)	Certificate of Determination, Preferences and Rights of Series C Convertible Preferred Stock as filed with the Secretary of State of California on May 10, 2006.
3.05(30)	Certificate of Determination, Preferences and Rights of the Series D Convertible Preferred Stock of NutraCea, as filed with the Secretary of State of California on October 17, 2008.
3.06(36)	Certificate of Determination, Preferences and Rights of the Series E Convertible Preferred Stock of NutraCea, as filed with the Secretary of State of California on May 7, 2009.
3.07.1(11)	Bylaws of NutraCea.
3.07.2(12)	Amendment of Bylaws of NutraCea.
4.01(9)	Form of warrant issued to subscribers in connection with NutraCea’s October 2005 private placement.
4.02(10)	Form of warrant issued to subscribers in connection with NutraCea’s May 2006 private placement.
4.03(13)	Form of warrant issued to subscribers in connection with NutraCea’s February 2007 private placement.

107

4.04(31)	Form of common stock purchase warrant issued to subscribers in connection with NutraCea’s April 2008 financing.
4.05(36)	Form of common stock warrant issued to holders of outstanding warrants in connection with NutraCea’s May 2009 exchange transaction.
10.01(9)	Securities Purchase Agreement, dated September 28, 2005, by and among NutraCea and the investors named therein.
10.02(9)	Registration Rights Agreement, dated September 28, 2005, by and among NutraCea and the investors named therein.
10.03(10)	Securities Purchase Agreement, dated May 12, 2006, by and among NutraCea and the investors named therein.
10.04(10)	Registration Rights Agreement, dated May 12, 2006, by and among NutraCea and the investors named therein.
10.05(13)	Securities Purchase Agreement, dated February 15, 2007, by and among NutraCea and the investors named therein.
10.06(13)	Registration Rights Agreement, dated February 15, 2007, by and among NutraCea and the investors named therein.
10.07(31)	Form of Securities Purchase Agreement, dated as of April 24, 2008, by and between NutraCea and each investor signatory thereto.
10.08(30)	Form of Securities Purchase Agreement, dated as of October 16, 2008, by and between NutraCea and each investor signatory thereto.
10.09(36)	Form of Exchange Agreement, dated May 7, 2009, by and between NutraCea and the holders of NutraCea’s outstanding Series D Convertible Preferred Stock.
10.10(16)	Form of Senior Secured Convertible Note of Vital Living, Inc.
10.11(17)	Form of securities purchase letter agreement, dated April 2007, by and between NutraCea and the holder of notes and/or preferred stock of Vital Living, Inc.
10.12(18)	Letter dated September 10, 2007, from Vital Living, Inc. to NutraCea.
10.13(14)±	Private Label Supply Agreement and Strategic Alliance between NutraCea and ITV Global.
10.14(15)±	W.F. Young Distribution Agreement.
10.15(5)±	Production Facility Development and Rice Bran Supply and Purchase Agreement dated September 13, 2005 between NutraCea and Food Trading Company Dominicana, S.A.
10.16(5)±	Assignment dated April 12, 2005 from W.F. Young, Inc. to NutraCea.
10.17(5)±	Distribution Agreement dated April 12, 2005 between W.F. Young, Inc. and NutraCea.
10.18(5)	Manufacturing Agreement dated April 12, 2005 between W.F. Young, Inc. and NutraCea.
10.19(7)±	Limited Liability Company Agreement for Grain Enhancement, LLC.
10.20(32)±	Amendment of Limited Liability Company Agreement for Grain Enhancements, LLC.
10.21(7)±	Supply Agreement between Grain Enhancement, LLC and NutraCea.

108

10.22(7)±	License and Distribution Agreement between Pacific Advisors Holdings Limited and NutraCea.
10.23(32)±	Amendment of License and Distribution Agreement between Pacific Advisors Holdings Limited and NutraCea.
10.24(7)±	Equipment Lease Agreement between Grain Enhancement, LLC and NutraCea.
10.25(33) ±	Shareholders’ Agreement with NutraCea Offshore, LTD., NutraCea and Bright Food Investment Company Limited, dated June 25, 2008.
10.26(32)	Stock Purchase Agreement, dated January 24, 2008, between Fortune Finance Overseas Ltd., and Medan, LLC.
10.27(39)	Stock Purchase Agreement, dated July 23, 2009, between Fortune Finance Overseas Ltd., and Medan, LLC.
10.28(32)±	Wheat Bran Stabilization Equipment Lease, dated January 24, 2008, between NutraCea and PT Panganmas Inti Nusantara.
10.29+	Asset Purchase Agreement, dated December 1, 2008, between NutraCea and Farmers’ Rice Cooperative.
10.30	Credit and Security Agreement with Wells Fargo Bank, National Association, dated December 18, 2008.
10.31	Forbearance Agreement and Amendment to Credit and Security Agreement with Wells Fargo Bank, National Association, dated July 31, 2009.
10.33(37)	Purchase Agreement between Ceautamed Worldwide, LLC and NutraCea, dated July 29, 2009.
10.33(38)*	Employment Agreement between NutraCea and W. John Short.
10.34(38)*	First Amendment of Employment Agreement between NutraCea and W. John Short.
10.35(34)*	Employment Agreement between NutraCea and Olga Hernandez Longan.
10.36(40)*	Employment Agreement between NutraCea and Leo Gingras.
10.37(19)*	Executive Employment Agreement between NutraCea and Kody Newland.
10.38(32)*	First Amendment to Employment Agreement between NutraCea and Kody Newland.
10.39(15)*	Executive Employment Agreement between NutraCea and Bradley D. Edson.
10.40(32)*	First Amendment to Employment Agreement between NutraCea and Bradley D. Edson.
10.41(33)*	Second Amendment of Employment Agreement between NutraCea and Bradley Edson.
10.42*	Employment Severance Agreement between NutraCea and Bradley Edson.
10.43(35)*	Employment Agreement between NutraCea and Jeffrey Sanders.
10.44(5)*	Executive Employment Agreement between The RiceX Company and Todd C. Crow.
10.45(5)*	Amendment No. 1 to Employment Agreement between NutraCea, Todd C. Crow and The RiceX Company.
10.46(33)*	Second Amendment of Employment Agreement between NutraCea and Todd C. Crow.

109

10.47*	Employment Severance Agreement between NutraCea and Todd C. Crow.
10.48*	Independent Contractor Agreement between NutraCea and Todd C. Crow.
10.49(15)*	Executive Employment Agreement between NutraCea and Margie D. Adelman.
10.50*	Severance and Release Agreement between NutraCea and Margie D. Adelman.
10.51(20)*	NutraCea 2003 Stock Compensation Plan.
10.52(5)*	NutraCea 2005 Equity Incentive Plan.
10.53(32)*	Form of Non-Employee Director Stock Option Agreement under the NutraCea 2005 Equity Incentive Plan.
10.54(35)*	Form of Stock Option Agreement for NutraCea 2005 Equity Incentive Plan.
10.55(33)*	Form of Restricted Stock Grant Agreement for NutraCea 2005 Equity Incentive Plan.
10.56(32)*	Stock Option Agreement dated February 8, 2007 between NutraCea and Leo Gingras.
10.57(35)*	Form of Stock Option Agreement for Stock Options Granted to Bradley Edson, Leo Gingras and Kody Newland on January 8, 2008.
10.58(35)*	Form of Stock Option Agreement for Stock Options Granted to Todd Crow and Margie Adelman on January 8, 2008.
10.59(14)*	Warrant Agreement between NutraCea and Steven Saunders dated February 27, 2006.
10.60(21)*	Form of Non-statutory Stock Option Agreement between NutraCea and the non-employee members of the Board of Directors dated May 23, 2006.
10.61(7)*	Form of Non-statutory Stock Option Agreement between NutraCea and the non-employee members of the Board of Directors dated May 1, 2007.
10.62(22)*	The RiceX Company 1997 Stock Option Plan.
10.63(23)*	Form of Directors Stock Option Agreement for The RiceX Company.
10.64(23)*	Form of Non-statutory Stock Option Agreement not issued under The RiceX Company 1997 Stock Option Plan, governing options granted to The RiceX Company employees.
10.65(24)*	Form of Non-statutory Stock Option Agreement issued under The RiceX Company 1997 Stock Option Plan between The RiceX Company and The RiceX Company employees dated October 1, 1999.
10.66(24)*	Form of Non-statutory Stock Option Agreement issued under The RiceX Company 1997 Stock Option Plan between The RiceX Company and Ike Lynch dated November 1, 1999. Identical Agreements with Daniel McPeak, Jr. and Todd C. Crow.
10.67(25)*	Form of Board Member Non-statutory Stock Option Agreement issued under The RiceX Company 1997 Stock Option Plan between The RiceX Company and the Board Members of the RiceX Company dated February 22, 2001, September 23 and 29, 2001.
10.68(26)*	Form of Non-statutory Stock Option Agreement issued under The RiceX Company 1997 Stock Option Plan between The RiceX Company and employees dated January 2, 2000.
10.69(27)*	Form of Non-statutory Stock Option Agreement issued September 23, 2002 between The RiceX Company and the members of The RiceX Company’s Board of Directors.

110

10.70(27)*	Form of Non-statutory Stock Option Agreement issued July 1, 2004 between The RiceX Company and Edward McMillan.
10.71(28)*	Form of Non-statutory Stock Option Agreement issued October 18, 2004 between The RiceX Company and two members of The RiceX Company Board Directors.
10.72(29)*	Form of Non-statutory Stock Option Agreement issued under The RiceX Company 1997 Stock Option Plan between The RiceX Company and certain non-employee RiceX Directors dated March 31, 2005.
10.73(29)*	Form of Non-statutory Stock Option Agreement issued under The RiceX Company 1997 Stock Option Plan between The RiceX Company and certain employees of RiceX dated March 31, 2005.
10.74(5)*	Form of Option Assumption Agreement between NutraCea and Option Holders relating to assumed Options granted under The RiceX Company 1997 Stock Option Plan.
10.75(5)*	Form of Option Assumption Agreement between NutraCea and Option Holders relating to assumed non-plan RiceX Options.
10.76(5)*	Form of Option Assumption Agreement between NutraCea and former Directors of The RiceX Company.
21.01	List of subsidiaries.
23.1	Consent of Perry-Smith LLP, Independent Registered Public Accounting Firm.
24.1	Power of Attorney (See signature page).
31.1	Certification by CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification by CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

±           Confidential treatment granted as to certain portions.

+           Confidential treatment requested as to certain portions.

* Indicates a management contract or compensatory plan, contract or arrangement in which any Director or any Executive Officer participates.

(1) incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on November 19, 2001.

(2) incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on April 4, 2005.

(3) incorporated herein by reference to exhibits previously file on registrant’s Current /Report on Form 8-K, filed on October 4, 277.

(4) incorporated herein by reference to exhibits previously filed on Registrant’s Annual Report on Form 10-KSB, filed on April 16, 2002.

(5) incorporated herein by reference to exhibits previously filed on Registrant’s Registration Statement on Form SB-2, filed on November 18, 2005.

(6) incorporated herein by reference to exhibits previously filed on Registrant’s Quarterly Report on Form 10-QSB, filed on November 19, 2003.

(7) incorporated herein by reference to exhibits previously filed on Registrant’s Quarterly Report on Form 10-Q, filed on August 14, 2007.

(8) incorporated herein by reference to exhibits previously filed on Registrant’s Registration Statement on Form SB-2, filed on June 4, 2002.

(9) incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on October 4, 2005.

111

(10) incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on May 15, 2006.

(11) incorporated herein by reference to exhibits previously filed on Registrant’s Registration Statement on Form SB-2, filed on June 12, 2006.

(12) incorporated herein by reference to exhibits previously filed on The RiceX Company’s Report on Form 10-KSB, filed on March 31, 2003.

(13) incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on February 20, 2007.

(14) incorporated herein by reference to exhibits previously filed on Registrant’s Quarterly Report on Form 10-QSB, filed on May 15, 2006.

(15) incorporated herein by reference to exhibits previously filed on Registrant’s Annual Report on Form 10-KSB, filed on March 31, 2005.

(16) incorporated herein by reference to exhibit 4.2 to the Current Report on Form 8-K filed by Vital Living, Inc. on December 19, 2003.

(17) incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on June 1, 2007.

(18) incorporated herein by reference to exhibits previously filed on Amendment No. 1 to Schedule 13D filed by the Registrant on September 12, 2007.

(19) incorporated herein by reference to exhibits previously filed on Registrant’s Annual Report on Form 10-K, filed on April 2, 2007.

(20) incorporated herein by reference to exhibits previously filed on Registrant’s Registration Statement on Form S-8, filed on November 18, 2003.

(21) incorporated herein by reference to exhibits previously filed on Registrant’s Quarterly Report on Form 10-QSB, filed on August 14, 2006.

(22) incorporated herein by reference to exhibits previously filed on The RiceX Company’s Registration Statement Number Statement No. 000-24285, filed on May 18, 1998.

(23) incorporated herein by reference to exhibits previously filed on The RiceX Company’s Registration Statement No. 000-24285, filed on May 18, 1998.

(24) incorporated herein by reference to exhibits previously filed on The RiceX Company’s Report on Form 10-KSB, filed on March 30, 2000.

(25) incorporated herein by reference to exhibits previously filed on The RiceX Company’s Report on Form 10-QSB, filed on August 10, 2001.

(26) incorporated herein by reference to exhibits previously filed on The RiceX Company’s Report on Form 10-QSB, filed on August 12, 2002.

(27) incorporated herein by reference to exhibits previously filed on The RiceX Company’s Report on Form 10-QSB, filed on November 15, 2003.

(28) incorporated herein by reference to exhibits previously filed on The RiceX Company’s Report on Form 10-KSB, filed on March 30, 2005.

(29) incorporated herein by reference to exhibits previously filed on The RiceX Company’s Report on Form 10-QSB, filed on May 16, 2005.

(30) incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on October 20, 2008.

(31) incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on April 28, 2008.

(32) incorporated herein by reference to exhibits previously filed on Registrant’s Annual Report on Form 10-K, filed on March 17, 2008.

(33) incorporated herein by reference to exhibits previously filed on Registrant’s Quarterly Report on Form 10-Q, filed on August 11, 2008.

(34) incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on November 13, 2008.

(35) incorporated herein by reference to exhibits previously filed on Registrant’s Quarterly Report on Form 10-Q, filed on May 12, 2008.

(36) incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on May 8, 2009.

(37) incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on August 4, 2009.

(38) incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on July 10, 2009.

(39) incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on July 28, 2009.

(40) incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on August 3, 2009.

112

24.1

SIGNATURES

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.

	NUTRACEA
Date: October  20, 2009	By:	/s/ James C. Lintzenich
		James C. Lintzenich
		Interim Chief Executive Officer, Interim Principal Financial Officer, Interim Chief Accounting Officer and Director

Power of Attorney

Each person whose signature appears below constitutes and appoints James C. Lintzenich , true and lawful attorney-in-fact, with the power of substitution, for him/her in any and all capacities, to sign amendments to this Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
Principal Executive Officer:
/s/ James C. Lintzenich	Interim Chief Executive Officer, Interim Principal Financial Officer, Interim Chief Accounting Officer and Director	October 20, 2009
James C. Lintzenich
Additional Directors:
/s/ David Bensol	Director, Chairman – Board of Directors	October 20, 2009
David Bensol
/s/ Edward L. McMillan	Director	October 20, 2009
Edward L. McMillan
/s/ Steven W. Saunders	Director	October 20, 2009
Steven W. Saunders
/s/ Kenneth L. Shropshire	Director	October 20, 2009
Kenneth L. Shropshire

113

Item 8. Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
REPORT OF PERRY-SMITH LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING	F-2
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 2008 and December 31, 2007	F-5
Consolidated Statements of Operations for the three years ended December 31, 2008	F-6
Consolidated Statement of Comprehensive (Loss) Income for the three years ended December 31, 2008	F-7
Consolidated Statement of Changes in Shareholder Equity for the three years ended December 31, 2008	F-8
Consolidated Statements of Cash Flows for the three years ended December 31, 2008	F-9
Notes to Consolidated Financial Statements	F-10

114

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

NutraCea

We have audited the accompanying consolidated balance sheets of NutraCea and subsidiaries (the "Company") as of December 31, 2008 and 2007, and the related consolidated statements of operations, comprehensive (loss) income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2008.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses and negative cash flows from operations resulting in an accumulated deficit of $133,136,000.  This raises substantial doubt about the Company's ability to continue as a going concern.  Management's plans in regard to these matters are described in the notes to the consolidated financial statements.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

As discussed in Note 2 to the consolidated financial statements, the Company restated its consolidated financial statements for the years ended December 31, 2007 and 2006 for the correction of misstatements in the respective periods.

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

(Continued)

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Our report dated October 20, 2009 expressed an opinion that the Company had not maintained effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Sacramento, California

October 20, 2009

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

NutraCea

We have audited NutraCea and subsidiaries' (the "Company") internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management Report on Internal Control over Financial Reporting.  Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audit also included performing such other procedures as we considered necessary in the circumstances.  We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed 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.  A company's internal control over financial reporting includes those policies and procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

F-3

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

(Continued)

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis.  The following material weaknesses have been identified and included in management's assessment.  The Company did not maintain an effective control environment.  The Company did not maintain effective controls to prevent management override of controls and did not maintain effective controls over revenue recognition and accounting for other complex transactions.  Additionally, the Company failed to retain the resources necessary to meet its public financial reporting responsibilities.  These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2008 financial statements, and this report does not affect our report dated October 20, 2009 on those financial statements.

In our opinion, because of the effect of the material weaknesses described above on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Sacramento, California

October 20, 2009

F-4

NUTRACEA
CONSOLIDATED BALANCE SHEETS
	December 31,
	2008			2007 (Restated)
ASSETS
Current assets:
Cash and cash equivalents	$	4,867,000		$	41,198,000
Restricted cash		2,353,000			758,000
Trade accounts receivables, net of allowance for doubtful accounts of $365,000 and $20,000 respectively		2,978,000			2,260,000
Inventories, net of reserve of $262,000 and $0, respectively		3,883,000			1,899,000
Notes receivable, current portion, net of allowance for doubtful notes receivable of $550,000 and $250,000, respectively		308,000			2,936,000
Deposits and other current assets		3,290,000			3,204,000
Assets held for sale		822,000			-
Total current assets		18,501,000			52,255,000
Restricted cash		2,844,000			1,791,000
Notes receivable, net of current portion		-			39,000
Property, plant and equipment, net		56,983,000			19,912,000
Investment in equity method investment		2,768,000			1,191,000
Investment in VLI Sr Notes and Preferred Stock		3,626,000			-
Intangible assets, net		12,043,000			5,743,000
Goodwill		5,579,000			39,510,000
Other non-current assets		36,000			-
Total assets	$	102,380,000		$	120,441,000
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3,415,000		$	799,000
Accrued liabilities		8,475,000			5,897,000
Deferred rent incentive - current portion		168,000			168,000
Notes payable, current portion		6,159,000			23,000
Deferred revenue		137,000			2,010,000
Convertible, series D preferred stock, no par value, $1,000 stated value, 10,000 shares authorized, 5,000 and 0 shares issued, respectively, 4,945 and 0 shares outstanding, respectively		4,945,000			-
Total current liabilities		23,299,000			8,897,000
Long-term liabilities:
Deferred rent incentive - net of current portion		1,051,000			1,218,000
Notes payable, net of current portion		4,717,000			77,000
Deferred tax liability		4,187,000
Other non-current liabilities		1,000,000			1,000,000
Total liabilities		34,254,000			11,192,000
Commitments and contingencies
Minority interests		(80,000	)		-
Shareholder’s equity:
Common stock, no par value, 350,000,000 shares authorized, 168,125,000, 144,108,000 and 0 shares issued and outstanding		199,485,000			177,813,000
Accumulated deficit		(133,136,000	)		(68,564,000	)
Accumulated other comprehensive income		-			-
Foreign currency accumulated translation adjustment		1,857,000			-
Total shareholders’ equity		68,206,000			109,249,000
Total liabilities and shareholders’ equity	$	102,380,000		$	120,441,000

F-5

NUTRACEA
CONSOLIDATED STATEMENTS OF OPERATIONS
	For the Years Ended December 31,
	2008			2007 (Restated )			2006 (Restated )
Revenues
Net product revenue	$	35,176,000		$	12,386,000		$	15,554,000
Royalty, label and licensing fees		48,000			340,000			985,000
Total revenue		35,224,000			12,726,000			16,539,000
Cost of goods sold		30,416,000			8,883,000			8,862,000
Gross profit		4,808,000			3,843,000			7,677,000
Operating expenses
Selling, general and administrative		23,785,000			18,258,000			6,657,000
Research and development		1,509,000			769,000			377,000
Bad debt		2,222,000			254,000			9,000
Professional fees		4,922,000			3,848,000			865,000
Goodwill impairment		33,231,000			1,300,000			-
Impairment of equity method investment - PIN		3,996,000			-			-
Gain on VLI deconsolidation, net		(1,199,000	)
Separation agreement with former chief executive officer		-			1,000,000			-
Total operating expenses		68,466,000			25,429,000			7,908,000
Loss from operations		(63,658,000	)		(21,586,000	)		(231,000	)
Other income (expense)
Interest income		850,000			3,200,000			545,000
Interest expense		(728,000	)		(1,000	)		(7,000	)
Gain(loss) on settlement		47,000			1,250,000			-
Loss on equity method investments		(240,000	)		(309,000	)		-
Loss, net of gains, on retirement of assets		(399,000	)		(347,000	)		-
Other income (expense)		(460,000	)		-			-
Loss on sale of marketable securities		-			(163,000	)		-
Total (loss) income before income taxes and minority interests		(64,588,000	)		(17,956,000	)		307,000
Income tax expense		(64,000	)		(20,000	)		(5,000	)
Minority interests		80,000			-			-
Net (loss) income available to common shareholders	$	(64,572,000	)	$	(17,976,000	)	$	302,000
Net (loss) earnings per share
Basic	$	(0.40	)	$	(0.14	)	$	0.00
Diluted	$	(0.40	)	$	(0.14	)	$	0.00
Weighted average number of shares outstanding
Basic		160,585,000			125,938,000			76,692,000
Diluted		160,585,000			125,938,000			102,636,000

F-6

NUTRACEA
CONSOLIDATED STATEMENT OF COMPREHENSIVE (LOSS) INCOME
	For the Years Ended December 31,
	2008			2007 (Restated )			2006 (Restated )
Net (loss) income available to common shareholders	$	(64,572,000	)	$	(17,976,000	)	$	302,000
Other comprehensive (loss) income
Foreign currency translation		1,857,000
Unrealized (loss) gain on marketable securities					(78,000	)		78,000
Net and comprehensive (loss) income	$	(62,715,000	)	$	(18,054,000	)	$	380,000

F-7

NUTRACEA  CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
	Convertible, Redeemable Series A, B, C Preferred						Common Stock						Other Comprehensive			Accumulated Deficit			Total Shareholders'
	Shares			Amount			Shares			Amount			Income (Loss)			Restated			Equity
Beginning balance, January 1, 2006 as adjusted		8,000		$	7,301,000			67,102,000		$	89,783,000		$	(2,090,000	)	$	(48,800,000	)	$	46,194,000
Cumulative effect of adjustments resulting from the adoption of SAB 108														2,090,000			(2,090,000	)
Beginning balance, January 1, 2006 as adjusted		8,000			7,301,000			67,102,000			89,783,000			-			(50,890,000	)		46,194,000
Issuances of Common stock for consultants services								30,000			30,000									30,000
Preferred stock issued  (net of offering expense)		17,000			15,934,000															15,934,000
Preferred stock conversions																				-
series B		(7,000	)		(6,862,000	)		14,760,000			6,862,000									-
series C		(12,000	)		(10,883,000	)		14,226,000			10,883,000									-
Asset acquisition								382,000			350,000									350,000
RiceX options cancelled											(642,000	)								(642,000	)
Stock options/warrants exercised for cash								5,635,000			5,784,000									5,784,000
cashless								1,843,000												-
Stock options/warrants issued for consultants											375,000									375,000
employees and directors											686,000									686,000
Other comprehensive income (loss)														78,000						78,000
Net income  restated																	302,000			302,000
Balance, December 31, 2006		6,000			5,490,000			103,978,000			114,111,000			78,000			(50,588,000	)		69,091,000
Conversion of  Preferred to common stock		(6,000	)		(5,490,000	)		7,373,000			5,490,000									-
Stock options/warrants exercised for cash								9,927,000			9,240,000									9,240,000
Private placement of common stock (net of offering expense)								20,000,000			46,877,000									46,877,000
Stock options/warrants exercised (non-cash)								3,512,000												-
Cancellation of certificates								(700,000	)											-
Registration and legal fees											(71,000	)								(71,000	)
Option and warrant expense											2,111,000									2,111,000
Common stock issued to director for outside services								18,000			55,000									55,000
Other comprehensive income (loss)														(78,000	)					(78,000	)
Net loss  restated																	(17,976,000	)		(17,976,000	)
Balance, December 31, 2007		-			-			144,108,000			177,813,000			-			(68,564,000	)		109,249,000
Conversion of Series D Preferred Stock (liability) to common								100,000			55,000									55,000
Equity issuance costs											(281,000	)								(281,000	)
Private placement of common stock (net of offering expense)								22,222,000			18,775,000									18,775,000
Stock-based employee & director compensation											1,811,000									1,811,000
Stock-based consultant compensation											436,000									436,000
Issuance of common stock purchase warrants											131,000									131,000
Stock options/warrants exercised for cash								1,533,000			745,000									745,000
Stock options/warrants exercised (non-cash)								165,000			-									-
Shares retired								(53,000	)		-									-
Shares issued to officers under restricted grant agreement								50,000												-
Foreign currency translation														1,857,000						1,857,000
Net loss																	(64,572,000	)		(64,572,000	)
Balance, December 31, 2008		-		$	-			168,125,000		$	199,485,000		$	1,857,000		$	(133,136,000	)	$	68,206,000

F-8

NUTRACEA
CONSOLIDATED STATEMENTS OF CASH FLOW
	For the Years Ended December 31,
	2008			2007			2006
				(Restated)			(Restated)
Cash flow from operating activities:
Net Income (loss)	$	(64,572,000	)	$	(17,976,000	)	$	302,000
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation and amortization		5,962,000			2,272,000			1,150,000
Provision for doubtful accounts and notes		2,222,000			250,000			-
Goodwill impairment		33,231,000			1,300,000			-
Impairment of Sr Notes and Preferred Stock		1,600,000			-			-
Impairment of PIN		3,996,000			-			-
Gain on deconsolidation		(2,799,000	)		-			-
Gain on settlement		(47,000	)		-			-
Loss on retirement of assets		528,000			347,000			-
Stock-based compensation		2,510,000			2,166,000			1,091,000
Loss on equity investments		240,000			309,000			-
Loss on sale of marketable securities		-			290,000			-
Changes in operating assets and liabilities:
Trade accounts receivable		(148,000	)		628,000			(3,027,000	)
Inventories		(1,494,000	)		(794,000	)		(470,000	)
Other current assets		(539,000	)		(1,826,000	)		(1,301,000	)
Accounts payable and accrued liabilities		3,607,000			1,929,000			1,531,000
Advances to related parties		-			-			(3,000	)
Deferred rent incentive		(167,000	)		1,386,000			-
Deferred revenue		(1,874,000	)		1,920,000			-
Customer deposits		-			1,000,000			98,000
Deferred tax liability		1,264,000			-			-
Minority interest		(80,000	)		-
					-			-
Net cash used in operating activies		(16,560,000	)		(6,799,000	)		(629,000	)
Cash flows from investing activities:
Issuance of notes receivable		-			(2,828,000	)		(2,376,000	)
Proceeds of payments from notes receivable		1,117,000			5,410,000			-
Purchases of property and equipment		(26,446,000	)		(12,306,000	)		(4,682,000	)
Investment in Grainnovation, Inc.		-			(2,169,000	)		-
Investment in Vital Living, Inc.		3,852,000			(5,143,000	)		-
Investment in Grain Enhancements, LLC		-			(1,500,000	)		-
Investment in Irgovel, net of cash acquired		(15,014,000	)		-			-
Investment in PIN and Rice RX		(5,812,000	)		-			-
Restricted cash		(2,648,000	)		(2,239,000	)		-
Proceeds from issuance of long-term notes		-			69,000			-
Proceeds from sale of fixed assets		-			16,000			-
Purchases of other assets, intangibles and goodwill		(3,388,000	)		(2,225,000	)		(2,640,000	)
					-			-
Net cash used in investing activities		(48,339,000	)		(22,915,000	)		(9,698,000	)
Cash flows from financing activities:
Proceeds from issuance of preferred stock		4,945,000			-			-
Proceeds from equity financing, net of expenses		18,775,000			46,805,000			15,934,000
Proceeds from conversion of Preferred Stock to Common Stock		55,000			-			-
Principal proceeds on notes payable, net of discount		5,960,000			-			(15,000	)
Registration costs		(414,000	)		-			-
					-			-
Proceeds from exercise of common stock options and warrants		745,000			9,240,000			5,784,000
Net cash provided by financing activities		30,066,000			56,045,000			21,703,000
Effect of exchange rate changes on cash and cash equivalents		(1,498,000	)		-			-
Net increase (decrease) in cash		(36,331,000	)		26,331,000			11,376,000
Cash, beginning of period		41,198,000			14,867,000			3,491,000
Cash, end of period	$	4,867,000		$	41,198,000		$	14,867,000

F-9

NUTRACEA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.  General Business

NutraCea (“Company”) is a health-science company focused on the development and distribution of products based upon the use of stabilized rice bran (“SRB”) and proprietary rice bran formulations.  Rice bran is the outer layer of brown rice which is typically a waste by-product of the commercial rice industry.  These products include food supplements and medical food which provide health benefits for humans and animals (known as “Nutraceuticals”) based on SRB, rice bran derivatives and rice bran oil.

On October 4, 2005, we consummated the acquisition of RiceX Company (“RiceX”) pursuant to the terms of an Agreement and Plan of Merger, dated April 4, 2005.  RiceX survived the merger as a wholly-owned subsidiary of NutraCea.  RiceX shareholders received 0.76799 of NutraCea common stock for each share of RiceX common stock.  RiceX shareholders received 28,272,064 shares of NutraCea common stock, valued at $29,120,000 and NutraCea assumed the outstanding RiceX options and warrants to purchase 11,810,496 shares of NutraCea common stock valued at $11,422,000.

Due to the acquistion of RiceX, the subsequent reorganization, and the acquisition of Irgovel, the Company now operates in two segments, NutraCea and Irgovel.

The accompanying financial statements have been prepared assuming the Company will continue as a going concern based on the realization of assets and the satisfaction of liabilities in the normal course of business.  The Company has experienced recurring losses and negative cash flows from operations.  Due to defaults under its credit agreement with Wells Fargo, the Company’s credit lines were reduced to approximately $3,500,000 as of July 2009, which was the level of the current outstanding loans and obligations at that time.  NutraCea also entered into a forbearance agreement with Wells Fargo pursuant to which Wells Fargo agreed to forebear from exercising its rights and remedies with respect to the existing defaults.  The Company has determined it is probable that we will not be in compliance with the terms of the forbearance agreement as of October 31, 2009, and therefore the entire loan balance has been classified as a current liability.

NutraCea is behind on its payments to vendors and has defaulted on several agreements due to non-payment.  Expenses have been reduced where possible.  In the past the Company has turned to the equity markets for additional liquidity.  This is not a likely source of funds at this time due to the Company’s financial position and the state of the equity markets.

The Company’s management intends to provide the necessary cash to continue operations through the monetization of certain assets and the growth of revenues.  The monetization of assets is expected to include some or all of the following:

· sale or a sale- lease back of certain of the Company’s facilities;

· sale of a minority interest in one or more of the Company’s  subsidiaries;

· sale of certain trademarks to strategic buyers that could become long-term buyers of bulk SRB; or

· sale of surplus equipment

The growth of revenues is expected to include the following:

· licensing of the Company’s intellectual properties;

· growing sales in existing markets, including bulk SRB and baby cereal; and

· aligning with strategic partners who can provide channels for additional sales of our products.

We have already taken steps to pursue several of these potential sources of cash.  Successful monetization of one or more of the assets identified above could yield sufficient cash to enable the Company to remain a going concern.  Some of these sales could result in non-cash write downs of asset values.  These potential write downs have not been recorded in the accompanying financial statements.  Although management believes that they will be able to obtain the funds necessary to continue as a going concern there can be no assurances that the means for maintaining this objective will prove successful.

F-10

Note 2.  Audit Committee Review and Restatement of Consolidated Financial Statements

Overview

The Company’s consolidated financial statements for the years ended December 31, 2006 and 2007 and quarterly information for the first three quarterly periods of fiscal 2008 have been restated to correct errors of the type identified in the course of the Audit Committee-led accounting review (discussed further below, and referred to herein as the “Audit Committee-led review”) and other accounting errors identified by the Company in the course of the restatement process and more fully described in the “Background” section below.

The Audit Committee concluded that the errors were the result of the improper accounting of several revenue transactions, and the improper accounting for the Company’s investment in an Indonesian wheat flour trading company.  Subsequent to the conclusions addressed by the Audit Committee, the Company also determined that certain moving and rental allowance transactions associated with the occupancy of the Company’s current corporate headquarters, an additional revenue transaction, and the recognition of license fee revenue associate with an Indonesian joint venture had not been accounted for properly.  A summary of these subsequent transactions is described below, and is included as part of the restated Consolidated Financial Statements.

The improper accounting of the transactions was primarily the result of the internal control weaknesses which existed within the Company.  Management has begun and continues to review the Company’s accounting practices and its internal control over financial reporting.  These are discussed under “Management’s Report on Internal Control over Financial Reporting” presented in Item 9A, “Controls and Procedures”.

Background

During December 2008, the Audit Committee which is comprised of independent outside directors of the Board of Directors of the Company commenced an internal review of certain matters with respect to the Company’s accounting and reporting practices, including the appropriateness and/or timing of recognition of revenues from certain transactions in 2007, and the adequacy of internal controls over financial reporting and disclosure controls and procedures (“Original Review”).  The Audit Committee retained independent outside counsel and forensic accounting consultants to assist in the investigation.

As a result of the preliminary findings of the investigation, the Board of Directors of the Company determined, based upon the recommendation of the Audit Committee, that the Company should restate its financial statements for the year ended December 31, 2007, including the second, third, and fourth quarters in 2007 and the first three quarters for the year ended December 31, 2008.  Accordingly, on February 17, 2009, the Board of Directors determined, based upon the recommendation of the Audit Committee that the Company’s previously issued financial statements included in the filings with the Securities and Exchange Commission (“SEC”) for these periods should no longer be relied upon.  On February 23, 2009, the Company disclosed in its Current Report on Form 8-K (“Original Form 8-K”) the actions and final determinations of the Company’s Board of Directors and Audit Committee as outlined in this and the prior paragraph.

Following the date of the Original Form 8-K, the Audit Committee expanded its review to include the Company’s accounting treatment of additional transactions in 2006, 2007, and 2008 (“Subsequent Review”).  Based upon the Subsequent Review, the Audit Committee determined on April 23, 2009 that the Company would also restate its financial statements for the year ended December 31, 2006, including the fourth quarter of 2006, and the first quarter of 2007, and that these financial statements should not be relied upon.  On April 23, 2009, the Company disclosed in its Current Report on Form 8-K the actions and final determinations of the Company’s Board of Directors and Audit Committee as outlined in this paragraph.

F-11

Subsequent to the conclusions addressed by the Audit Committee in the Original and Subsequent Reviews, the Company also determined that certain moving and rental allowance transactions associated with the occupancy of the Company’s current corporate headquarters, an additional revenue transaction, and the recognition of license fee revenue associated with an Indonesian joint venture had not been accounted for properly (“Additional Findings”).  A summary of these subsequent transactions is described below, and is included as part of the restated Consolidated Financial Statements.

In connection with the Original Review, Subsequent Review, and Additional Findings, the Company determined that it improperly accounted for the following transactions in 2006, 2007 and 2008:

Original Review:

· The Company recognized revenue in the second quarter of 2007 on a $2.6 million sale of its Dr. Vetz PetFlex brand product with respect to which the applicable criteria for revenue recognition were not met.  Based upon the facts discovered during the Audit Committee investigation, the Company has now concluded that a $1.0 million deposit received by the Company in that transaction was provided to the purchaser through a loan from a person who at the time was a consultant to and a former officer of NutraCea, and that the evidence originally relied upon to determine and support the purchaser’s ability to pay the remaining $1.6 million receivable balance was subsequently determined to be inaccurate.  The Company reversed this sale which resulted in a reduction of revenue of $2.6 million, a reduction of cost of goods sold of $0.6 million, and a reduction of net income of $2.0 million.  The deposit is recorded as a other non-current liability in the Consolidated Financial Statements.  This liability will be extinguished upon the resolution of certain legal matters.

· The Company determined that a $2.0 million sale of its RiceNShine product in December 2007 did not meet accounting requirements for revenue recognition in a bill and hold transaction. Accordingly, the transaction should not have been recognized as revenue in the Company’s 2007 results.  The Company reversed this sale which resulted in a reduction of revenue of $2.0 million, a reduction of cost of goods sold of $1.3 million, and a reduction of net income of $0.7 million.  The revenues, costs of goods sold, and net income from this sale were ultimately recognized in the four quarters of 2008 and the first quarter of 2009 as follows (in millions):

		Q1-2008		Q2-2008		Q3-2008		Q4-2008		Q1-2009
Revenues	$	0.7	$	0.7	$	0.4	$	0.1	$	0.1
Cost of Goods		0.5		0.5		0.3		0.0		0.0
Net Income	$	0.2	$	0.2	$	0.1	$	0.1	$	0.1

Subsequent Review and Additional Findings:

· The Company recorded revenue of $1.6 million in the fourth quarter of 2006 from a sale of Dr. Vetz Pet Flex product to an infomercial customer.  The Company recorded an $800,000 reserve for this receivable in the second quarter of 2007.  In the third quarter of 2007 the customer returned the product and the Company recorded a sales return of $1.6 million and reversed the reserve it had recorded in the second quarter of 2007.   The Company has now determined that it will reverse this sale in 2006 instead of in 2007 because (i) the Company does not have adequate evidence to conclude that the receivable relating to this sale was collectable in the quarter it was recognized and (ii) the Company did not have sufficient experience in the infomercial market to adequately understand the distribution channel, the fluctuating nature of sales into this channel or to estimate the potential for product return.  The effect of the reversal will be to (1) reduce total revenue by $1.6 million in 2006, (2) reduce cost of sales by $268,000 in 2006, (3) reduce net income by $1.4 million in 2006 and (4) increase net income by $1.4 million in 2007.

· In June 2007 the Company granted to Pacific Holdings Advisors Limited (“PAHL”) a perpetual and exclusive license and distribution rights (“License”) for the production and sale of SRB and SRB derivative products in certain countries in Southeast Asia.  PAHL agreed to pay the Company a $5 million one-time license fee (“License Fee”), which was due and payable on the fifth anniversary of the commencement of SRB production at a facility established by PAHL or a joint venture of PAHL and the Company.  The Company recorded this $5 million License Fee in the second quarter of 2007.  Contemporaneous with the grant of the License, the Company and PAHL jointly formed Grain Enhancements, LLC (“GE”).  Pursuant to GE’s limited liability company agreement, PAHL sublicensed its rights under the License to GE.

F-12

Upon further analysis of these transactions, the Company has concluded that the License Fee did not qualify as revenue to the Company under generally accepted accounting principles.   Through our review of the transactions, including the License and other agreements that the Company entered into in connection with the formation of GE, we determined that the transactions should have been considered as one arrangement with multiple deliverables instead of stand-alone transactions.  The various obligations under this one arrangement would have precluded immediate revenue recognition of the License Fee.  Accordingly, this transaction was reversed, which decreased the Company’s license fee revenue in 2007 by $5 million and increased the Company’s net loss in 2007 by $5 million.

In March 2008, Medan, LLC (“Medan”), a wholly-owned subsidiary of the Company, purchased (“First Purchase”) from Fortune Finance Overseas LTD (“FFOL”) for $8.175 million 9,700 outstanding shares of capital stock of PT Panganmas Int Nusantara (“PIN”), an Indonesian company.  In June 2008, Medan purchased directly from PIN 3,050 additional shares of PIN capital stock for $2.5 million.  Following these purchases, Medan and FFOL own 51% and 49%, respectively of PIN’s outstanding capital stock.  The capital contributions that the Company made to Medan funded the purchase of the PIN shares.

The determination of the purchase price of the PIN shares was agreed to by management based upon an economic feasibility study of the PIN project that the Company obtained from a third party valuation firm.  Based upon this study, the Company recorded the value of the PIN shares on its balance sheet at $10.675 million, which was the price the Company paid for the PIN shares.  Upon further review, the Company has determined that there was not sufficient evidence at the time of their acquisition to support the $10.675 million valuation of the PIN shares.  Accordingly, the Company has decided to restate its consolidated balance sheet to reduce the value of the PIN shares by $5 million to $5.675 million as outlined below.

In March 2008, PAHL paid to the Company $5 million for its License Fee described above.  A principal shareholder of FFOL is also a principal shareholder of PAHL, and the Company’s receipt of payment for the License Fee was made at the same time the Company decided to make the First Purchase of the PIN shares.  Based in part upon the related ownership of FFOL and PAHL, the timing of the payments, the sub-license of PAHL’s rights under the License to GE and the Company’s current determination of the value of the PIN shares, the Company now believes the First Purchase of the PIN shares and the payment of the License Fee should be viewed as a combined event with related parties, causing the Company to account for the First Purchase of the PIN shares as a payment of $3.175 million instead of $8.175 million.

In accounting for the PIN and GE transactions described above, the Company used the equity method.  The planned business of PIN was the construction and operation of a wheat flour mill in Indonesia including the production of stabilized wheat co-products. Constructing and operating wheat flour mills does not fit the strategic direction we have defined for NutraCea.  On July 23, 2009, we sold to FFOL the Company’s entire balance of 12,750 shares of capital stock of PIN, which shares represented 51% of the currently issued and outstanding capital stock of PIN.  FFOL agreed to pay $1,675,000 to Medan to purchase these shares thus purchasing all of our interest in PIN.  The sale of our shares of capital stock of PIN resulted in a $3,996,000 impairment charge representing the difference between the carrying value of our investment and the cash to be received from FFOL.  This impairment change was recorded as of December 31, 2008.

· In April 2007, the Company began leasing the office space that it currently occupies as its corporate headquarters in Phoenix, Arizona.  As part of the lease arrangement, the landlord provided certain moving and rental incentives to the Company.  The rental incentives provided funds which the Company used for leasehold improvements of the office space.  The Company did not properly account for the incentives provided by the landlord.  The Company accounted properly for these transactions as part of its restatement of the Consolidated Financial Statements for fiscal 2007, the second, third, and fourth quarters of fiscal 2007, and the first three quarters of fiscal 2008.  The restatement increased rent expense by $139,000 for the second quarter of 2007 and decreased rent expense by $42,000 for the third and fourth quarters of 2007 and for each of the first three quarters of 2008.

F-13

· In the second quarter of 2007, the Company recognized revenue on an approximately $2.1 million sale to a nutraceutical distributor.  The customer made payments during the third and fourth quarters of 2007, and a balance of approximately $1.4 million remained at the end of 2007.  The Company established a reserve for doubtful accounts for the remaining amount as of December 31, 2007. Based upon facts discovered in the Additional Findings, the Company concluded that the sale did not meet the criteria for revenue recognition, and therefore restated the transaction.  The restatement resulted in a reduction to the 2007 revenue of approximately $1.4 million and a reduction to the 2007 bad debt expense of approximately $1.4 million.

The following table summarizes the impact of the restated items on our statement of operations for the periods noted and should be read in conjunction with the accompanying Consolidated Financial Statements and notes thereto (amounts in thousands except per share data).

	Nine Months
	Ended 9/30/2008			12/31/07			12/31/06
Net (loss) income, as previously reported	$	(17,378	)	$	(11,911	)	$	1,585
Change to revenues for product revenue recognition		1,839			(4,435	)		(1,551	)
Change to revenues for license fee revenue recognition					(5,000	)
Change to cost of goods sold for product revenue recognition		(1,247	)		1,015			268
Change for decrease in bad debt expense		62			2,979
Change for (increase)/decrease in other operating expenses		390			(1,015	)
Change for increase/(decrease) in other income		119			391
Impact of restatement items		1,163			(6,065	)		(1,283	)
Net (loss) income, as restated	$	(16,215	)	$	(17,976	)	$	302
Earnings (loss) per share
Basic, as previously reported	$	(0.12	)	$	(0.09	)	$	0.02
Impact of restatement items, net of taxes	$	0.01		$	(0.05	)	$	(0.02	)
Basic, as restated	$	(0.11	)	$	(0.14	)	$	0.00
Diluted, as previously reported	$	(0.12	)	$	(0.09	)	$	0.02
Impact of restatement items, net of taxes	$	0.01		$	(0.05	)	$	(0.02	)
Diluted, as restated	$	(0.11	)	$	(0.14	)	$	0.00

The effect of the above mentioned restated items on our previously reported fiscal 2007 and 2006 consolidated balance sheets is provided below (amounts in thousands):

F-14

CONSOLIDATED BALANCE SHEET
As of December 31, 2007
	As Previously						As
	Reported			Adjustments			Restated
ASSETS
Current Assets:
Cash and cash equivalents	$	41,298		$	(100	)	$	41,198
Restricted cash		758						758
Marketable securities		-						-
Trade receivables		5,345			(3,065	)		2,280
Less: allowance for doubtful accounts		(2,999	)		2,979			(20	)
Inventory		1,808			91			1,899
Notes receivable, current portion		2,936						2,936
Deposits and other current assets		2,545			659			3,204
Total Current Assets		51,691			564			52,255
Restricted cash		1,791						1,791
Notes receivable, net of current portion		5,039			(5,000	)		39
Property, plant and equipment, net		19,328			584			19,912
Investment in equity method investments		1,191						1,191
Intangible assets, net		5,743						5,743
Goodwill		39,510						39,510
Total non-current assets		72,602			(4,416	)		68,186
Total Assets	$	124,293		$	(3,852	)	$	120,441
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable and accrued liabilities	$	7,506		$	(810	)	$	6,696
Notes payable - current portion		23						23
Deferred rent incentive - current portion		-			168			168
Deferred revenue		90			1,920			2,010
Total Current Liabilities		7,619			1,278			8,897
Deferred rent incentive - net of current portion		-			1,218			1,218
Other non-current liabilities		-			1,000			1,000
Notes payable - net of current portion		77						77
Total Liabilities		7,696			3,496			11,192
Commitments and contingencies
Minority interest
Stockholders Equity (deficit):
Common Stock		177,813						177,813
Accumulated deficit - prior year		(49,305	)		(1,283	)		(50,588	)
Net income /(loss) - current year		(11,911	)		(6,065	)		(17,976	)
Accumulated deficit		(61,216	)		(7,348	)		(68,564	)
Accumulated other Comprehensive Income (Loss)		-			-			-
Total shareholders'' equity (deficit)		116,597			(7,348	)		109,249
Total Liabilities and Equity	$	124,293		$	(3,852	)	$	120,441

F-15

CONSOLIDATED BALANCE SHEET
As of December 31, 2006
	As Previously						As
	Reported			Adjustments			Restated
ASSETS
Current Assets:
Cash and cash equivalents	$	14,867		$	-		$	14,867
Restricted cash		-			-			-
Marketable securities		368			-			368
Trade receivables		7,093			-			7,093
Adjustment to AR		-			(1,551	)		(1,551	)
Less: allowance for doubtful accounts		-			-			-
Inventory		796			-			796
Adjustment to inventory		-			268			268
Notes receivable, current portion		1,694			-			1,694
Deposits and other current assets		1,383			-			1,383
Total Current Assets		26,201			(1,283	)		24,918
Restricted cash		-						-
Notes receivable, net of current portion		682			-			682
Adjustment to long term notes receivable		-			-			-
Property, plant and equipment, net		8,961			-			8,961
Investment in equity method investments		-			-			-
Intangible assets, net		5,097			-			5,097
Goodwill		32,314			-			32,314
Total non-current assets		47,054			-			47,054
Total Assets	$	73,255		$	(1,283	)	$	71,972
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable and accrued liabilities	$	2,778		$	-		$	2,778
Notes payable - current portion		-			-			-
Deferred revenue		103			-			103
Total Current Liabilities		2,881			-			2,881
Notes payable - net of current portion		-			-			-
Total Liabilities		2,881			-			2,881
Commitments and contingencies
Convertible, Series B Preferred Stock		439			-			439
Convertible, Series C Preferred Stock		5,051			-			5,051
		-			-			-
Stockholders Equity (deficit)		-			-			-
Common Stock		114,111			-			114,111
		-			-			-
Accumulated deficit - prior year		(50,890	)		-			(50,890	)
Net income /(loss) - current year		1,585			(1,283	)		302
Accumulated deficit		(49,305	)		(1,283	)		(50,588	)
Accumulated other Comprehensive Income (Loss)		78			-			78
Total shareholders' equity (deficit)		70,374			(1,283	)		69,091
Total Liabilites and Equity	$	73,255		$	(1,283	)	$	71,972

The effect of the above mentioned restated items on our previously reported results of operations and cash flows for fiscal 2007 and 2006 is provided below (amounts in thousands except for per share data):

F-16

CONSOLIDATED STATEMENT OF OPERATIONS
For the Fiscal Year Ended December 31, 2007
	As Previously						As
	Reported (1)			Adjustments			Restated
Revenue
Product sales	$	18,372		$	(5,986	)	$	12,386
Less returns		(1,551	)		1,551			-
Royalty and licensing fees		5,340			(5,000	)		340
Total revenue		22,161			(9,435	)		12,726
Cost of goods sold		9,898			(1,015	)		8,883
Gross margin		12,263			(8,420	)		3,843
Operating expenses
Research and development		769						769
Selling, general, and administrative		17,243			1,015			18,258
Bad debt		3,233			(2,979	)		254
Impairment of intangible assets		1,300						1,300
Separation agreement with former CEO		1,000						1,000
Professional fees		3,848						3,848
Total operating expenses		27,393			(1,964	)		25,429
Loss from operations		(15,130	)		(6,456	)		(21,586	)
Other Income (expense)
Interest income		2,809			391			3,200
Interest expense		(1	)					(1	)
Gain on settlement		1,250						1,250
Loss on disposal of assets		(347	)					(347	)
Loss on equity method investments		(309	)					(309	)
Loss on sale of marketable securities		(163	)					(163	)
Total other income/(expense)		3,239			391			3,630
Income tax expense		(20	)					(20	)
Minority Interest								-
Net income/(loss)	$	(11,911	)	$	(6,065	)	$	(17,976	)
Earnings per share:
Basic income /(loss) per share	$	(0.09	)	$	(0.05	)	$	(0.14	)
Fully diluted income /(loss) per share	$	(0.09	)	$	(0.05	)	$	(0.14	)
Shares Outstanding:
Weighted average basic number of shares outstanding		125,938						125,938
Weighted average diluted number of shares outstanding		125,938						125,938

(1) Certain reclassifications have been made to prior period amounts to conform to classifications adopted in the current year.

F-17

CONSOLIDATED STATEMENT OF OPERATIONS
For the Fiscal Year Ended December 31, 2006
	As Previously						As
	Reported (1)			Adjustments			Restated
Statement of Operations
Revenue
Net product sales	$	17,105		$	(1,551	)	$	15,554
Less returns		-						-
Royalty and licensing fees		985			-			985
Total revenues		18,090			(1,551	)		16,539
Cost of goods sold		9,130			(268	)		8,862
Gross margin		8,960			(1,283	)		7,677
Operating expenses
Research and development		377						377
Selling, general, and administrative		6,657						6,657
Bad debt		9						9
Professional fees		865						865
Total operating expenses		7,908			-			7,908
Gain/(loss) from operations		1,052			(1,283	)		(231	)
Other income (expense)
Interest income		545						545
Interest expense		(7	)					(7	)
Total other income/(expense)		538			-			538
Total income before income tax		1,590			(1,283	)		307
Income tax expense		5						5
Net income/(loss)	$	1,585		$	(1,283	)	$	302
Earnings per share:
Basic income /(loss) per share	$	0.02		$	(0.02	)	$	0.00
Fully diluted income /(loss) per share	$	0.02		$	(0.02	)	$	0.00
Shares Outstanding:
Weighted average basic number of shares outstanding		76,692						76,692
Weighted average diluted number of shares outstanding		102,636						102,636

(1) Certain reclassifications have been made to prior period amounts to conform to classifications adopted in the current year.

F-18

CONSOLIDATED STATEMENT OF CASH FLOWS
For the Fiscal Year Ended December 31, 2007
	As Previously			Adjusting			As
	Reported			Entries			Restated
Cash flow from operating activities:
Net Income (loss)	$	(11,911	)	$	(6,065	)	$	(17,976	)
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation and amortization		2,202			70			2,272
Provision for doubtful accounts and notes		3,229			(2,979	)		250
Goodwill impairment		1,300			-			1,300
Loss on retirement of assets		347			-			347
Stock-based compensation		2,166			-			2,166
Loss on equity method investments		309			-			309
Loss on sale of marketable securities		290			-			290
Changes in operating assets and liabilities:
(Increase) decrease in
Trade accounts receivable		(886	)		1,514			628
Inventories		(971	)		177			(794	)
Other current assets		(1,167	)		(659	)		(1,826	)
Accounts payable and accrued liabilities		2,739			(810	)		1,929
Deferred rent incentive		-			1,386			1,386
Other non-current liabilities		-			1,000			1,000
Deferred revenue		-			1,920			1,920
Net cash used in operating activities		(2,353	)		(4,446	)		(6,799	)
Cash flows from investing activities
Issuance of notes receivable		(7,828	)		5,000			(2,828	)
Proceeds of payments from notes receivable		5,410			-			5,410
Purchases of property, plant and equipment		(11,652	)		(654	)		(12,306	)
Investment in Grainnovation, Inc.		(2,169	)		-			(2,169	)
Investment in Vital Living, Inc.		(5,143	)		-			(5,143	)
Investment in joint venture		(1,500	)		-			(1,500	)
Restricted cash		(2,239	)		-			(2,239	)
Proceeds from issuance of long-term notes		69			-			69
Proceeds from sale of fixed assets		16			-			16
Purchases of other assets, intangibles and goodwill		(2,225	)		-			(2,225	)
Net cash provided by (used in) investing activities		(27,261	)		4,346			(22,915	)
Cash flows from financing activities
Proceeds from private placement financing, net of expenses		46,805			-			46,805
Proceeds from exercise of common stock options and warrants		9,240			-			9,240
Net cash provided by financing activities		56,045			-			56,045
Net increase (decrease) in cash		26,431			(100	)		26,331
Cash, beginning of period		14,867						14,867
Cash, end of period	$	41,298		$	(100	)	$	41,198

F-19

CONSOLIDATED STATEMENT OF CASH FLOWS
For the Fiscal Year Ended December 31, 2006
	As Previously						As
	Reported			Adjustments			Restated
Cash flow from operating activities:
Net Income (loss)	$	1,585		$	(1,283	)	$	302
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation and amortization		1,150			-			1,150
Stock-based compensation		1,091			-			1,091
Net changes in operating assets and liabilities:
(Increase) decrease in
Trade accounts receivable		(4,578	)		1,551			(3,027	)
Inventories		(202	)		(268	)		(470	)
Other current assets		(1,301	)		-			(1,301	)
Accounts payable and accrued liabilities		1,531			-			1,531
Advances to related parties		(3	)		-			(3	)
Other non-current liabilties		98			-			98
Net cash used in operating activities		(629	)		-			(629	)
Cash flows from investing activities
Issuance of notes receivable		(2,376	)		-			(2,376	)
Purchases of property, plant and equipment		(4,682	)		-			(4,682	)
Purchases of other assets, intangibles and goodwill		(2,640	)		-			(2,640	)
Net cash provided by (used in) investing activities		(9,698	)		-			(9,698	)
Cash flows from financing activities
Proceeds from private placement financing, net of expenses		15,934			-			15,934
Principal payments on notes payable, net of discount		(15	)		-			(15	)
Proceeds from exercise of common stock options and warrants		5,784			-			5,784
Net cash provided by financing activities		21,703			-			21,703
Net increase (decrease) in cash		11,376			-			11,376
Cash, beginning of period	$	3,491		$	-		$	3,491
Cash, end of period	$	14,867		$	-		$	14,867

Note 3. Summary of Significant Accounting Policies

Principles of Consolidation– The Consolidated Financial Statements include the accounts of NutraCea and its wholly-owned or majority-owned subsidiaries.  We consolidate all variable interest entities, or VIE’s, when we are determined to be the primary beneficiary. Our determination of the primary beneficiary of a VIE considers all relationships between us and the VIE, including management agreements and other contractual arrangements, when determining the party obligated to absorb the majority of the expected losses, as defined in FASB Interpretation No. 46 (revised), Consolidation of Variable Interest Entities (“FIN 46(R)”). The entities subject to consolidation are as follows:  Nutrastar Technologies Incorporated, NutraGlo® Incorporated, The RiceX Company, Nutramercials, Inc., Infomaxx, LLC, Grainnovations, Inc., Medan LLC, NutraPhoenix, Nutra S.A., and our interests in NutraCea-Cura LLC (90%) and Rice Science LLC (80%), (collectively, the “Company”). Additionally, due to our ownership of certain debt securities of Vital Living, Inc., we have included their results of operations for the period from April 20, 2007 to September 30, 2008 and their financial position at December 31, 2007 in our financial statements (See Note 12 Acquisition and Joint Ventures).  All significant inter-company accounts and transactions are eliminated in consolidation. On October 21, 2008, NutraCea terminated the Vital Living Purchase Agreement and therefore ceased including them as a VIE in our financial statements.

On February 18, 2008, NutraCea completed its acquisition of Irgovel.  Accordingly, NutraCea began consolidating the results of operations of Irgovel as of February 18, 2008.  See Note 12 Acquisition and Joint Ventures for additional information.  As a result, NutraCea now has two reportable segments, the “NutraCea Segment” and the “Irgovel Segment”. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 131, Disclosures about Segments of an Enterprise and Related Information, segment information for earlier periods has been recast.

F-20

Foreign currencies - The Consolidated Financial Statements are presented in the reporting currency of NutraCea, U.S. Dollars (“USD”). The functional currency for the Company’s wholly-owned subsidiary, Irgovel, is the Brazilian Real (R$).    Accordingly, the balance sheet of Irgovel is translated into USD using the exchange rate in effect at the balance sheet date, except for goodwill, property, plant and equipment, and investment from parent amounts which are reported at the exchange rate effective at the date those amounts were invested.  Revenues and expenses are translated using the average exchange rates in effect during the period. Translation differences are recorded directly in shareholders’ equity as “Foreign currency translation adjustment.” Gains or losses on transactions denominated in a currency other than the subsidiaries’ functional currency which arise as a result of changes in foreign exchange rates are recorded in the statement of operations.

Cash and Cash Equivalents – We consider all highly liquid investments purchased with an original maturity of three months or less at the time of purchase to be cash equivalents. As of December 31, 2008, the Company maintains its cash, including $5,197,000 of restricted cash, and cash equivalents with a major investment firm and a major bank. We maintain our cash in bank accounts, which at times may exceed federally insured limits. We have not experienced any losses on such accounts.

           Allowance for Doubtful Accounts – The allowance for doubtful accounts is based on our assessment of the collectability of customer accounts and the aging of accounts receivable and notes receivable.  We analyze historical bad debts, the aging of customer accounts, customer concentrations, customer credit-worthiness, current economic trends and changes in our customer payment patterns when evaluating the adequacy of the allowance for doubtful accounts.  From period to period, differences in judgments or estimates utilized may result in material differences in the amount and timing of our bad debt expenses.

            The Company continuously monitors collections from our customers and maintains an allowance for doubtful accounts based upon our historical experience and any specific customer collection issues that we have identified. As of December 31, 2008 and 2007, the Company recorded actual bad debt expense of $2,222,000 for both Accounts Receivable and Notes Receivable and $254,000 in 2007 respectively, while the allowance for doubtful accounts was $365,000 and $20,000 respectively.  The Company continues to evaluate its credit policy to ensure that the customers are worthy of terms and support our business plans.

Inventories - Inventories are stated at the lower of cost or market, with cost determined by the first-in, first-out method. Provisions for potentially obsolete or slow-moving inventory are made based on our analysis of inventory levels, historical obsolescence and future sales forecasts.

Equity method investment - Investments in business entities in which we have the ability to exert significant influence over operating and financial policies (generally 20% to 50% ownership) are unconsolidated entities and are accounted for using the equity method. Under the equity method, investments are initially recorded at cost and are adjusted for dividends, distributed and undistributed earnings and losses, changes in foreign exchange rates, and additional investments. Investments in joint ventures are periodically reviewed for other-than-temporary declines in fair value.

Consolidation of variable interest entities - We consolidate all VIE’s when we are determined to be the primary beneficiary. Our determination of the primary beneficiary of a VIE considers all relationships between us and the VIE, including management agreements and other contractual arrangements, when determining the party obligated to absorb the majority of the expected losses.

Patents and Trademarks – In addition to patents filed and acquired directly by the Company, the Company owns several patents, which were acquired from independent third parties and a related party. All costs associated with the patents are capitalized. Patents acquired from the related party were recorded at the carryover basis of the transferor. In 2007, the Company paid cash as consideration for all patents and trademarks acquired, except the Via-Bran registered trademark, which was acquired for 21,409 shares of common stock valued at $21,000.

F-21

In conjunction with the RiceX acquisition, NutraCea has been assigned eight U.S. patents relating to the production or use of Nutraceutical or HVF products. In addition to the previously identified issued patents NutraCea has been issued nine additional International patents covering this subject area.

In 2008 another 11 provisional patent applications were filed by NutraCea of which four have been submitted as formal patent filings. NutraCea currently has a number of additional patent applications filed and pending formal review and we intend to apply for additional patents in the future as new products, applications and data become available.

Patents and trademarks are stated at cost less accumulated amortization. Amortization is computed on the straight-line method based on estimated useful lives as follows:

Patents (Domestic)	17	years
Patents (International)	20	years
Trademarks (Domestic)	10	years
Trademarks (International)	7	years

Long-Lived Assets, Intangible Assets and Goodwill – Long-lived assets, consisting primarily of property and equipment, patents and trademarks, and goodwill, comprise a significant portion of our total assets. Property, plant and equipment are stated at cost less accumulated depreciation.  Interests related to self constructed assets are capitalized where material. Intangible asset are stated at cost less accumulated amortization.

The carrying values of long-lived assets, which include property, plant and equipment and intangible assets with finite lives, are evaluated periodically in relation to the expected future cash flows of the underlying assets and monitored for other potential triggering events. Adjustments are made in the event that estimated undiscounted net cash flows are less than the carrying value. The cash flow projections are based on historical experience, management’s view of growth rates within the industry, and the anticipated future economic environment.

Goodwill is tested for impairment at least annually or when events or other changes in circumstances indicate that the carrying amount of the assets may not be recoverable based on management’s assessment of the fair value of the Company’s identified reporting units as compared to their related carrying value. If the fair value of a reporting unit is less than its carrying value, additional steps, including an allocation of the estimated fair value to the assets and liabilities of the reporting unit, would be necessary to determine the amount, if any, of goodwill impairment.

Our impairment analysis requires management to make assumptions and to apply judgment to estimate future cash flows and asset fair values, including estimating the profitability of future business strategies.

Revenue Recognition – The Company recognizes revenue for product sales when title and risk of loss pass to its customers and when provisions for estimates, including discounts, and price adjustments are reasonably determinable. Provisions for routine sales discounts, volume allowances, and adjustments are made in the same period the sales are recorded. No revisions were made to the methodology used in determining these provisions during the calendar year ended December 31, 2008. Deposits are deferred until either the product has been shipped or conditions relating to the sale have been substantially performed.

There are no refund rights on sales. Each transaction is individually evaluated to determine if all of the following four criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. If any of the above criteria cannot be satisfied then such a transaction is not recorded as revenue, or is recorded as deferred revenue and recognized only when the sales cycle is complete and payment is either received or becomes reasonably assured.  Changes in judgments and estimates regarding the application of the above mentioned four criteria might result in a change in the timing or amount of revenue recognized by such transactions.

F-22

Occasionally, we will grant exclusive use of our labels by customers in specific territories in exchange for a nonrefundable fee. E each label licensing provision is considered to be a separate unit of accounting.

Stock-Based Compensation - We have a stock incentive plan that provides for the issuance of stock options, restricted stock and other awards to employees and service providers.  Stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the employee’s requisite service period. We have awards with performance conditions. Stock-based compensation expense recognized is based on the value of share-based payment awards that are ultimately expected to vest, which coincides with the award holder’s requisite service period.  Compensation expense reflects the number of awards that are expected to vest and have been adjusted to reflect those awards that do ultimately vest.  See Note 6 “Stock Based Compensation” contained herein.

Fair Value of Financial Instruments – The Company’s financial instruments include cash and cash equivalents, marketable securities, accounts and other receivables and accounts payable, the fair value of which approximates their carrying value.

Research and Development – Research and development expenses include internal and external costs. Internal costs include salaries and employment related expenses.  External expenses consist of costs associated with product development.  All such costs are charged to expense in the period they are incurred.

Stock and Warrants Issued to Third Parties – The Company from time to time may offer to third parties stock and warrants for services rendered to the Company.  We record a charge for the fair value of the stock and the portion of the warrants earned from the point in time when vesting of the stock or warrants becomes probable. The fair value of certain types of warrants issued to customers is recorded as a reduction of revenue to the extent of cumulative revenue recorded from that customer.  Some of our warrants are recorded as liability because the warrant contains a provision where they are required to be settled for cash if certain events occur.   The intrinsic value of the warrant on the measurement date, the date the warrants are earned, is reflected as an expense in our results of operations.

The Company accounts for the issuance of detachable stock purchase warrants in accordance with Accounting Principles Board Opinion No. 14 ("APB No. 14"), whereby the fair value of the debt and the detachable warrants are separately measured and the proceeds from the debt are allocated on a pro-rata basis to both the debt and the detachable warrants. The resulting discount from the fair value of the debt allocated to the warrant, which is accounted for as paid-in capital, is amortized over the estimated life of the debt.

Income Taxes – The Company accounts for its income taxes by recording a deferred tax asset or liability for the recognition of future deductible or taxable amounts and operating loss and tax credit carry-forwards. Deferred tax expense or benefit is recognized as a result of timing differences between the recognition of assets and liabilities for book and tax purposes during the year.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are recognized for deductible temporary differences and operating loss, and tax credit carry-forwards. A valuation allowance is established, when necessary, to reduce that deferred tax asset if it is “more likely than not” that the related tax benefits will not be realized.

Use of Estimates – The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Because of the uncertainty inherent in such estimates, actual results could differ from those estimates.

F-23

Concentrations of Credit Risk and Major Customers – For the twelve months ended December 31, 2008, five customers accounted for a total of 28.2% of the Company’s sales: 14.8%, 6.6%, 2.4%, 2.3%, and 2.1% respectively. At December 31, 2008, three of those customers accounted for 28.2% of the Company’s accounts receivable: 20.0%, 6.5%, and 1.7%, respectively.  One other customer accounted for more than 3% of the total accounts receivable.   This customer accounted for 3.5% of the total accounts receivable.

For the twelve months ended December 31, 2007, five customers accounted for a total of 29.4% of the Company’s sales: 7.8%, 7.5%, 5.5%, 4.7%, and 3.9% respectively.  At December 31, 2007, three of those customers accounted for 21.6% of total accounts receivable: 9.2%, 8.4% and 4.0%, respectively.  Seven other customers accounted for 32.6% of the total accounts receivable, 7.8%, 5.4%, 4.4%, 4.2%, 4.1%, 3.6% and 3.1% respectively. No other customer accounted for more than 3% of the total accounts receivable.

For the twelve months ended December 31, 2006, one customer accounted for a total of 48.7% of sales. At December 31, 2006, accounts receivable due from this customer was 62.7% of the total outstanding accounts receivable. Four other customers accounted for 24.1% of the total accounts receivable, 10.2%, 6.5%, 3.8% and 3.6% respectively.  No other customer accounted for more than 3% of the Company’s total accounts receivable.

Reclassifications – Certain reclassifications have been made to prior period amounts to conform to classifications adopted in the current year.

Recent Accounting Pronouncements

In June 2008, the FASB issued FASB Staff Position (“FSP”) No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (“FSP No. EITF 03-6-1”). FSP No. EITF 03-6-1 states that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. FSP No. EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008.  The adoption of FSP No. EITF 03-6-01 will not have a material impact on the Company’s Consolidated Financial Statements.    

In May 2008, the FASB issued FSP No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement) (“FSP No. APB 14-1”). Under the new rules for convertible debt instruments that may be settled entirely or partially in cash upon conversion, an entity should separately account for the liability and equity components of the instrument in a manner that reflects the issuer’s economic interest cost. The effect of the new rules for the debentures is that the equity component would be included in the paid-in-capital section of stockholders’ equity on our consolidated balance sheet and the value of the equity component would be treated as original issue discount for purposes of accounting for the debt component of the Senior Convertible Notes. FSP No. APB 14-1 will be effective for fiscal years beginning after December 15, 2008, and for interim periods within those fiscal years, with retrospective application required. Higher interest expense will result through the accretion of the discounted carrying value of the Senior Convertible Notes to their face amount over the term of the Senior Convertible Notes. Prior period interest expense will also be higher than previously reported interest expense due to retrospective application.  The adoption of FSP No. APB 14-1 will not have a material impact on the Company’s Consolidated Financial Statements.      

In April 2008, the FASB issued FSP No. FAS 142-3, Determination of the Useful Life of Intangible Assets (“FSP No. FAS 142-3”). FSP No. FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”) in order to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141(R), Business Combinations (“SFAS No. 141(R)”), and other GAAP. FSP No. FAS 142-3 is effective for fiscal years beginning after December 15, 2008. The adoption of FSP No. FAS 142-3 will not have a material impact on the Company’s Consolidated Financial Statements.     

F-24

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133 (“SFAS No. 161”). SFAS No. 161 requires enhanced disclosures about an entity’s derivative and hedging activities, including (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and (iii) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This standard is effective for fiscal years beginning after November 15, 2008. The adoption of SFAS 161 will not have a material impact on the Company’s Consolidated Financial Statements.    

In March 2008, the Emerging Issues Task Force (“EITF”) issued EITF No. 07-5, Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock (“EITF No. 07-5”). EITF No. 07-5 states that if an instrument (or an embedded feature) has the characteristics of a derivative instrument under paragraphs 6-9 of SFAS No. 133, and is indexed to an entity’s own stock, it is necessary to evaluate whether it is classified in shareholders’ equity (or would be classified in shareholders’ equity if it were a freestanding instrument). EITF No. 07-5 is effective for fiscal years beginning after December 15, 2008. The adoption of EITF No. 07-5 will not have a material impact on the Company’s Consolidated Financial Statements.      

On June 30, 2009, the Company adopted FSP No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments,” (FSP FAS 107-1/APB 28-1). FSP FAS 107-1/APB 28-1 requires a publicly traded company to include disclosures about the fair value of its financial instruments whenever it issues summarized financial information for interim reporting periods. Such disclosures include the fair value of all financial instruments, for which it is practicable to estimate that value, whether recognized or not recognized in the statement of financial position; the related carrying amount of these financial instruments; and the method(s) and significant assumptions used to estimate the fair value. Other than the required disclosures, the adoption of FSP FAS 107-1/APB 28-1 will have no impact on the Consolidated Financial Statements.

On June 30, 2009, the Company adopted FSP No. FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments,” (FSP FAS 115-2/124-2). FSP FAS 115-2/124-2 amends existing other-than-temporary impairment guidance for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities. The adoption of FSP FAS 115-2/124-2 will have no impact on the Consolidated Financial Statements.

On January 1, 2008, the Company adopted Statement 133 Implementation Issue No. E23, Hedging — General: Issues Involving the Application of the Shortcut Method under Paragraph 58 (“Issue No. E23”). Issue No. E23 provides guidance on certain practice issues related to the application of the shortcut method by amending paragraph 68 of SFAS No. 133 with respect to the conditions that must be met in order to apply the shortcut method for assessing hedge effectiveness of interest rate swaps. In addition to applying the provisions of Issue No. E23 on hedging arrangements designated on or after January 1, 2008, an assessment was required to be made on January 1, 2008 to determine whether preexisting hedging arrangements met the provisions of Issue No. E23 as of their original inception. The adoption of Issue No. E23 did not have a material impact on the Company’s Consolidated Financial Statements.

F-25

On June 30, 2009, the Company adopted FASB Staff Position (FSP) No. FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly,” (FSP FAS 157-4). FSP FAS 157-4 provides additional guidance for estimating fair value in accordance with SFAS 157 when the volume and level of activity for the asset or liability have significantly decreased and includes guidance for identifying circumstances that indicate a transaction is not orderly. This guidance is necessary to maintain the overall objective of fair value measurements, which is that fair value is 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 under current market conditions. The adoption of FSP FAS 157-4 will have no impact on the Consolidated Financial Statements.

On January 1, 2008, the Company adopted SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment of FASB Statement No. 115 (“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument basis (the fair value option) with changes in fair value reported in earnings. The adoption of SFAS No. 159 did not have any material impact on the Company’s Consolidated Financial Statements as management did not elect the fair value option for any other financial instruments or certain other assets and liabilities.  

In December 2007, the FASB issued SFAS No. 141(R). SFAS No. 141(R) replaces SFAS No. 141, Business Combinations, (“SFAS No. 141”) and retains the fundamental requirements in SFAS No. 141, including that the purchase method be used for all business combinations and for an acquirer to be identified for each business combination. This standard defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control instead of the date that the consideration is transferred. SFAS No. 141(R) requires an acquirer in a business combination, including business combinations achieved in stages (step acquisition), to recognize the assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values at that date, with limited exceptions. It also requires the recognition of assets acquired and liabilities assumed arising from certain contractual contingencies as of the acquisition date, measured at their acquisition-date fair values. SFAS No. 141(R) is effective for any business combination with an acquisition date on or after January 1, 2009. The adoption of FAS 141(R) will have no impact on the Consolidated Financial Statements.

Effective January 1, 2009, the Company adopted FSP No. FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies,” (FSP FAS 141(R)-1), which was issued on April 1, 2009. FSP FAS 141(R)-1 applies to all assets acquired and liabilities assumed in a business combination that arise from certain contingencies as defined in this FSP and requires (i) an acquirer to recognize at fair value, at the acquisition date, an asset acquired or liability assumed in a business combination that arises from a contingency if the acquisition-date fair value of that asset or liability can be determined during the measurement period otherwise the asset or liability should be recognized at the acquisition date if certain defined criteria are met; (ii) contingent consideration arrangements of an acquiree assumed by the acquirer in a business combination be recognized initially at fair value; (iii) subsequent measurements of assets and liabilities arising from contingencies be based on a systematic and rational method depending on their nature and contingent consideration arrangements be measured subsequently in accordance with the provisions of SFAS 141(R); and (iv) disclosures of the amounts and measurement basis of such assets and liabilities and the nature of the contingencies. The adoption of FSP No. FAS 141(R)-1 will have no impact on the Consolidated Financial Statements.

On January 1, 2009, the Company adopted FSP No. FAS 142-3, “Determination of the Useful Life of Intangible Assets,” (FSP FAS 142-3). FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, “Goodwill and Other Intangible Assets,” (SFAS 142) in order to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141(R) and other GAAP. The adoption of FSP FAS 142-3 will have no impact on the Consolidated Financial Statements.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51 (“SFAS No. 160”). SFAS No. 160 amends Accounting Research Bulletin No. 51, Consolidated Financial Statements, to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. This standard defines a noncontrolling interest, sometimes called a minority interest, as the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent. SFAS No. 160 requires, among other items, that a noncontrolling interest be included in the consolidated balance sheet within equity separate from the parent’s equity; consolidated net income to be reported at amounts inclusive of both the parent’s and noncontrolling interest’s shares and, separately, the amounts of consolidated net income attributable to the parent and noncontrolling interest all on the consolidated statement of operations; and if a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary be measured at fair value and a gain or loss be recognized in net income based on such fair value. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008. The adoption of SFAS No. 160 will not have a material impact on the Company’s Consolidated Financial Statements. 

On June 30, 2009, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 165, “Subsequent Events,” (SFAS 165). SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, SFAS 165 sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The adoption of SFAS 165 will have no material impact on the Consolidated Financial Statements.

F-26

In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140,” (SFAS 166). SFAS 166 amends various provisions of SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities—a replacement of FASB Statement No. 125,” by removing the concept of a qualifying special-purpose entity and removes the exception from applying FIN 46(R) to variable interest entities that are qualifying special-purpose entities; limits the circumstances in which a transferor derecognizes a portion or component of a financial asset; defines a participating interest; requires a transferor to recognize and initially measure at fair value all assets obtained and liabilities incurred as a result of a transfer accounted for as a sale; and requires enhanced disclosure; among others. SFAS 166 becomes effective for the Company on January 1, 2010. Management is currently evaluating the potential impact of SFAS 166 on the Consolidated Financial Statements.

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R),” (SFAS 167). SFAS 167 amends FASB Interpretation No. 46 (Revised December 2003), “Consolidation of Variable Interest Entities—an interpretation of ARB No. 51,” (FIN 46(R)) to require an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity; to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity; to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity; to add an additional reconsideration event for determining whether an entity is a variable interest entity when any changes in facts and circumstances occur such that holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of the entity that most significantly impact the entity’s economic performance; and to require enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity. SFAS 167 becomes effective for the Company on January 1, 2010. Management is currently evaluating the potential impact of SFAS 167 on the Consolidated Financial Statements.

In June 2009, the Financial Accounting Standards Board (FASB) issued SFAS No. 168, “The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162,” (SFAS 168). SFAS 168 replaces SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles,” and establishes the FASB Accounting Standards Codification TM (Codification) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead the FASB will issue Accounting Standards Updates. Accounting Standards Updates will not be authoritative in their own right as they will only serve to update the Codification. The issuance of SFAS 168 and the Codification does not change GAAP. SFAS 168 becomes effective for the Company for the period ending September 30, 2009. Management has determined that the adoption of SFAS 168 will not have an impact on the Consolidated Financial Statements.

In March 2007, the EITF issued EITF No. 06-10, Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements (“EITF No. 06-10”). Under the provisions of EITF No. 06-10, an employer is required to recognize a liability for the postretirement benefit related to a collateral assignment split-dollar life insurance arrangement with the employee. The provisions of EITF No. 06-10 also require an employer to recognize and measure the asset in a collateral assignment split-dollar life insurance arrangement based on the nature and substance of the arrangement. The adoption of the above standard did not have any effect on the Company’s Consolidated Financial Statements.

In March 2007, the EITF issued EITF No. 06-04, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsed Split-Dollar Life Insurance Arrangements (“EITF No. 06-4”), which concludes that an employer should recognize a liability for post-employment benefits promised an employee based on the substantive arrangement between the employer and the employee. The Company adopted the provisions of EITF No. 06-04 as of January 1, 2008. The adoption of EITF No. 06-04 did not have any effect on the Company’s Consolidated Financial Statements.

F-27

Note 4. Implementation of Staff Accounting Bulletin No. 108

In preparing the financial statements for the year ended December 31, 2006, we undertook an evaluation of uncorrected misstatements arising in prior years for the purpose of implementing Staff Accounting Bulletin No. 108 (SAB 108). We identified an uncorrected misstatement arising during 2004 and 2005, which at the time was considered to be immaterial relative to the net loss incurred for the period. We believe that this uncorrected misstatement resulted from the incorrect classification and recording of an investment’s decline in market value as a temporary impairment with a corresponding increase in other comprehensive loss. The decline should have been classified as other than temporary and in accordance with the provisions of SAB 108, we have decreased accumulated other comprehensive loss at January 1, 2006 by $2,090,000 and we have increased our accumulated deficit at January 1, 2006 by $2,090,000 to recognize the other than temporary nature of the investment impairment.

Note 5. Marketable Securities

On September 8, 2004, NutraCea purchased 1,272,026 shares of Langley Park Investment Trust, PLC (“Langley”) a United Kingdom closed-end mutual fund that was actively traded on a London exchange.  Per the Stock Purchase Agreement, NutraCea paid with 7,000,000 shares of its own common stock. On September 8, 2006, NutraCea commenced a lawsuit against Langley in the United States District Court for the Eastern District of California, Sacramento Division regarding this transaction.  The matter was settled on March 27, 2007. Pursuant to the settlement, NutraCea received $1,250,000 from Langley in March 2007 and NutraCea retained all of the Langley shares.  The $1,250,000 settlement is included in our December 31, 2007 statement of operations as other income.

During the third quarter of 2007 Langley ceased trading and began the process of liquidating the investments.  NutraCea has received cash of $127,000 from this liquidation.  The realizable value of the balance of the funds is uncertain and as a result we have recorded the fair market value of Langley as $0 at December 31, 2007, and recognized a loss of $163,000 (net of $169,000 of unrealized income) on the disposition of the investment.

Any unrealized holding gains and losses on the marketable securities are excluded from operating results and are recognized as other comprehensive income. Prior to liquidation the fair value of the securities is determined based on prevailing market prices.

Note 6. Stock-based Compensation

The Company uses the Black-Scholes-Merton option pricing model to estimate fair value. The Black-Scholes-Merton option pricing model requires the Company to estimate key assumptions such as expected life, volatility, risk-free interest rates and dividend yield to determine the fair value of share-based awards, based on both historical information and management judgment regarding market factors and trends. The Company amortizes the share-based compensation expense over the period that the awards are expected to vest, net of estimated forfeiture rates. If the actual forfeitures differ from management estimates, additional adjustments to compensation expense are recorded.

The Company accounts for stock-based compensation awards granted to non-employees by determining the fair value of the stock-based compensation awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is a more reliably measurable. If the fair value of the equity instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of (1) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached or (2) the date at which the counterparty's performance is complete.

F-28

Stock-based compensation expenses consisted of the following for the twelve months ended December 31:

	2008 (1)			2007 (2)		2006 (3)
Consultant stock compensation	$	568,000		$	470,000	$	214,000
Director stock compensation		660,000			339,000		176,000
Employee stock compensation		570,000			892,000		361,000
Executive officer stock compensation		497,000			338,000		240,000
Research and development stock compensation		-			108,000		-
Directors and former director for services outside of directors duties		84,000	(4)		-		100,000	(5)
Stock option warrant expense		131,000			19,000		-
Total stock-based compensation expense	$	2,510,000		$	2,166,000	$	1,091,000

(1) Includes $7,000 fair value of common stock granted to our COO in June 2008 and the immediate issuance of 50,000 shares of restricted stock that vests evenly throughout the remaining term of his employment contract.

(2) Includes $55,000 fair value of common stock issued.  All other amounts are the fair value of options and warrants issued.

(3) Includes $30,000 fair value of common stock issued.  All other amounts are the fair value of options and warrants issued.

(4) We regranted two directors their original RiceX options from 2005 that were scheduled to expire in October 2008.  The new expiration date is October 2009; the strike price remained the same.

(5) We granted two directors options for consulting work.

As of December 31, 2008, there was $461,229 of total unrecognized compensation cost related to non-vested options granted under the plans. That cost is expected to be recognized over a period of five years.

As of December 31, 2008, 2007 and 2006 options and warrants to purchase approximately 60,007,000, 42,465,000 and 43,075,000 shares of our common stock, respectively, were outstanding.  Of these, approximately 12,369,000, 27,157,000 and 42,662,000 were “in the money” at December 31, 2008, 2007 and 2006 respectively.  These are excluded from the calculation of diluted loss per share at December 31, 2008, 2007 and 2006 because their inclusion would have been anti-dilutive.  The weighted average exercise price of “in the money” vested options and warrants for the twelve months ended December 31, 2008, 2007 and 2006 was $0.30, $0.59 and $0.70 respectively.

The weighted average grant date fair value of the stock options granted during the twelve months ended December 31 2008, 2007 and 2006 was $1.85, $3.43, and $1.37, per share, respectively.

The following table summarizes information related to outstanding and exercisable options and stock appreciation rights as of December 31, 2008:

		Options Outstanding						Options Exercisable
Range of exercise prices		Outstanding Options		Remaining Contractual Life (in years)		Weighted Average Outstanding Exercise Price		Vested Options		Remaining Contractual Life (in years)		Weighted Average Vested Exercise Price
$	0.00 to $0.49		12,469,321		5.6397	$	0.3018		12,469,321		5.6397	$	0.3018
$	0.50 to $0.99		14,049,003		2.7487		0.6879		12,737,587		2.5427		0.6853
$	1.00 to $1.49		15,261,860		3.9310		1.1747		13,941,524		3.9635		1.1494
$	1.50 to $1.99		774,399		4.2149		1.5536		662,067		3.5947		1.5326
$	2.00 to $2.49		2,674,370		4.0064		2.4465		2,666,870		3.9949		2.4465
$	2.50 to $2.99		13,929,246		3.5497		2.8738		13,837,708		3.5195		2.8753
$	3.00 to $3.99		782,500		6.8126		3.3513		673,115		6.7571		3.3683
$	4.00 to $5.99		33,000		8.3437		4.0279		29,250		8.3474		4.0315
$	6.00 to $10.00		33,535		2.9187		10.0000		33,535		2.9187		10.0000
$	0.00 to $10.00		60,007,234		3.9672	$	1.3702		57,050,977		3.9367	$	1.3771

F-29

Note 7. (Loss) Earnings Per Share

Basic (loss) earnings per share is computed by dividing net (loss) income available to common shareholders by the weighted average number of common shares outstanding during all periods presented.  Options and warrants are excluded from the basic (loss) earnings per share calculation and are considered in calculating the diluted (loss) earnings per share.

Diluted (loss) income per share is computed by dividing net (loss) income available to common 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 is dilutive. The dilutive effect of outstanding options and warrants is calculated using the treasury stock method.  The dilutive effect of the convertible series B preferred stock, and convertible series C preferred stock is calculated using the as-if converted method.

Components of basic and diluted (loss) earnings per share were as follow for the twelve months ended December 31:

	2008			2007			2006
				(Restated)			(Restated)
Net (loss) income	$	(64,572,000	)	$	(17,976,000	)	$	302,000
Weighted average outstanding Shares of common stock		160,585,000			125,938,000			76,692,000
Convertible preferred stock		-			-			5,045,000
Common stock equivalents		-			-			20,899,000
Total diluted shares		160,585,000			125,938,000			102,636,000
(Loss) earnings  per share:
Basic	$	(0.40	)	$	(0.14	)	$	-
Diluted	$	(0.40	)	$	(0.14	)	$	-

Note 8. Inventory

Inventory is stated at the lower of cost or market, with the cost determined by the first-in, first-out method.  We employ a full absorption procedure using standard cost techniques. The standards are customarily reviewed and adjusted annually. Provision for potentially obsolete or slow moving inventory are made based upon our analysis of inventory levels, historical obsolescence and future sales forecast.

Inventories are composed of  the following at December 31,                                                                                                

	2008		2007
			(Restated)
Finished goods	$	2,320,000	$	1,396,000
Work in process		167,000		-
Raw materials		849,000		275,000
Packaging supplies		547,000		228,000
Total inventories	$	3,883,000	$	1,899,000

Note 9. Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line basis over the estimated useful lives as follows:

Furniture and equipment	5-7  years
Plant	30   years
Software	3   years
Leasehold improvements	3-7   years
Machinery and equipment	7-10   years

F-30

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

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

	2008		2007
Land	$	3,128,000	$	15,000
Furniture and fixtures		3,068,000		2,405,000
Plant		15,556,000		3,540,000
Computer and Software		724,000		436,000
Automobile		338,000		-
Leasehold improvements		3,727,000		1,353,000
Machinery and Equipment		21,705,000		10,853,000
Construction in progress		15,958,000		4,164,000
Subtotal	$	64,204,000	$	22,766,000
Less accumulated depreciation		7,221,000		2,854,000
Total	$	56,983,000	$	19,912,000

Depreciation expense was $4,473,000 and $1,501,000 for 2008 and 2007, respectively.

The Company periodically reviews the original estimated useful lives of assets and makes adjustments when appropriate.

During the fourth quarter of 2008 management implemented a plan to sell certain equipment located at its Lake Charles, Louisiana facility.  The equipment is classified in current assets as held-for-sale with a carrying value of $822,000 as of December 31, 2008.  The Company intends to sell a portion of this equipment at cost to a joint venture between GE and another party.

Note 10. Patents and Trademarks

Patents and trademarks consisted of the following at December 31:

	2008		2007
Patents	$	2,524,000	$	2,657,000
Trademarks		6,985,000		3,288,000
Customer List		4,308,000		-
Non-Compete		650,000		650,000
License and supply		-		220,000
Subtotal		14,467,000		6,815,000
Less accumulated amortization		2,424,000		1,072,000
Total	$	12,043,000	$	5,743,000

F-31

Amortization expense was $1,541,000 and $642,000 for 2008 and 2007, respectively. Amortization expense is expected to be approximately $2,126,000, $2,018,000, $1,066,000, $1,063,000 and $1,063,000 for the years ended 2009 through 2013, respectively.

During December 2008 we decided to cease all marketing efforts under the Dr. Vetz trademark acquired in September 2007. The demand for these products declined significantly and products held in inventory only had a shelf-life of three months, causing us to scrap all of the remaining inventory. The Company recorded a loss on the disposal of this product line of $598,000 consisting of inventory valued at $339,000 and the trademark valued at $259,000 (net of $37,000 accumulated amortization).

In August 2008 CURA Pharmaceutical Co. (“CURA”) reached a settlement agreement on a lawsuit which had been filed against it as a result of the products which were being distributed by NutraCea/Cura (“NCC:), a limited liability company formed between NutraCea and CURA.  Pursuant to the terms of the agreement, CURA received a settlement of $340,000 which was assigned to NutraCea, and NCC returned the remaining inventory of approximately $135,000 to a third party.  The Company recorded a loss on disposal of assets of approximately $131,000 for the unamortized portion of the intangible asset.  The overall effect of the transaction resulted in a net gain on settlement of the assets of NCC of approximately $75,000 (see Note 12 Acquisition and Joint Ventures).

						Loss on
	Acquisition	Acquisition		Accumulated		Disposal
	Date	Value		Amortization		of Asset
Dr. Vetz trademark	8/28/2007	$	296,000	$	37,000	$	259,000
Cura Supply agreement	9/1/2007		220,000		89,000		131,000
		$	516,000	$	126,000	$	390,000

Note 11. Notes Receivable

As of December 31, 2007, the Company held seven outstanding promissory notes with an aggregate principal amount $3,225,000.  These promissory notes primarily bear interest at annual rates of 6% with the principal and all accrued interest due and payable at dates ranging from January 2008 to December 2008.

At December 31, 2008, we held four promissory notes outstanding with an aggregate amount of $858,000.  These promissory notes bear interest at annual rates between six (6%) and ten (10%) with the principal and all accrued interest due and payable at dates ranging from October 2007 to September 2009.

A summary of the activity in the notes receivable account, before deduction for estimated uncollectable amount, for the period ending December 31, 2007 and 2008 is as follows:

							Herbal		VTLV/								Famous
	ITV			CURA			Science		VTLV II		Diabco			VLI			Discoveries			Other			Total
Balance as of 12/31/06	$	500,000		$	-		$	-	$	550,000	$	-		$	750,000		$	400,000		$	176,000		$	2,376,000
Notes receivable issued - 2007		5,488,000			-			150,000		-		500,000			-			300,000			52,000			6,490,000
Payments received		(4,010,000	)		-			-		-		-			(84,000	)		(400,000	)		(181,000	)		(4,675,000	)
Consolidation of VLI		-			-			-		-		-			(666,000	)		-			-			(666,000	)
Write off of notes receivable		-			-			-		-		-			-			(300,000	)		-			(300,000	)
Balance as of 12/31/07	$	1,978,000		$	-		$	150,000	$	550,000	$	500,000		$	-		$	-		$	47,000		$	3,225,000
Notes receivable issued - 2008		221,000			211,000			-		-		43,000			-			-			40,000			515,000
Payments received		(1,978,000	)		(53,000	)		-		-		-			-			-			(48,000	)		(2,079,000	)
Deconsolidation of VLI		-			-			-		-		-			666,000			-			-			666,000
Write off of notes receivable		(221,000	)		-			-		-		(543,000	)		(666,000	)		-			(39,000	)		(1,469,000	)
Balance as of 12/31/08	$	-		$	158,000		$	150,000	$	550,000	$	-		$	-		$	-		$	-		$	858,000

F-32

During the twelve months ended December 31, 2008 we loaned a total of $515,000 (net of inter-company eliminations) to certain strategic partners, which loans were evidenced by promissory notes, and received payments totaling $2,079,000 on existing promissory notes.

As of December 31, 2006, the Company had a $500,000 promissory note from ITV, an infomercial customer.  The note accrued interest at 6% and payments were due over a year.  In February 2007, the Company entered into a new promissory note with ITV with a principal amount of $3,966,000, representing $446,000 in principal amount outstanding from December 31, 2006 and an additional amount of $3,520,000.  The note accrued interest at 7% and had weekly scheduled payments over a year.  The Company obtained a security interest in certain of the assets if the customer to secure payments under the note.  As of November 2007, $3,385,000 had been paid on the promissory note, and a principal amount of $581,000 was still outstanding.  In November 2007, the Company entered into another promissory note with ITV for the principal amount of $1,968,000.  This note accrued interest at 6% and was due over the period of five months.  As of December 31, 2007, the total principal amount outstanding on the two promissory notes to ITV was $1,978,000.  By February 2008, $649,000 in payments had been received on the note, and the remaining amount of $1,329,000 was converted into a new promissory note along with an additional amount of $221,000 which primarily represented accrued interest.  The new promissory note total $1,550,000 carried scheduled payments over a five month period.  As of December 31, 2008, the Company had collected $1,329,000 and had written-off the remaining balance of $221,000.

In September 2008, the Company entered into a promissory note with CURA for $211,000.  CURA had arranged for the sale of various products for the Company, but failed to deliver the collected funds to the Company.  The note carried equal monthly payments over a twelve month period beginning October 2008.  The Company received a security interest in CURA’s rights and interest in NCC.  The Company has received the scheduled payments totaling $53,000 as of December 31, 2008.

In December 2007, the Company formed Rice Rx LLC (“RRX”) with Herbal Science Singapore PTe. Ltd. (“HS”) (See Note 12 – Acquisitions and Joint Ventures).  In conjunction with the formation of RRX, NutraCea sold to HS, for $300,000, an exclusive license to develop, manufacture and sell certain SRB isolates and identify and commercialize certain patentable pharmaceuticals.  Payment for this license was made in the form of $150,000 cash and the execution of a promissory note for $150,000 at the prime rate of interest and was due within one year.  Payment of the entire principal amount was received in January 2009.

In June 2006, the Company issued a promissory note for $300,000 to VTLV, LLC (“VTLV”) to assist VTLV in purchasing $1,000,000 in principal amount of secured convertible notes and 1,000,000 shares of Series D Preferred Stock of Vital Living, Inc. (“VLI”) (See Footnote 12 – Acquisition and Joint Ventures) for an aggregate amount of approximately $417,000.  The note bore an interest rate of 6% and was due and payable along with all accrued interest in May 2007.  As of December 31, 2007 and 2008, the entire principal amount was outstanding.  The note has been fully reserved as of December 31, 2008.

In December 2006, the Company issued a promissory note for $250,000 to VTLV II, LLC (“VTLV II”) to assist VTLV II in purchasing $1,943,000 in principal amount of secured convertible notes of VLI (See Footnote 12 – Acquisition and Joint Ventures) for approximately $1,077,000.  The note bore an interest rate of 6% and was due and payable along with all accrued interest in October 2007.  As of December 31, 2007 and 2008, the entire principal amount was outstanding.  The note has been fully reserved as of December 31, 2008.

The Company is unaware of the business reasons for making the above loans to VTLV and VTLV II.

In September 2006, we entered into a Supply Agreement with VLI whereas NutraCea would supply to VLI and VLI would exclusively purchase from NutraCea its entire requirement of stabilized rice bran.  The term of the supply agreement was for five years.  VLI signed a promissory note in the principal amount of $300,000 plus interest which would be paid in 60 consecutive monthly payments of $6,000 beginning on October 1, 2007.  The interest rate on the note was 5% per annum.  A principal payment of approximately $84,000 was received by the Company in the second quarter of 2007, and the remaining principal amount and accrued interest were written off as of December 31, 2008.

F-33

In December 2006, the Company entered into a Label License agreement with VLI whereas VLI would have the right to use various NutraCea Patents with regards to marketing, distribution and sale of a joint inflammation product.  A note was signed for the principal amount of $450,000 plus interest which shall be paid in 36 consecutive monthly principal installments of $12,500 beginning on September 1, 2007 until paid in full.  The interest rate for the note was 8%.  No payments were received on this note and the entire principal and accrued interest amounts were written off as of December 31, 2008.

In December 2006, the Company entered into a Supply Agreement with Diabco whereby they agreed to buy and the Company agreed to sell them certain products.  Also in December 2006, the Company sold to Diabco $365,000 of our products.  In April 2007, Diabco had conversations with the Company requesting an extension due to a longer than anticipated timeframe to develop and market its product.  In April 2007, the Company rolled the accounts receivable balance as well as a cash advance for approximately $135,000 into a promissory note totaling $500,000.  The note had an annual interest rate of 10% and was secured by a warrant (“Warrant Collateral”). No payment was received in 2007 on the outstanding notes receivable.  In January 2008, the Company entered into a new promissory note for $542,500 representing the principal amount of $500,000, accumulated interest of $17,500, and a default penalty of $25,000.  The note had an annual interest rate of 10%, was secured by the Warrant Collateral.  As of the end of 2008, the Company had received no payments on the notes receivable, and the value of the Warrant Collateral had reduced to zero as a result of a decrease in NutraCea’s stock price.  Therefore, the Company wrote-off this notes receivable as of December 31, 2008.

In November 2006, the Company entered into a promissory note with Famous Discoveries, an infomercial customer, for $400,000.  The note accrued interest at 6% per annum and was due in February 2007.  In March 2007, the note was paid in full.  The Company also entered into a new promissory note in March 2007 with this customer.  The note was for $300,000, accrued interest at 8.25%, and was due in 180 days.  As of December 31, 2007, no payments had been made on the note, and the Company wrote off the entire principal amount and accrued interest.

Provision for doubtful notes receivable:

The Company maintains an allowance for doubtful accounts on notes receivable based upon expected collection.  A summary of the activity in the allowance for doubtful accounts for the periods ended December 31, 2008, 2007, and 2006 is as follows:

	2008			2007
				(Restated)
Balance, beginning of period	$	250,000		$	-
Provision for allowance for doubtful notes receivable charged to operations		968,000			250,000
Losses charged against allowance		(668,000	)		-
Balance, end of period	$	550,000		$	250,000

Note 12. Acquisition and Joint Ventures

Irgovel

On January 31, 2008, NutraCea, through its’ wholly owned subsidiary Nutra SA, entered into a Quotas (share) Purchase and Sale Agreement (“Purchase Agreement”) with the Quota Holders (“Sellers”) of Irgovel - Industria Riograndens De Oleos Vegetais Ltda. (“Irgovel”), a Limited Liability Company organized under the laws of the Federative Republic of Brazil. Irgovel owns and operates a rice bran oil processing facility in Pelotas, Brazil.

In February 2008, the Company completed the purchase of Irgovel paying $14,237,000 for 100% of the company.  In accordance with SFAS No. 141, Business Combinations (“SFAS 141”) the Company used the purchase method of accounting to record this transaction. Under the purchase method of accounting, the assets acquired and liabilities assumed from Irgovel were recorded at the date of acquisition, at the preliminary estimate of their respective fair values. The purchase price plus acquisition costs exceeded the preliminary estimate of fair values of acquired assets and assumed liabilities. This resulted in the recognition of goodwill in the amount of $3,274,000.

F-34

The total consideration of $14,237,000 includes approximately $354,000 in legal fees which were capitalized as part of the purchase price.   Additionally, the Company agreed to fund as necessary up to $5,300,000 to pay deferred taxes due to the Brazilian government.  These deferred taxes are included in notes payable in the liabilities on Irgovel’s financial statements and are payable on a straight-line basis over periods through July 2018. Under the terms of the acquisition, the Company has escrowed approximately $1,905,000 for certain acquired litigations.  This amount is recorded as long-term restricted cash within the consolidated long-term assets as of December 31, 2008.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:

Cash	$	79,000
Accounts receivable		1,243,000
Inventory		837,000
Other current assets		602,000
Property, plant and  equipment		15,047,000
Intangibles		5,452,000
Other non-current assets		18,000
Goodwill		5,579,000
Total assets acquired		28,857,000
Current liabilities		2,791,000
Other non-current liabilities		5,785,000
Deferred tax liability		6,044,000
Total liabilities assumed		14,620,000
Net assets acquired	$	14,237,000

See Note 13 for pro forma consolidated results of operations presented as though the acquisition had occurred on January 1, 2007.

Medan, LLC.

On January 24, 2008, NutraCea, through its newly formed wholly-owned subsidiary, Medan, LLC, a Delaware limited liability company, entered into a stock purchase agreement (“Purchase Agreement”) with Fortune Finance Overseas Ltd., a British Virgin Islands company (“FFOL”).  Pursuant to the Purchase Agreement, on March 28, 2008, Medan purchased (“First Purchase”) 9,700 outstanding shares of capital stock of PT Panganmas Inti Nusantara, an Indonesian Company (“PIN”) from FFOL for $8,175,000.  In June 2008, Medan purchased an additional 3,050 shares of PIN’s capital stock directly from PIN for $2,500,000.  Of the 3,050 shares, 2,550 were voting shares and 500 were non-voting shares.  The total consideration paid by NutraCea for both purchases through Medan was $10,675,000.  After the completion of these two transactions, NutraCea owned 51% and FFOL owned 49% of the capital stock of PIN.  Our investment agreement provides for 50% voting rights for NutraCea and FFOL.  Accordingly, our interest is non-controlling and therefore our investment is accounted for under the equity method.

The Company made this acquisition in order to construct and operate a wheat mill incorporating the Company’s stabilization technology.  PIN owns land and obtained the permits necessary to construct a wheat facility in Kuala Tnajung, Medan, and North Sumatra, Indonesia.  Medan and FFOL entered into a voting agreement wherein each party will vote all of its shares in a manner so that PIN’s Board of Directors and Board of Commissioners shall consist of an even number of persons designated each by Medan and FFOL.  The Purchase Agreement required the Company to pay Theorem Capital Partners a $500,000 commission upon the completion of the transaction.  This commission was paid in equal installments in June and July, 2008.  Additionally, upon completion of the transaction the Company granted to Theorem an option to purchase 500,000 shares of the Company’s common stock at an exercise price per share of $1.50, which expires in five years.  The fair value of this option is approximately $128,000 and was charged to professional fees in the Company’s results of operations during the third quarter of 2008.

F-35

Concurrently with the Purchase Agreement, NutraCea entered into a Wheat Bran Stabilization Equipment Lease (“Lease”) with PIN.  Pursuant to the Lease, NutraCea would lease to PIN wheat stabilization equipment developed by NutraCea for the use at PIN’s facility.  The term of the lease was fifteen years with an automatic extension of five years if the PIN stabilized wheat bran facility was fully operational and the equipment leased from NutraCea was still located in and being used at the facility.  The amount of the rent for the leased equipment would be equal to NutraCea’s actual cost of purchasing, manufacturing, and installing the equipment, and would be due and payable, in one single payment, thirty days following the installation of the equipment at the facility.  At December 31, 2008, minimal spending had occurred towards capital or operational expenses.

Prior to the Company’s initial acquisition of its shares, PIN was engaged in a flour trading operation.  PIN divested itself of its trading operations in the first quarter of 2008 before the Company made the First Purchase.  After the date of our initial investment, PIN has had no sales and its operational expenses were only those related to the preparation of the wheat mill project.

The determination of the purchase price of the PIN shares was based upon an economic feasibility study of the PIN project that the Company obtained from a third party valuation firm.  Based upon this study, the Company originally recorded the value of the PIN shares at $10.675 million, which was the price the Company paid for the PIN shares.  Upon further review, the Company has determined that there was not sufficient evidence at the time of their acquisition to support the $10.675 million valuation of the PIN shares.  Accordingly, the Company has reduced in its consolidated balance sheet the value of the PIN shares to $5.675 million.

In March 2008, PAHL paid to the Company $5 million for its License Fee described in Note 2 Audit Committee Review and Restatement of Consolidated Financial Statements.  A principal shareholder of FFOL was also a principal shareholder of PAHL, and the Company’s receipt of payment for the License Fee was made at the same time the Company decided to make the First Purchase of the PIN shares.  Based in part upon the related ownership of FFOL and PAHL, the timing of the payments, the sub-license of PAHL’s rights under the License to Grain Enhancement and the Company’s current determination of the value of the PIN shares, the Company now believes the First Purchase of the PIN shares and the payment of the License Fee should be viewed as a combined event with related parties, causing the Company to value the First Purchase of the PIN shares at $3.175 million instead of $8.175 million.

The Company’s share of the net loss of PIN for the period from March 28, 2008 through December 31, 2008 was approximately $4,000.

On July 23, 2009, Medan entered into a Stock Purchase Agreement with FFOL to sell its 12,750 shares of capital stock of PIN to FFOL, which shares represent 51% of the currently issued and outstanding capital stock of PIN (“Agreement”).  Pursuant to the Agreement, FFOL agreed to pay $1,675,000 to Medan, thus completely liquidating NutraCea’s ownership in PIN.  Based upon the liquidation of the Company’s ownership in PIN, the Company recorded as of December 31, 2008 an impairment charge of $3,996,000 representing the difference between the carrying value of our investment and the cash to be received from FFOL.  This resulted in the value of our investment at December 31, 2008 of $1,675,000.  As of August 31, 2009 the Company had received $1,591,000 with the remaining amount of $84,000 representing taxes withheld by the Indonesian Government.  The Company anticipates receiving this additional amount once the proper documentation is presented to the Indonesian Government.    

F-36

Infomaxx, LLC

In December 2006, our wholly-owned subsidiary Nutramercials, Inc. acquired a 50% interest in Infomaxx, LLC (“INFMX”).  INFMX was determined to be a variable interest entity and its’ financial position and operations were included in our Consolidated Financial Statements at December 31, 2006.

           In August 2007, the Company became the sole member of INFMX after the Company purchased from the other member of INFMX their 50% interest in INFMX by canceling a $300,000 note payable to NutraCea by the other member.  The Company received along with the 50% interest; all rights to a certain trademark and product line of the former member.  The Company recorded an intangible asset of $296,000 in connection with the acquisition of the trademark and product line.  Additionally, in order to consummate this transaction the Company agreed to accept the return of $275,000 of inventory from the other previous member of INFMX which the Company sold them in December 2006, for $1,551,000.  This sale has been reversed as part of the restatement to the Company’s Consolidated Financial Statements (Note 2 Audit Committee Review and Restatement of Consolidated Financial Statements).

During December 2008 the Company decided to cease all marketing efforts under the Dr. Vetz trademark acquired in September 2007. The demand for these products declined significantly and products held in inventory only had a shelf-life of three months causing the Company to scrap the entire remaining inventory. The Company recorded a loss on the disposal of this product line of $598,000 consisting of inventory valued at $339,000 and the trademark valued at $259,000 (net of $37,000 accumulated amortization).

NutraCea/Cura LLC

        In August 2007, the Company formed NutraCea/Cura, LLC (“NCC”) with CURA Pharmaceuticals (“CURA”) and the Company acquired a 60% in NCC.  NCC was established to jointly develop, produce, market, and sell nutraceutical and pharmaceutical products.  In December 2007 we acquired from CURA 75% of their 40% inzerest in NCC which increased our interest to 90%.  Accordingly we have consolidated NCC in our financial statements. The Company recorded an intangible asset of $220,000 which the Company was amortizing on a straight-line basis over a period of five years.

NCC also acquired the rights to a supply agreement for materials with minimum purchase requirements of approximately $1,150,000 for the first year with an increase to the then current minimum of 5% per year over the term of the agreement.  The initial term was for three years, and would automatically renew for one year period unless either party terminates the agreement in accordance with the provisions of the supply agreement.  If the minimum purchase commitments were not met in any year the co-packer of the products may terminate the supply agreement.

In August 2008 CURA reached a settlement agreement on a lawsuit which had been filed against it as a result of the products which were being distributed by NCC.  Pursuant to the terms of the agreement, CURA received a settlement of $340,000 which was assigned to NutraCea, and NCC returned the remaining inventory of approximately $135,000 to a third party.  The Company recorded a loss on disposal of assets of approximately $131,000 for the unamortized portion of the intangible asset.  The overall effect of the transaction resulted in a net gain on settlement of the assets of NCC of approximately $75,000.

In September 2008, the Company entered into a promissory note with CURA for $211,000.  CURA had arranged for the sale of various products for the Company, but failed to deliver the collected funds to the Company.  The note carried equal monthly payments over a twelve month period beginning October 2008.  The Company received a security interest in CURA’s rights and interest in NCC.  As of December 31, 2008 the Company had received the scheduled payments totaling $53,000.

Grainnovation, Inc.

In April 2007, the Company acquired 100% of the outstanding stock of Grainnovation, Inc. (“GI”) a privately held company in Freeport, Texas which manufactures SRB pellets and other SRB products for equine customers for a total of $2,150,000.

F-37

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition.  The Company incurred $20,000 in legal fees relating to this purchase, which are added to the purchase price.  The Company believes the fair values assigned to the assets acquired and liabilities assumed were based on reasonable assumptions.

Cash	$	1,000
Accounts receivable		26,000
Inventory		11,000
Property and equipment		623,000
Covenant not to compete		650,000
Goodwill		917,000
Total Assets		2,228,000
Accrued liabilities		58,000
Net assets acquired	$	2,170,000

In May 2009, this facility was closed due to lack of demand and reduction in company wide capacity needs.  At the time this location employed five people who were terminated as a result of the closure.  No termination benefits were paid as a result of the closure. All of the goodwill associated with the purchase was impaired as of December 31, 2008.  All of the property, plant and equipment and intangibles were fully depreciated and amortized as of the date of the closure

Grain Enhancements LLC

In June 2007, NutraCea, PAHL, and two other entities (Theorem and Ho’okipa Capital Partners) entered into a limited liability company agreement (“GE Agreement”) to establish Grain Enhancement (“GE”), a Delaware limited liability company.  The equity position in GE of the four entities was: 47.5% for NutraCea, 47.5% for PAHL, and 3.333% and 1.6667% for the other two entities.  The equity interests of NutraCea and PAHL are designated as Class A members, and the other two entities are designated as Class B members.  Only Class A members are allowed to participate on the GE Finance Committee, and are the only members required to make capital contributions to GE.  The purposes of GE were: (i) to sublicense or otherwise acquire from PAHL all of the rights granted to PAHL under the  License Agreement; (ii) within the Territory, to establish, construct, and operate one or more rice bran stabilization facilities utilizing the proprietary technologies licensed in the License Agreement; (iii) to manufacture, distribute, sell, advertise, promote, market and otherwise commercialize SRB products throughout the Territory; and (iv) to engage in any and all other activities reasonably related to the foregoing. One of the minority partners was paid $750,000 and $500,000 by NutraCea and GE, respectively, for services related to the formation of GE.

Both NutraCea and PAHL agreed to make $5,000,000 (for a total maximum of $10,000,000) cash contributions to GE based upon the following schedule:  $1,500,000 each on or before June 30, 2007, $2,000,000 each on or before October 30, 2007, and $1,500,000 each on or before August 31, 2008.  The initial payments of $1,500,000 due on or before June 30, 2007 were made by both NutraCea and PAHL.  The GE Agreement along with other related agreements also required NutraCea to; (i) grant PAHL a warrant to purchase 1,500,000 shares of common stock of NutraCea at an exercise price of $5.25 per share; (ii) enter into a Rice Bran Supply Agreement with GE; and (iii) enter into a Rice Bran Stabilization Equipment lease. The warrant was to vest and become exercisable as to 375,000 shares of Common Stock on July 1, 2007, and shall vest and become exercisable as to 375,000 shares of Common Stock on each of October 1, 2007, February 1, 2008 and May 1, 2008; provided however, that the warrant shall not vest and Holder may not exercise the warrant, or any portion thereof, until GE had entered into one or more binding contracts with one or more rice millers to supply to GE at least 20,000 tons of usable raw rice bran per year.  As of December 31, 2007, performance was not completed to earn the initial warrant to purchase 1,500,000 shares of NutraCea common stock, therefore no vesting had occurred and it appeared improbable that the performance would be met by June 2008 the expiration date.  The original award was going to be forfeited because the construction of the rice mill facility had not begun nor were plans in place to begin the construction of the rice mill facility. The $2,000,000 contribution due to GE on or before October 30, 2007 was not contributed by either NutraCea or PAHL, and on January 24, 2008, certain terms of the GE Agreement were amended by NutraCea and PAHL.  The amendment suspended the contribution of the remaining $7,000,000 ($3,500,000 by each party) to a date when GE’s finance committee determines that all or any portion of the remaining cash contributions are necessary for the successful operation of the business.  In addition, PAHL would not longer receive a monthly management fee.

F-38

Concurrently with the January 24, 2008 amendment, NutraCea agreed to issue to PAHL a new warrant (“Warrant”) for the purchase of 1,000,000 shares of NutraCea common stock at an exercise price of $2.50 per share, and PAHL agreed to cancel the existing warrant for the purchase of 1,500,000 shares at an exercise price of $5.25.  The Warrant shall vest and become exercisable in full upon GE entering into one or more letters of intent with one or more rice millers to supply to GE an initial 4,000 tons of usable raw rice bran per year. The performance for the Warrant was completed on March 24, 2008 with a Letter of Intent between GE and Gentraco, Vietnam which was signed on March 26, 2008 for 10,000 tons of fresh rice bran. In this case the fair value of the equity instruments is more reliably measurable than the fair value of the goods or services received.  The Company estimated the fair value of the Warrant at the respective date using the Black-Scholes Merton option valuation model, based on the estimated market value of the underlying stock at the valuation measurement date, the contractual term of the Warrant, risk-free interest rates, expected dividends, and expected volatility of the price of the underlying stock.  The intrinsic value of the Warrant was estimated at $132,000 using the Black Scholes Merton model.  Pursuant to Emerging Issues Task Force Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in a Company's Own Stock ("EITF 00-19"), the Warrant issued to PAHL was recorded as a liability because the Warrant contains a provision where it is required to be settled for cash if certain events occur.

The Company accounts for our investment in GE under the equity method of accounting as we do not maintain control over GE.  Through December 31, 2008 and 2007, the Company’s share of Grain Enhancement net loss was $98,000 and $309,000, respectively. At December 31, 2008 the value of our investment was $1,093,000.

Vital Living, Inc.

In April 2007, the Company acquired the outstanding shares of Series D Convertible Preferred Stock (“Preferred Stock”) and Secured Convertible Notes (“Notes”) of Vital Living, Inc. (“VLI”), a publicly traded company. VLI distributed nutritional supplements. VLI had a set of products that were complementary to our products and an established marketing channel that would enable NutraCea to market its own products without the expense of building the marketing base.  In addition, some of VLI’s products were suitable for modification to include NutraCea’s SRB as a key ingredient, which the Company believed would further enhance and develop the NutraCea brand.  The Company paid $1,000,000 for the 1,000,000 shares of Preferred Stock and $4,226,000 for the outstanding Notes. The Preferred Stock had a liquidation preference of $1.00 per share senior to the liquidation preferences of VLI Series B Preferred Stock and Senior C Preferred Stock.  The Notes bear interest at 12% per annum, payable June 15 and December 15, mature in December 2008 and were secured by substantially all of VLI’s assets.  Originally, the Notes were convertible into VLI common stock and VLI had the option of paying the interest on the Notes in shares of VLI common stock.  At the time of the acquisition of the Preferred Stock and Notes, the Company’s Chief Executive Officer and President, Mr. Edson, was the former CEO and President of VLI from May 2001 to January 2004, and the President of the predecessor company of VLI from April 1999 to May 2001.  Mr. Edson is no longer the Company’s CEO and President.

The Company purchased the Notes and Preferred Stock of VLI, Inc. as a means of affecting a subsequent acquisition of the productive assets of VLI, either through a merger or asset purchase.  The Company’s purchase of the Preferred Stock allowed the Company to control an outstanding class of capital stock, and the purchase of the Notes allowed the Company to obtain a senior secured position with respect to VLI’s assets.

On September 11, 2007, NutraCea and VLI entered into a letter of agreement to eliminate the conversion rights of the Notes.  In addition, the parties agreed that until such time, if any, as NutraCea gives 30 days prior written notice to VLI, VLI may not pay accrued interest under the Notes in shares of VLI Common Stock without NutraCea’s consent, and that during such time VLI would not be deemed to be in default under the Notes as a result of not paying accrued interest in such shares.

On September 28, 2007, the Company entered into an Asset Purchase Agreement (“Asset Purchase Agreement”) with VLI.  The Asset Purchase Agreement provided that the Company would purchase substantially all of VLI’s intellectual property and other assets used by VLI and certain subsidiaries in its business, including rights to nutritional supplements and nutraceutical products that are marketed for distribution to healthcare practitioners. As part of the transaction, VLI would assign to NutraCea its rights under various distribution and other agreements relating to the products being acquired.  the Company would not acquire the inventory, raw materials, cash, or accounts receivable of VLI.

F-39

The purchase price consisted of (i) $1,500,000 to be paid by NutraCea at closing, (ii) cancellation of outstanding indebtednesses of VLI, its subsidiaries and certain of its related entities to NutraCea, including all of the Notes, and (iii) cancellation of all of the shares of Preferred Stock of VLI held by NutraCea.  Completion of the transaction was subject to a variety of customary closing conditions, including, among other things, the approval of the transaction by the stockholders of VLI at a special meeting and the absence of a material adverse effect on the assets between the date of the agreement and the closing date.

In October 2008 we terminated the agreement pursuant to the terms under the termination section of the Asset Purchase Agreement, which required VLI’s shareholders to approve such transactions.  The approval of the VLI shareholders never transpired.

VLI qualified as a VIE because the Company was determined to be the primary beneficiary.  The Company accounted for the purchase of these securities of VLI by consolidating VLI into its financial statements from the date of acquisition through September 30, 2008.

The purchase price allocated to the assets and liabilities in April 2007 was as follows:

Assets
Cash	$	83,000
Accounts receivable		1,017,000
Inventory		30,000
Property and equipment		15,000
Other Assets		15,000
Goodwill		6,278,000
Total Assets	$	7,438,000
Liabilities
Accounts payable	$	737,000
Accrued liabilities		725,000
Notes payable		750,000
Total liabilities and equity	$	2,212,000
Net Assets Acquired	$	5,226,000

The Company included in its balance sheet at December 31, 2007 the financial position of VLI and has included VLI’s results of operation for the periods from April, 19, 2007 through December 31, 2007, and September 30, 2008 in our results of operations for the period ended December 31, 2007 and 2008 respectively, while eliminating inter-company balances.

F-40

The following table shows the effect of consolidating VLI into the Company’s financial statements (before inter-company eliminations) as of September 30, and December 31:

	2008		2007
Total assets	$	6,485	$	6,854
Total liabilities		2,558		3,142
Shareholder's equity		3,927		3,712

	For the Nine		For the
	Months Ended		Year Ended
	December 31, 2008		December 31, 2007
Revenue	$	1,718	$	601
Cost of goods sold		1,142		378
Gross profit		576		223
Operating expense		361		1,558
Impairment of Goodwill		-		1,300
Net income (loss)	$	215	$	(2,635	)

In the fourth quarter of 2008, the Company terminated its asset purchase agreement and determined that it was uncertain as to its ability to obtain control of VLI's assets through foreclosure. Accordingly, the Company no longer had a controlling financial interest and deconsolidated VLI as of October 1, 2008. The effect of the deconsolidation on the Company’s  consolidated balance sheet at December 31, 2008 was a reduction in total assets of $2,859,000 (after inter-company eliminations), a reduction in total liabilities of $1,799,000 (after inter-company eliminations), and a reduction in shareholder equity of $1,060,000 (after inter-company eliminations).  The standalone effect of VLI on the Company’s consolidated results of operations, net of inter-company eliminations, for the twelve months ended December 31, 2008 was an increase in revenues of $1,718,000, an increase in cost of goods sold of $1,142,000, an increase in operating expenses of $496,000, an increase in other expenses of 245,000, and a decrease in profit of $165,000.

As part of the deconsolidation of VLI, the Company recorded an impairment charge of $1,600,000 representing the difference between the carrying amount of the Notes and Preferred Stock of VLI and the consideration paid by Ceautamed (See Note 25 – Subsequent Events).  The Company also recorded a gain on deconsolidation of $2,799,000 as a result of the deconsolidation of VLI.  This resulted in a net gain on deconsolidation of $1,199,000.

Rice Science LLC

In December 2007 the Company formed Rice Science, LLC (“RS”), a Delaware LLC with Herbal Science Singapore PTe. Ltd. (“HS”), a Singapore corporation.  The Company formed RS to acquire from HS certain isolates license rights and to commercialize and sell SRB isolates.  NutraCea and HS have an 80% and 20% interest in the operating results, respectively.

The Company made an initial capital contribution to RS in December 2007 of $1,200,000 as specified in the agreement.  HS contributed certain Licenses as their capital contribution with a deemed value of $440,000.  HS has no interest in the initial capital contribution made by NutraCea.  There are no further capital contributions required of either member.

NutraCea holds an 80% interest in RS and therefore accounts for the investment as a fully consolidated subsidiary.  In 2008, RS made payments totaling $400,000 to Herbal Science for on-going research programs to commercialize SRB isolates.  These amounts are included in our consolidated statement of operations under Research and Development expenses.

F-41

Summary financial information for RS as of December 31, 2008 is as follows:

Assets
Cash and equivalents	$	850,000
Intangibles		-
Total Assets	$	850,000
Liabilities and equity
Due to NutraCea	$	50,000
Members Equity:
Members Equity - Herbal Science	$	(80,000	)
Members Equity - NutraCea		880,000
Total liabilities and equity	$	850,000

Rice RX LLC

In December 2007 The Company formed Rice Rx LLC (“RRX”), a Delaware LLC, with Herbal Science Singapore PTe. Ltd. (“HS”), a Singapore corporation.  The Company formed RRX to obtain all of the rights granted to HS with regard to the patentable pharmaceuticals under the license agreement with the Company and HS and to develop, patent, own, market, distribute, and otherwise commercialize the patentable pharmaceuticals throughout the territory (entire world).  NutraCea and HS each have a 50% interest in RRX.

Commencing in July 2008, if and to the extent the members determine that capital contributions are necessary, each member agrees to contribute capital of up to $150,000.

In conjunction with the formation of RRX, NutraCea sold to HS, for $300,000 an exclusive license to develop, manufacture and sell certain SRB isolates and identify and commercialize certain patentable pharmaceuticals.   Payment for this license was made in the form of $150,000 cash and the execution of a promissory note payable to NutraCea for $150,000 at the prime rate of interest and due within one year.

            Our investment in RRX is accounted for under the equity method of accounting.  As of December 31, 2008 no capital contributions had been made, and RRX incurred $276,000 in expenses due primarily to research and development costs.

Note 13. Acquisition Pro-Formas

In February, 2008, we acquired 100% of Irgovel (see Note 12 Acquisition and Joint Ventures).  Presented below are the unaudited pro forma results of operations for the twelve month periods ending December 31, 2008 and 2007 presented as though our acquisition of Irgovel had occurred on January 1, 2007.  This summary of unaudited pro forma results of operations is presented for informational purposes only and does not purport to be indicative of the results of future operations of the Company or of the results that would have actually been attained had the acquisition taken place at the beginning of 2007.

F-42

	Twelve Months Ended December 31, 2008			Twelve Months Ended December 31, 2007
	Unaudited			Unaudited
Total revenues	$	38,212,000		$	25,481,000
Net (loss) income available to common shareholders	$	(64,592,000	)	$	(19,294,000	)
Earnings per share
Basic	$	(0.40	)	$	(0.15	)
Diluted	$	(0.40	)	$	(0.15	)
Weighted average shares :
Basic		160,585,000			125,938,000
Diluted		160,585,000			125,938,000

Note 14. Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of trade accounts receivable and notes receivable. The Company performs ongoing credit evaluations on our customers’ financial condition and generally does not require collateral.

For the twelve months ended December 31, 2008, five customers accounted for a total of 28.2% of the Company’s sales: 14.8%, 6.6%, 2.4%, 2.3%, and 2.1% respectively. At December 31, 2008, three of those customers accounted for 28.2% of the Comapny’s accounts receivable: 20.0%, 6.5%, and 1.7%, respectively.  One other customer accounted for more than 3% of the total accounts receivable.   This customer accounted for 3.5% of the total accounts receivable.

For the twelve months ended December 31, 2007, five customers accounted for a total of 29.4% of the Company’s sales: 7.8%, 7.5%, 5.5%, 4.7%, and 3.9% respectively.  At December 31, 2007, three of those customers accounted for 21.6% of total accounts receivable: 9.2%, 8.4% and 4.0%, respectively.  Seven other customers accounted for 32.6% of the total accounts receivable, 7.8%, 5.4%, 4.4%, 4.2%, 4.1%, 3.6% and 3.1% respectively. No other customer accounted for more than 3% of the total accounts receivable.

For the twelve months ended December 31, 2006, one customer accounted for a total of 48.7% of sales. At December 31, 2006, accounts receivable due from this customer was 62.7% of the total outstanding accounts receivable. Four other customers accounted for 24% of the total accounts receivable, 10.2%, 6.5%, 3.8% and 3.6% respectively.  No other customer accounted for more than 3% of the total accounts receivable.

Accounts receivable:

We maintain an allowance for doubtful accounts on our receivables based upon expected collection of all accounts receivable.  A summary of the activity in the allowance for doubtful accounts as of December 31 is summarized in the following table:

	2008		2007
			(Restated)
Balance, beginning of period	$	20,000	$	20,000
Provision for allowance for doubtful accounts charged to operations		345,000		384,000
Losses charged against allowance		-		(384,000	)
Balance, at end of period	$	365,000	$	20,000

F-43

Bad debt expense:

The Company continuously monitors collections from our customers and maintains an allowance for doubtful accounts based upon our historical experience and any customer collection issues that the Company has identified. As of December 31, 2008 and 2007, the Company recorded bad debt expense of $2,222,000 and $254,000 respectively, while the allowance for doubtful accounts was $365,000 and $20,000 respectively.  The Company continues to evaluate our credit policy to ensure that the customers are worthy of terms and will support our business plans.

Note 15. Notes Payable and Long-Term Debt

In October 2007 we executed a promissory note with the lessor of our new West Sacramento warehouse.  The value of the note was $105,000 at 8% interest payable monthly over four years for the build-out of tenant improvements.

In December 2008 we entered into a credit arrangement with Wells Fargo Bank, NA. (“Wells Fargo”)  The credit arrangement consists of three separate credit facilities as follows:

· A revolving $2,500,000 for working capital which bears interest at prime plus 2.5% and matures on November 30, 2011.  At December 31, 2008 the balance due on this credit line was $0.

· A real estate loan of $5,000,000 for general business purposes which bears interest at prime plus 3.0% and matures on December 31, 2018.  At December 31, 2008 the balance due on this loan was $5,000,000 of which $1,500,000 is held as restricted cash.

· A term loan of $2,500,000 for general business purposes which bears interest at prime plus 3.0% and matures on November 30, 2011.  We may draw on this loan on or before June 30, 2010 on the condition that NutraCea has a positive cash flow for three consecutive quarters and is current with its trade vendors.  At December 31, 2008 the balance due on this loan was $0.

The above credit facilities are secured by the Phoenix, Arizona manufacturing building and all personal property of NutraCea other than NutraCea’s intellectual property. NutraCea may terminate any of the above facilities at any time upon 90 days notice, subject to payment of fees and repayment of the outstanding credits.  NutraCea may terminate the above facilities at any time less than 90 days notice, subject to a payment of a penalty, payment of fees and repayment of the outstanding credits.  Wells Fargo may terminate the facilities at any time upon an event of default as defined in the agreement.  In the event of a default the interest rate will increase to 3.0% above the applicable interest rate for each facility.

On July 9, 2009, NutraCea received a letter from Wells Fargo Bank, N.A. stating that NutraCea (i) has failed to provide audited annual and quarterly financial statements and (ii) allowed a non-permitted lien to be placed on the Monterosa Property (as defined below).  These events constitute an “Event of Default” under the Credit and Security Agreement, dated as of December 18, 2008 between NutraCea and Wells Fargo (the “Agreement”).  Based on these “Events of Default”, Wells Fargo has accelerated the entire principal balance due under the three separate credit facilities as described in NutraCea’s Current Report on Form 8-K filed on December 24, 2008.  NutraCea owes approximately $3.3 million under the credit facilities, which includes principal and interest.  Due to the “Event of Default”, the interest rate will increase to 3.0% above the applicable interest rate for each credit facility.  In addition, Wells Fargo may exercise its right to setoff against NutraCea’s demand deposit account it has with Wells Fargo in order to partially satisfy the amounts due under the credit facilities.  The credit facilities are secured against property owned by NutraCea located at 4502 W. Monterosa Street, Phoenix, Arizona (“Monterosa Property”).

On July 31, 2009, NutraCea and NutraPhoenix, LLC, a wholly-owned subsidiary of NutraCea, entered into a Forbearance Agreement and Amendment to Credit and Security Agreement ("Forbearance Agreement") with Wells Fargo. The Forbearance Agreement relates to credit facilities under a Credit and Security Agreement dated as of December 18, 2008 (“Credit Agreement”).

F-44

The Forbearance Agreement identifies certain existing defaults under the Credit Agreement and provides that Wells Fargo will forbear from exercising its rights and remedies under the Credit Agreement on the terms and conditions set forth in the Forbearance Agreement, until the earlier of January 31, 2010 or until the date that any new default occurs under the Credit Agreement.  In addition, by October 31, 2009, NutraCea must obtain a cash infusion of at least $1,250,000 in the form of equity, subordinated debt or asset sale to be used as working capital.

The Forbearance Agreement increased the interest rates applicable to each credit facility to the default rates under the Credit Agreement, which is 3.0% above the applicable interest rate for each credit facility.  In addition, the Forbearance Agreement amended the Credit Agreement by (i) decreasing the maximum amount advanced under the line of credit to $1,500,000 from $2,500,000, (ii) terminating the term loan, and (iii) and terminating any obligations Wells Fargo has to make any further advances to NutraCea in connection with the real estate loan.  Pursuant to the Forbearance Agreement, NutraCea agreed to deliver to Wells Fargo a first priority lien on certain real property located in Dillon, Montana.  As a result of signing the forbearance agreement our default was cured through January 31, 2010.

The Company has determined it is probable that we will not be in compliance with the terms of the Forbearance agreement as of October 31, 2009, and therefore the entire loan balance has been classified as a current liability.

In December 2008 we entered into a purchase agreement to acquire a customer list (“Customer List Purchase Agreement”) for $3,100,000.  The company paid $1,000,000 at the time of purchase and the remaining principal amount of $2,100,000 accrued interest at a rate of 8% per annum and was due in twelve quarterly payments of $175,000 beginning March 1, 2009.  The principal balance due as of December 31, 2008 was $1,861,000.

On May 14, 2009 the Company amended the Customer List Purchase Agreement due to NutraCea’s failure to comply with the payment terms of the original agreement.  The Customer List Purchase Agreement was amended to allow NutraCea to continue to take orders from the customers on the list.  The payment schedule was amended to require the Company to pay $90,000 by June 1, 2009 and to have all cash receipts from customers on the list be deposited into a bank account controlled by the seller of the list.  Any profits (amount in excess of the cost of goods sold) generated from the cash receipts will be applied towards the outstanding principal amount.  The quarterly minimum amount required under this amendment is $90,000 beginning June 1, 2009.  The Company is required to fund any shortfall to the minimum quarterly amount.

Irgovel has notes payable for Brazilian federal and social security taxes under a Brazilian government program for taxes, equipment purchases, and working capital.  These notes are payable over periods through July 2018 and bear interest at rates from 6.0% to 21.4%.

F-45

The following table summarizes the Company’s current and long-term portions of notes payable and long-term debt as of December 31:

	2008		2007
Current Portion
NutraCea
Loan for tenant improvements	$	24,000	$	23,000
Purchase of customer list		581,000		-
Real estate loan - Wells Fargo		5,000,000		-
NutraCea total current portion		5,605,000		23,000
Irgoval
Equipment financing		155,000		-
Special tax program		399,000		-
Irgoval total current portion		554,000		-
Total current portion	$	6,159,000	$	23,000
Long-term portion, net of current portion
NutraCea
Loan for tenant improvements		52,000		77,000
Purchase of customer list		1,280,000		-
NutraCea total notes payable		1,332,000		77,000
Irgoval
Equipment financing		92,000		-
Special tax program		3,293,000		-
Irgoval total notes payable		3,385,000		-
Total long-term portion, net of current portion	$	4,717,000	$	77,000
Total notes payable and long-term debt	$	10,876,000	$	100,000

Covenants

The Credit agreements with Wells Fargo require the Company to maintain certain compliance and financial covenants.  In the event of a default the repayment of facilities is accelerated.  As of December 31, 2008 we were in default of the following covenants:

The Company (i) failed to provide audited annual and quarterly financial statements and (ii) allowed a non-permitted lien to be placed on the Monterosa Property.  

The following table summarizes the Company’s required minimum payments as of December 31, 2008:

2009	$	6,159,000
2010		1,135,000
2011		1,089,000
2012		400,000
2013		400,000
Thereafter		1,693,000
Total	$	10,876,000

F-46

Note 16. Restricted Cash

Under certain agreements the Company is required to maintain restricted cash balances in order to satisfy future obligations.  The following amounts are held in interest-bearing accounts as of December 31:

	2008		2007
Corporate office lease	$	448,000	$	448,000
Grainovation purchase escrow		-		310,000
Irgovel purchase escrow		1,905,000
Total current portion		2,353,000		758,000
Corporate office lease		1,344,000		1,791,000
Wells Fargo collateral		1,500,000		-
Total non-current portion		2,844,000		1,791,000
Total restricted cash	$	5,197,000	$	2,549,000

Note 17. Income Taxes

Income tax expense consisted of the following components:

	2008		2007		2006
Current:
Federal	$	-	$	-	$	-
State		41,000		20,000		5,000
Foreign		23,000		-		-
Total Current		64,000		20,000		5,000
Deferred:
Federal		-		-		-
State		-		-		-
Foreign		-		-		-
Total Deferred		-		-		-
Total income tax expense	$	64,000	$	20,000	$	5,000

Tax expense consisting of income, franchise and capital taxes for the years ended December 31, 2008, 2007 and 2006 was of $ 64,000, $20,000, and $5,000, respectively.

F-47

Deferred tax assets (liabilities) are comprised of the following at December 31:

	2008			2007 (Restated)
Net operating loss carry forward	$	31,242,000		$	22,512,000
Allowance for doubtful accounts		135,000			1,132,000
Marketable securities		-			-
Stock options and warrants		280,000			40,000
Intangible assets		(1,085,000	)		(622,000	)
Property, plant and equipment		(1,466,000	)		(1,343,000	)
Capitalized expenses		843,000			128,000
Merger expenses		20,000			70,000
Other		2,005,000			175,000
		31,974,000			22,092,000
Less: Valuation allowance		(31,974,000	)		(22,092,000	)
Total deferred tax	$	-		$	-
Basis difference in foreign subsidiary	$	4,187,000		$	-
Total deferred tax liability	$	4,187,000		$	-

Deferred taxes arise from temporary differences in the recognition of certain expenses for tax and financial reporting purposes. We have determined it is more likely than not that some portion or all of the deferred tax assets will not be realized. Accordingly we have provided a full valuation allowance for deferred tax assets. Our valuation allowance include certain foreign and state deferred tax assets in the amount of $3,000,000 that will result in a reduction to goodwill if such deferred tax assets are ever realized.

As of December 31, 2008, 2007 and 2006, net operating loss carry-forwards were approximately $81,831,000, $55,957,000, and $42,734,000, respectively, for federal tax purposes that expire at various dates from 2011 through 2022 and $59,445,000, $33,596,000, and $26,002,000, respectively for state tax purposes that expire in 2010 through 2017.

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

The Company is subject to taxation in the U.S. and various states. We record liabilities for income tax contingencies based on our best estimate of the underlying exposures.  The Internal Revenue Services (“IRS”) has commenced an audit of our fiscal 2007 tax return in January 2009. We currently cannot estimate the impact of such audit by the IRS. We are open for audit by the U.S. Internal Revenue Service and U.S. state tax jurisdictions from our inception in 1998 to 2006.

F-48

The provision for income taxes differs from the amount computed by applying the U.S. federal statutory tax rate (34%) to income taxes as follows for the year ended December 31:

	2008			2007 (Restated)
Income tax (benefit) expense at federal statutory rate	$	(21,978,000	)	$	(6,081,000	)
Increase (decrease) resulting from:
State tax expense (benefit), net of federal tax effect		(1,368,000	)		1,403,000
Change in valuation allowance		9,882,000			8,008,000
Goodwill impairment		13,271,000			442,000
True up to tax return		(361,000	)		(102,000	)
Foreign and state cash taxes		23,000			-
Other, net		595,000			(3,670,000	)
	$	64,000		$	-

A summary of the activities associated with our FIN 48 reserve for unrecognized tax benefits, interest and penalties follow (in thousands):

	Unrecognized
	Tax Benefit
Balance at January 1, 2007	$	-
Increase related to current year tax positions		-
Expiration of statute of limitations for the assessment of taxes		-
Other		-
Balance at December 31, 2007		-
Increase related to current year tax positions		-
Expiration of statute of limitations for the assessment of taxes		-
Other		-
Balance at December 31, 2008	$	-

The Company adopted the provisions of FIN 48, Accounting for Uncertainty in Income Taxes, on January 1, 2007.  The adoption of FIN 48 did not result in the recognition of a cumulative effect of adoption of a new accounting principle adjustment.  

Note 18. Commitments and Contingencies

Employment contracts

The Company has entered into employment and other agreements with certain executives and other employees that provide for compensation and certain other benefits. These agreements provide for severance payments under certain circumstances.

In the normal course of business, NutraCea periodically enters into employment agreements which incorporate indemnification provisions. While the maximum amount to which NutraCea may be exposed under such agreements cannot be reasonably estimated, the Company maintains insurance coverage, which management believes will effectively mitigate the Company’s obligations under these indemnification provisions. No amounts have been recorded in the Consolidated Financial Statements with respect to the Company’s obligations under such agreements.

F-49

Leases

The Company leases certain properties under various operating lease arrangements that expire over the next twenty four years. These leases generally provide the Company with the option to renew the lease at the end of the lease term.

Future minimum payments under these commitments at December 31, 2008 are as follows:

2009	$	1,605,000
2010		1,632,000
2011		1,655,000
2012		1,597,000
2013		1,649,000
Thereafter		5,033,000
Total	$	13,171,000

The Company made lease expense of $1,774,000, $1,079,000, and $124,000 for the years ended December 31, 2008, 2007 and 2006, respectively.

Litigation

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 the Company 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 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 the Company, in addition to moral damages as determined in the court’s discretion.

The Company believes 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 the Company on January 31, 2008 (“Purchase Agreement”) and, consequently, that the responsibility for any indemnity, costs and expenses incurred or that may come to be incurred by Irgovel and/or the Company in connection with the above lawsuit is the sole responsibility of the Sellers.

On February 6, 2009, the Sellers filed a collection lawsuit against the Company seeking payment of the second installment of the purchase price under the Purchase Agreement, which was indicated by the Sellers to be approximately $853,000.  The Company is holding back payment of the second installment until the resolution of the Resyng lawsuit noted above.  The Company has not been served with any formal notices in regard to this matter so far.  In addition, the Purchase Agreement requires that all disputes between the Company and the Sellers are subject to arbitration. As part of the purchase agreement $2,022,000 was deposited into an escrow account to cover contingencies and was payable to the sellers upon resolution of all contingencies.  The Company believes any payout due to the lawsuit will be made out of the escrow account.  As of December 31, 2008 the balance in the escrow account is $1,905,000.  The Company believes that there is no additional material exposure as the amounts will be paid out of the escrow account.

Shareholder Class Action

On February 27, 2009, a shareholder securities class action was filed against the Company and certain of its current and former officers and directors in the U.S. District Court for the District of Arizona.  The class action is purportedly brought on behalf of a class consisting of all persons who purchased common stock of NutraCea between August 14, 2007 and February 23, 2009.  The Complaint alleges that the Company filed material misstatements in publicly disseminated press releases and SEC filings misstating the Company’s financial condition during the period in question.

F-50

On April 27, 2009, a second shareholder securities class action was filed against the Company and certain of its current and former officers and directors in the U.S. District Court for the District of Arizona.  The class action is purportedly brought on behalf of a class consisting of all persons who purchased common stock of NutraCea between April 2, 2007 and February 23, 2009.  The Complaint alleges that the Company filed material misstatements in publicly disseminated press releases and SEC filings misstating the Company’s financial condition during the period in question.

On May 29, 2009, the court presiding over the first filed case consolidated these two actions into one.

On July 1, 2009, lead plaintiff filed a consolidated class action complaint, alleging that NutraCea and the individual defendants made false and misleading statements in NutraCea’s financial statements and seek unspecified monetary damages and other relief against the defendants.  Defendants moved to dismiss this complaint on August 3, 2009.  On August 14, 2009, lead plaintiff filed a motion for leave to amend the consolidated class action complaint.  On September 25, 2009, the court granted plaintiff’s motion to amend and denied defendants’ motion to dismiss as moot in light of the amended complaint.  Motions to dismiss the amended complaint were filed on October 7, 2009.

Management intends to vigorously defend the litigation.  While it is possible that the Company may incur a loss related to the above matter, this suit is in its beginning phases and the amount of loss exposure is not estimable.

Shareholder Derivative Action

In addition to the shareholder class actions, on March 30, 2009 and May 9, 2009, two shareholder derivative lawsuits were filed by persons identifying themselves as shareholders of the Company and purporting to act on its behalf, naming the Company as a nominal defendant and naming its former Chief Executive Officer and its current Board of Directors as defendants.

In these actions, the plaintiffs assert claims against the individual defendants for breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets, and unjust enrichment based on the alleged wrongful conduct complained of in the Federal Action described above.  All of these claims are purportedly asserted derivatively on the Company’s behalf and the plaintiffs seek no monetary recovery against the Company.  The plaintiffs seek, among other relief, disgorgement of all profits, benefits, and compensation received from the individual defendants and plaintiffs’ attorneys’ fees and costs.

By an order entered on June 3, 2009, the superior court consolidated these two cases into one action captioned In re:  NutraCea Derivative Litigation, Case No. CV2009-051495.  Although the parties entered into a stipulation staying the derivative action, the court has ordered that the matter proceed and the parties are discussing a briefing schedule.

Management intends to vigorously defend the litigation.  While it is possible that the Company may incur a loss related to the above matter, however, this suit is in its beginning phases and the amount of loss exposure is not estimable.

SEC Enforcement Investigation

The Company received a letter from the SEC in January 2009 indicating that it had opened an informal inquiry, and the Company subsequently received an informal request for the production of documents in February 2009 relating to a number of 2007 transactions.  In March 2009 the Company received a Formal Order of Private Investigation from the SEC. In June 2009, the Company received a subpoena for the production of documents that largely tracked the SEC’s earlier requests.  The Company has responded to these requests for documents and based on findings related to the internal review and the SEC’s requests, the Company restated its financial statements for 2006, 2007 and the first three quarters of 2008.

F-51

Management intends to vigorously defend the litigation.  While it is possible that the Company may incur monetary penalty associated with the above matter, however, there is not sufficient information available to estimate the loss exposure.

W.D. Manor Mechanical Contractors, Inc. and Related Matters

On April 30, 2009, W.D. Manor Mechanical Contractors, Inc. (“W.D.”) filed a complaint against NutraPhoenix, LLC, the Company and other unrelated defendants in Superior Court of Arizona, Maricopa County (CV2009-013957) arising out of the construction of a facility in Phoenix, Arizona that is owned by NutraPhoenix, LLC and at which the Company is the tenant.  W.D. seeks to foreclose a mechanic’s lien and alleges unjust enrichment arising out of the alleged non-payment of $399,589 in regard to labor and materials allegedly performed/provided by W.D.  The Company and NutraPhoenix, LLC are attempting to negotiate a settlement. The Company is subject to various related claims from sub-contractors totaling to $437,000. These claims have been accrued and expensed in our consolidated financial statements as of December 31, 2008. The settlement of these claims is expected to be equal or less than the accrued amount.

Halpern

On January 21, 2009, Halpern Capital Inc, filed a complaint against NutraCea in the Circuit Court of the Eleventh Judicial Circuit in Miami-Dade County, Florida (Case No: 09-04688CA06) arising out of a financial advisory and investment banking relationship.  The two parties have reached a tentative confidential settlement agreement which includes cash payment and warrants. The total value of the expected settlement was accrued in our Consolidated Financial Statements as of December 31, 2008.

Famers’ Rice Milling

Farmers’ Rice Milling (“FRM”) contends that the Company has defaulted by failing to pay the rentals due under two leases between the parties: (i) March 15, 2009 ground lease, as amended by November 1, 2008 and (ii) April 15, 2007 Warehouse lease (collectively the “Leases”).  FRM seeks to terminate the Leases and recover both back and future rent there under. The Company has filed an Answer and Counterclaim and deposited into the registry of the court the sum of $60,425 constituting the rental due under both the Leases, a late fee due under the Warehouse lease plus accrued interest.  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, Lakes Charles division where it is presently pending.

Management believes that it has meritorious defenses and plans on defending the suit vigorously. Management has not accrued an estimated loss. However, if FRM prevails in the case, the Company will lose the building and permanent fixtures which cannot be removed, totaling approximately $ 3,377,000 as of December 31, 2008.

In addition to the matters discussed above, from time to time the Company is involved in litigation incidental to the conduct of the Company’s 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 the Company’s financial position or results of operations.

Note 19.  Segment Information

The Company has two reportable segments; NutraCea, which manufactures and distributes ingredients primarily derived from SRB, and Irgovel, our rice-bran oil manufacturing subsidiary in Brazil.  Operating results for the twelve months ended December 31 (the period for Irgovel is from February 18, 2008 through December 31, 2008) and summary financial information as of December 31 for the segments is presented in the following table:

F-52

	2008
	Corporate (1)			NutraCea			Irgovel			Consolidated
Net Revenue	$	-		$	15,023,000		$	20,201,000		$	35,224,000
Cost of Goods Sold		-			14,633,000			15,783,000			30,416,000
Gross Margin		-			390,000			4,418,000			4,808,000
Depreciation & Amortization		1,924,000			106,000			704,000			2,734,000
Impairment of Goodwill		-			33,231,000			-			33,231,000
Impairment of Investment-PIN		-			3,996,000			-			3,996,000
Gain on VLI deconsolidation		-			(1,199,000	)		-			(1,199,000	)
Other operating expenses		21,898,000			4,727,000			3,079,000			29,704,000
Gain/(Loss) from Operations		(23,822,000	)		(40,471,000	)		635,000			(63,658,000	)
Interest Expense		(315,000	)		-			(413,000	)		(728,000	)
Other Income/(Expense)		(173,000	)		-			(29,000	)		(202,000	)
Net Income/(Loss) before taxes		(24,310,000	)		(40,471,000	)		193,000			(64,588,000	)
Income tax expense		-			(41,000	)		(23,000	)		(64,000	)
Minority interests		-			80,000			-			80,000
Net (loss) income to common shareholders	$	(24,310,000	)	$	(40,432,000	)	$	170,000		$	(64,572,000	)
Plant, Property & Equipment	$	4,098,000		$	38,209,000		$	14,676,000		$	56,983,000
Goodwill	$	-		$	354,000		$	5,225,000		$	5,579,000

	2007
	Corporate (1)			NutraCea			Consolidated
Net Revenue	$	-		$	12,726,000		$	12,726,000
Cost of Goods Sold		-			8,883,000			8,883,000
Gross Margin		-			3,843,000			3,843,000
Depreciation & Amortization		899,000			285,000			1,184,000
Impairment of Goodwill		-			1,300,000			1,300,000
Impairment of Investment-PIN		-			-			-
Gain on VLI deconsolidation		-			-			-
Other operating expenses		18,918,000			4,027,000			22,945,000
Gain/(Loss) from Operations		(19,817,000	)		(1,769,000	)		(21,586,000	)
Interest Expense		(1,000	)		-			(1,000	)
Other Income/(Expense)		3,631,000			-			3,631,000
Net Income/(Loss) before taxes		(16,187,000	)		(1,769,000	)		(17,956,000	)
Income tax expense		-			(20,000	)		(20,000	)
Minority interests		-			-			-
Net (loss) income to common shareholders	$	(16,187,000	)	$	(1,789,000	)	$	(17,976,000	)
Plant, Property & Equipment	$	2,626,000		$	17,286,000		$	19,912,000
Goodwill	$	-		$	39,510,000		$	39,510,000

(1) Includes corporate general and administrative expenses, litigation settlements, amortization of intangible assets, and other expenses not directly attributable to segments.

F-53

The following table presents net revenues and long-lived assets by geographic area:

	2008		2007		2006
Net revenue from customers:
United States	$	13,638,000	$	11,781,000	$	16,284,000
Brazil		18,977,000		-		-
Other International		2,609,000		945,000		255,000
Total Revenues	$	35,224,000	$	12,726,000	$	16,539,000
Property, plant and equipment, net:
United States	$	42,307,000	$	19,912,000	$	8,961,000
Brazil		14,676,000		-		-
Total property, plant and equipment, net	$	56,983,000	$	19,912,000	$	8,961,000

Note 20. Preferred and Common Stock

Convertible Series D Preferred Stock

During October 2008, the Company issued to two institutional investors, for the purchase price of $5,000,000, shares of our Series D Convertible Preferred Stock ("Preferred Stock") and five-year warrants to purchase up to 4,545,455 shares of NutraCea Common Stock. The securities were offered in "units" at a price of $1,000 per unit.  The units immediately separated upon issuance.  Each unit consisted of one share of Preferred Stock convertible into 1,818.18 shares of Common Stock at a conversion price per share of Common Stock of $0.55, and a warrant to purchase 909.09 shares of NutraCea Common Stock at an exercise price of $0.55 per share. The investors also received additional warrants that grant them the right, for a period of 60 days after the initial issuance, to purchase an additional $5,000,000 of Preferred Stock and associated warrants on the same terms as the initial issuance.  The investors did not exercise this right. For the sale of 5,000 units we received an aggregate of $4,500,000 net of fees and expenses.

The Preferred Stock is considered to be a financial instrument that is a mandatorily redeemable security, and as such, should be measured at fair value and classified, recorded, and presented as a liability in the financial statements.   Additionally, hybrid financial instruments meeting certain criteria are recorded at fair value and the return paid to the holders as interest expense rather than dividends. Holders of the preferred stock shall have no voting right except as required by applicable law and have a liquidation preference of $5,000,000. The shares of Preferred Stock were issued pursuant to the exemption set forth in Section 4(2) of the Securities Act. There is no established public trading market for the Preferred Stock.

The Preferred Stock accrues preferred dividends at 8% per annum. These dividends are payable quarterly in arrears, commencing on January 1, 2009. Subject to the satisfaction of certain conditions, the dividends are payable in shares of NutraCea Common Stock, but may be paid in cash at NutraCea's election along with a 10% penalty. On December 31, 2008, we paid to the investors $82,417 in cash representing the preferred dividends amount for the period October 17 to December 31, 2008.

NutraCea will redeem all of the Preferred Stock (unless converted) in nine equal monthly installments commencing on February 1, 2009. The redemption amount is payable in shares of NutraCea Common Stock, but may be paid in cash at NutraCea's election. The conversion price and the exercise price for the warrants are each subject to anti-dilution adjustments upon certain stock issuances at a price per share less than the conversion price. Subject to certain limitations, the Company may redeem the Preferred Stock at any time upon 10 days notice at a price equal to 110% of the aggregate stated value of the Preferred Stock being redeemed plus accrued and unpaid dividends thereon.

In December 2008 one investor converted 55 shares of the Preferred Stock into 100,111 shares of the Company’s common stock in accordance with the terms of the Preferred Stock.  At December 31, 2008 there were 4,945 shares of the Preferred Stock outstanding.

F-54

On May 7, 2009, NutraCea entered into and consummated two Exchange Agreements with the holders of its Preferred Stock.  The agreements provided for the cancellation of all of the 2,743 then outstanding shares of its Preferred Stock and outstanding warrants to purchase a total of 4,545,455 shares of its common stock held by these holders (“Prior Warrants”), in exchange for 2,743 shares of its Series E Convertible Preferred Stock (“Series E Preferred Stock”) and new warrants to purchase 4,545,455 shares of its common stock (“New Warrants”).  The terms of the New Warrants are substantially similar to the Terms of the Prior Warrants, except that the per share exercise price of the New Warrants is $0.20 and the termination date of the New Warrants is May 7, 2014. Additionally, the new Series E accelerated the redemption and payment of accrued dividends to three equal monthly installments on June 1, 2009, July 1, 2009 and August 1, 2009 as opposed to the Series D redemption requirements of nine equal monthly installments commencing on February 1, 2009.

As of August 2009 we had redeemed all of the Preferred Stock and paid the related dividends.  The Company issued 24,560,625 shares of Common Stock from February through August 2009 for the redemption of the Preferred Stock including dividends.  Additionally, the Company paid $697,000 in cash in December 2008 and January 2009 for the redemption of the Preferred Stock including dividends.  The total interest expense recorded at fair market value of the Common Shares of Stock and cash issued for the dividends on the Preferred D and E Stock Issued was $1,787,000.

Common Stock

On March 25, 2004, the Company established the NutraCea Patent Incentive Plan, which grants 15,000 shares of common stock to each named inventor on each granted patent, which is assigned to NutraCea. Under the terms of this plan during the year ended December 31, 2004, NutraCea issued 180,000 shares of common stock valued at $239,000. During the year ended December 31, 2005, the Company issued 30,000 shares of common stock value at $13,000.  This plan was terminated in October 2005, concurrent with the RiceX merger.

F-55

Note 21. Stock Options and Warrants

Expense for stock options and warrants issued to consultants is calculated at fair value using the Black-Scholes-Merton valuation method.  The expected term of the warrants granted to non-employees is equal to the contractual term of the option as required. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve at the time of grant.

On October 31, 2003, the Board of Directors approved and adopted the 2003 Stock Compensation Plan and authorized the President of the Company to execute a registration statement under the Securities Act of 1933 for 10,000,000 shares of common stock. As of December 31, 2008, 2007, and 2006, 9,966,207 shares of common stock and no options have been granted under the 2003 Stock Compensation Plan.

The Company’s Board of Directors adopted our 2005 Equity Incentive Plan (“2005 Plan”) in May 2005 and the Company’s shareholders approved the 2005 Plan in September 2005.  Under the terms of the 2005 Plan the Company may grant options to purchase common stock and shares of common stock to officers, directors, employees or consultants providing services to the Company on such terms as are determined by the Board of Directors.  A total of 10,000,000 shares of common stock are reserved for issuance under the 2005 Plan.  As of December 31, 2008 50,000 shares have been issued under the 2005 Plan.  Pursuant to the 2005 plan 1,573,399 shares underlie outstanding stock options and warrants granted and 8,426,601 shares were available for future grants.  The Company Board of Directors administers the 2005 Plan, determines vesting schedules on plan awards and may accelerate their schedules for award recipients.  The 2005 Plan has a term of 10 years and stock options granted under the plan may not have terms in excess of 10 years.  All options will terminate in their entirety to the extent not exercised on or prior to the date specified in the written notice unless an agreement governing any change of control provides otherwise.

The expense, if any, of stock options issued to employees is recognized over the shorter of the term of service or vesting period. The expense of stock options issued to consultants or other third parties are recognized over the term of service. In the event services are terminated early or no specific future performance is required by the Company, the entire amount is expensed.

F-56

The weighted average assumptions used in the pricing model are noted in the table below. The expected term of options is derived using the simplified method, which is based on the average period between vesting term and expiration term of the options. The risk free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. Expected volatility is based on the historical volatility of the Company’s stock over a period commensurate with the expected term of the options. The Company believes that historical volatility is indicative of expectations about its future volatility over the expected term of the options.

For options granted after January 1, 2006, the Company expenses the fair value of the option on a straight-line basis over the vesting period for each separately vesting portion of the award. The Company estimates forfeitures and only recognizes expense for those shares expected to vest. Based upon historical evidence, the Company has determined an expected forfeiture rate ranging from 5% to 10%.

The following are the weighted-average assumptions used in valuing the stock options granted during the year ended December 31 and a discussion of the Company’s assumptions:

	2008			2007			2006
Expected volatility		87.00	%		69.57	%		78.45	%
Risk free interest rate		2.10	%		4.77	%		5.33	%
Expected life of options (in years)		3.5294			5.1626			4.757
Weighted average fair value of options granted	$	1.85		$	3.43		$	1.37
Expected dividends		-			-			-

F-57

The Company has never declared or paid dividends on its common stock and has no plans to pay dividends in the foreseeable future.

A summary of option activity as of December 31, 2008 is presented below:

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
	Warrants			Exercise		Contractual		Intrinsic
	Options/Warrants			Price		Life (Years)		Value
Outstanding at January 1, 2008		41,464,685		$	1.65		4.63	$	20,893,986
Granted		23,203,137		$	1.85
Issued in Anti-Dilution (1)		27,640,989
Cancelled in Anti-Dilution (2)		(22,827,437	)
Exercised		(1,764,002	)	$	0.50			$	2,098,858
Forfeited/Expired		(7,710,138	)	$	2.56
Outstanding at December 31, 2008		60,007,234		$	1.39		3.93	$	1,130,020
Exercisable at December 31, 2008		57,050,977		$	1.38		3.90	$	1,130,020

1. As part of the Private Placement Agreement on October 20, 2008, the Company issued warrants to purchase up to 9,090,010 shares of common stock at $0.55 per share.   The warrants issued in connection with the 2005 financing are entitled to protection against dilutive issuances which may occur prior to the date on which they exercise the Warrants. As a result of NutraCea issuing preferred stock and additional warrants, the exercise price of the Warrants were adjusted and the amount of shares were adjusted.

2. Some of the warrants that are subject to anti dilution required cancellation of the previous warrant and issuance of a new warrant with the anti dilution adjustments included in the new warrant.

The weighted-average grant-date fair value of options granted during 2008 and 2007 was $1.85 and $3.43, respectively. The weighted-average grant-date fair value of options calculated in accordance with FAS 123 granted during 2006 was $1.37.

The total intrinsic value of options exercised during the years ended December 31, 2008, 2007, and 2006 was $2,099,000, $41,645,000, and $23,032,000 respectively.

The total fair value of options vested during the years ended December 31, 2008, 2007, and 2006 was $3,145,000, $2,952,000, and $7,829,000, respectively.

F-58

The Company’s stock options and warrants outstanding, exercisable, exercised and forfeited categorized are as follows:

	Employee and Directors					Consultants and Investors
Stock option and warrant transactions:	Weighted Average Exercise Price		Number of shares			Weighted Average Exercise Price		Number of shares			Total
Outstanding balance January 1, 2006	$	0.34		18,537,465		$	0.75		19,745,894			38,283,359
Granted		1.36		1,600,000			1.35		11,629,411
Forfeited, expired or cancelled		0.32		(693,244	)		0.54		(175,906	)
Exercised		-		-			0.65		(8,155,064	)
Outstanding balance December 31, 2006		0.43		19,444,221			1.03		23,044,335			42,488,556
Exercisable balance December 31, 2006	$	0.35		17,589,504		$	1.01		22,443,726			40,033,230
Outstanding balance January 1, 2007	$	0.43		19,444,221		$	1.03		23,044,335			42,488,556
Granted		2.97		1,319,000			3.47		13,015,000
Forfeited, expired or cancelled		0.68		(1,160,302	)		1.40		(239,940	)
Exercised		0.36		(1,564,679	)		1.06		(12,392,950	)
Outstanding balance December 31, 2007		0.67		18,038,240			2.38		23,426,445			41,464,685
Exercisable balance December 31, 2007	$	0.55		16,628,752		$	2.28		22,852,997			39,481,749
Outstanding balance January 1, 2008	$	0.66		17,052,426		$	2.34		24,412,259			41,464,685
Granted	$	1.04		6,459,476		$	1.06		16,743,661
Issued in anti-dilution						$	2.79		27,640,989
Exercised	$	0.53		(1,433,990	)	$	0.21		(330,012	)
Forfeited, expired or cancelled	$	1.33		(3,267,607	)	$	2.57		(4,442,531	)
Cancelled in anti-dilution						$	3.07		(22,827,437	)
Outstanding balance December 31, 2008	$	0.69		18,860,305		$	1.68		41,146,929			60,007,234
Exercisable balance December 31, 2008	$	0.61		16,782,228		$	1.70		40,268,749			57,050,977

Cash received from warrant and stock options exercises for the years ended December 31, 2008, 2007, and 2006 was $745,000, $9,241,000, and $5,784,000, respectively.

There is no tax effect on the exercise of options in the statement of cash flows because the Company has a full valuation allowance against its deferred income tax assets.

Note 22. Related Party Transactions

2008

Medan, LLC

In March 2008, the Company’s wholly owned subsidiary Medan purchased 9,700 shares of PIN (see Note 12 Acquisition and Joint Venture) from FFOL for $8,175,000. A principal shareholder of FFOL is also a principal shareholder of PAHL. In June 2008, Medan purchased an additional 3,050 shares directly from PIN for $2,500,000 raising the Company’s interest in PIN to 51% of the capital stock in PIN.

Vital Living, Inc.

In September 2008, the Company filed a complaint in Superior Court of Arizona, Maricopa County, alleging that VLI had breached its obligations to the Company under the Notes and the security agreement relating to the notes which the Company had obtained in 2007 (see the year ended December 31, 2007 section of this related party note for additional background).  The Company was seeking, among other things, immediate payment of all outstanding amounts under the Notes and a judgment foreclosing the Company’s security interest in VLI’s assets that secured the Notes.  NutraCea declared an event of default based upon VLI’s written admission to NutraCea that it was unlikely to be able to meet its obligations under the Notes and VLI’s low levels of cash.

F-59

Pursuant to the terms of the Asset Purchase Agreement entered into in September 2007, NutraCea had the right to terminate the Asset Purchase Agreement.  In October 2008, the Company terminated the Asset Purchase Agreement.

In December 2008, the Company wrote off the outstanding principal amounts and accrued interest related to the promissory notes entered into with VLI in 2006 in conjunction with the Supply Agreement and the License Label Agreement (see the year ended December 31, 2006 section of this related party note for additional background).  The total amount of principal written of was approximately $666,000.

2007

In November 2004, the Board of Directors resolved to purchase a new automobile valued at $73,000 for use by Patricia McPeak, the former Chief Executive Officer. Ms. McPeak waived a car allowance in exchange for use of the automobile.  In the fourth quarter of 2007, this automobile was given to Ms. McPeak as part of her separation agreement.  The company recorded a loss of $29,000 on this transaction which is included in our consolidated statements of operations.

In November 2007, the Company reached a separation agreement with our former Chief Executive Officer, Ms. McPeak, and paid her $1,000,000 in severance.  Ms. McPeak in turn, surrendered all rights to any previous patents issued during her tenure with RiceX and NutraCea.  Ms. McPeak also granted the Company the right of first refusal for the benefit of future patent filings for ten years.

Vital Living, Inc.

In April 2007, the Company acquired the outstanding shares of Series D Convertible Stock (“Preferred Stock”) and secured convertible notes (“Notes”) of VLI.  We paid $1,000,000 to VTLV (see the year ended December 31, 2006 section of this related party note for additional background) for the 1,000,000 shares of Preferred Stock.  The Company also paid $1,000,000 to VTLV for Notes having a principal amount of $1,000,000.  The Company paid $1,941,755 to VTLV II (see the year ended December 31, 2006 section of this related party note for additional background) for Notes having a principal amount of $1,941,755.  The Company also purchased from the other holders of the Notes an aggregate amount of $1,284,000 having the principal amount of $1,284,000.  In total, the Company paid $1,000,000 for the Preferred Stock and approximately $4,226,000 for the Notes. The Notes bore interest at a rate of 12% per annum and had certain conversion rights into VLI common stock.  At the time of the acquisition of the Preferred Stock and Notes, the Company was determined to be the primary beneficiary as defined by FIN 46R and therefore began consolidating the financial results of VLI as a variable interest entity.

At the time of the acquisition of the Preferred Stock and Notes, the Company’s Chief Executive Officer and President, Mr. Edson, was the former CEO and President of VLI from May 2001 to January 2004, and the President of the predecessor company of VLI from April 1999 to May 2001.  Mr. Edson is no longer the Company’s CEO and President as of March 2009.

On September 11, 2007, NutraCea and VLI entered into a letter of agreement to eliminate the conversion rights of the Notes.  In addition, the parties agreed that until such time, if any, as NutraCea gives 30 days prior written notice to VLI, VLI may not pay interest under the Notes in shares of VLI common stock without NutraCea’s consent, and that during such time VLI would not be deemed to be in default under the Notes as a result of not paying the accrued interest in such shares.

On September 28, 2007, the Company entered into an Asset Purchase Agreement (“Asset Purchase Agreement”) with VLI.  The Asset Purchase Agreement provided that the Company would purchase substantially all of VLI’s intellectual property and other assets used by VLI and certain subsidiaries in its business, including the rights to nutritional supplements and nutraceutical products that are marketed for distribution to healthcare practitioners.  As part of the transaction, VLI would assign to the Company its rights under various distribution and other agreements relating to the products being acquired.  We would not acquire the inventory, raw materials, cash, or accounts receivable of VLI.

F-60

The purchase price consisted of (i) $1,500,000 to be paid by NutraCea at closing, (ii) cancellation of outstanding indebtedness of VLI, its subsidiaries and certain of its related entities to NutraCea, including all of the Notes, and (iii) cancellation of all of the Preferred Stock of VLI held by the Company.  Completion of the transaction was subject to a variety of customary closing conditions, including, among other things, the approval of the transaction by the stockholders of VLI as a special meeting and the absence of a material adverse effect on the assets between the date of the agreement and the closing date.

Additionally during 2007, the Company entered into a business relationship with Wellness Watchers Global, LLC (“WWG”).  WWG was the major customer and major distributor of VLI accounting for a significant portion of VLI’s sales in 2007.  The Chief Executive Officer of VLI, Stuart Benson, was a 50% shareholder of WWG.  In 2007, we recorded $996,000 in revenues to WWG, and $661,000 in 2008.

2006

Vital Living, Inc.

During the first quarter of 2006, Stuart Benson, VLI’s Chief Executive Officer and Gregg Linn, a former officer of VLI, formed VTLV LLC (“VTLV”) as an acquisition vehicle to purchase a portion of the outstanding Notes and Preferred Stock of VLI from the then current holders of the instruments.  During June 2006, VTLV purchased the Notes, having a principal amount of $1,000,000, and the 1,000,000 shares of Preferred Stock, having a principal amount of $1,000,000, for an aggregate amount of $416,667.  The funds to make this purchase were provided to VTLV as follows: NutraCea ($300,000 as a loan), Mr. Benson ($46,000), Mr. Linn ($46,000), and Scott Wilkinson, the former controller of VLI and at the time the Director of Financial Reporting for NutraCea ($25,000).

In September 2006, the Company entered into a Supply Agreement with VLI whereas NutraCea would supply to VLI and VLI would exclusively purchase from the Company its entire requirement of stabilized rice bran.  The terms of the supply agreement was for five years.  VLI signed a promissory note in the principal amount of $300,000 plus interest which would be paid in 60 consecutive monthly payments of $6,000 beginning on October 1, 2007.  The interest rate on the note was 5% per annum.  A principal payment of approximately $84,000 was received by the Company in the second quarter of 2007, and the remaining principal amount and accrued interest were written off as of December 31, 2008.

During November 2006, Mr. Benson formed VTLV II (“VTLV II”) to purchase additional outstanding Notes having an aggregate principal amount of $1,941,755.  The additional Notes were purchased from their then current holders for $1,076,988. The funds to make this purchase were provided to VTLV II as follows: NutraCea ($250,000 as a loan) and Mr. Benson, VLI’s CEO, ($827,000).

In December 2006, the Company entered into a Label License Agreement (“Label Agreement”) with VLI whereas VLI would have the right to use various NutraCea patents with regards to marketing, distribution, and sale of a joint inflammation product.  VLI signed a promissory note in the principal amount of $450,000 for the purchase of this Label Agreement.  The note bore interest at a rate of 8% per annum, and was to be paid in 36 consecutive monthly payments of $12,500 beginning on September 1, 2007.  No payments were received on the note and the entire principal amount and accrued interest were written off as of December 31, 2008.

Note 23. 401(K) Profit Sharing Plan

At the time of the merger with RiceX, the Company adopted RiceX’s 401(k) profit sharing plan (“Plan”) for the exclusive benefit of eligible employees and their beneficiaries. Substantially all employees are eligible to participate in the Plan. Safe harbor contributions to the Plan are a mandatory 3% of the qualified employees’ gross salary, whether or not the employee is a participant in the Plan. Also, in addition to any safe harbor contributions, the Company may contribute to the Plan matching contributions, discretionary profit sharing contributions and Qualified Non-Elective Contributions. For 2008, 2007 and 2006, the Company made matching contributions of $0 $113,000, and $69,000, respectively. In 2008 our Safe Harbor contribution to the 401(k) plan was $185,000.

F-61

Note 24. Fair Value Measurement

    As defined in SFAS No. 157, Fair Value Measurements (“SFAS No. 157”), 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. In order to increase consistency and comparability in fair value measurements, SFAS No. 157 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:

    Level 1:  Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

    Level 2:  Observable prices that are based on inputs not quoted in active markets, but corroborated by market data.

    Level 3:  Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

    In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.

    Financial assets carried at fair value as of December 31, 2008 are classified in the table below in one of the three categories described above:

	Level 1		Level 2		Level 3		Total
Investment in VLI Sr. Notes and Preferred Stock	$	-	$	-	$	3,626,000	$	3,626,000
Total assets at fair value (1)	$	-	$	-	$	3,626,000	$	3,626,000
(1) The Company chose not to elect the fair value option as prescribed by SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115, for its financial assets and liabilities that had not been previously carried at fair value. Therefore, material financial assets and liabilities not carried at fair value, such as short-term and long-term debt obligations and trade accounts receivable and payable, are still reported at their carrying values.

There has been no change to our level 3 investment as of December 31, 2008.

The financial instruments that trade in less liquid markets with limited pricing information generally include both observable and unobservable inputs.  In instances where observable data is unavailable, we consider the assumptions that market participants would use in valuing the assets.  Such investments are categorized in Level 3 as the inputs generally are not observable.  Our evaluation included assessments of the underlying collateral supported by the subsequent sale of the investment to Ceautamed, and discounted cash flow of VLI product business.

Note 25. Subsequent Events

In January and February, 2009 the Company issued to three employees options to purchase a total of 80,000 shares of common stock with vesting periods of five years.  The options expire in five years and have exercise prices per share of $0.70.

In January 2009 NutraCea received a letter from the SEC indicating that it has opened an informal inquiry, and also received a subsequent request for documents in February 2009 requesting that NutraCea voluntarily produce documents relating to several of transactions, including the transactions mentioned in Note 2 – Audit Committee Review and Restatement of Consolidated Financial Statements.  NutraCea voluntarily reported to the SEC that the Audit Committee was conducting an internal review of certain matters.  In February 2009 the Company was further advised by the SEC that the status of their inquiry had been changed to a formal investigation.  

On March 9, 2009, NutraCea entered into an employment severance agreement (“Severance Agreement”) with Bradley D. Edson pursuant to which the parties set forth the terms of Mr. Edson’s departure from the Company. As set forth in the Severance Agreement, Mr. Edson resigned from his positions as Chief Executive Officer, President and Director of the Company effective as of March 9, 2009. Under the Severance Agreement, the Company will pay Mr. Edson: (1) an amount equal to six months’ salary, or $156,050, with $78,025 payable on March 9, 2009 and the remaining half payable in three equal consecutive monthly payments beginning on April 1, 2009; (2) COBRA payments until October 31, 2009, and (3) $15,000 per month for two months for consulting services provided by Mr. Edson. The Severance Agreement does not affect Mr. Edson’s stock options, warrants or other stock acquisition rights which shall vest and/or terminate pursuant to their terms.

On March 9, 2009, the Company appointed James C. Lintzenich as Interim Chief Executive Officer.  Mr. Lintzenich will be paid a salary of $15,000 per month to serve in this capacity. As no written agreement exists, Mr. Lintzenich’s monthly pay is the only material term of his employment arrangement.

On March 29, 2009, NutraCea executed a term sheet (“Exchange Term Sheet”) with Cranshire Capital, LP (“Cranshire”) relating to the proposed exchange by NutraCea of shares of a newly created series of convertible preferred stock and warrants to purchase common stock for the Series D Convertible Preferred Stock and warrants to purchase common stock currently held by Cranshire.

On March 29, 2009, NutraCea executed a term sheet with Cranshire (“Financing Term Sheet”) relating to the proposed sale by NutraCea to Cranshire of a secured convertible note in the amount of $1,000,000 and warrants to purchase common stock.

On May 7, 2009, NutraCea entered into and consummated two Exchange Agreements (“Exchange Agreements”) with holders of its Series D Convertible Preferred Stock (“Series D Preferred Stock”), relating to the exchange by NutraCea of the issued and outstanding shares of its Series D Preferred Stock, and warrants to purchase 4,545,455 shares of its common stock (“Prior Warrants”), in exchange for 2,743 shares of its Series E Convertible Preferred Stock (“Series E Preferred Stock”) and warrants to purchase 4,545,455 shares of its common stock (“New Warrants”). The New Warrants have an exercise price of $0.30 per share of common stock.  The New Warrants may be exercised at any time immediately through May 7, 2014.  

On May 7, 2009 NutraCea filed a Certificate of Determination, Preferences and Rights of the Series E Convertible Preferred Stock of NutraCea (“Certificate of Determination”) with the Secretary of State of the State of California establishing the Series E Preferred Stock in connection with the offering and exchange of the Series E Preferred Stock pursuant to Section 3(a)(9) of the 1933 Act. The Series E Preferred Stock accrues a 7% per annum preferred dividend.  All shares of capital stock of NutraCea are junior in rank to the Series E Preferred Stock with respect to preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding up of NutraCea.  In the event of liquidation, dissolution or winding up of NutraCea, the holders of Series E Preferred Stock are entitled to receive in cash out of the assets of NutraCea before any amount is paid to holders of the capital stock of NutraCea of any class junior in rank to the Series E Preferred Stock an amount per share equal to 135% of the purchase price paid for such Series E Preferred Stock, subject to adjustment as provided in the Certificate of Determination.  The Series E Preferred Stock is subject to redemption in cash by NutraCea in three equal installments over three months commencing on June 1, 2009 (each, a “Redemption Date”), subject to certain limitations as set forth in the Certificate of Determination, at a price equal to 110% of the aggregate stated value of the Series E Preferred Stock being redeemed plus accrued and unpaid dividends thereon.  If not redeemed in cash on the applicable Redemption Date, the applicable Series E Preferred Stock shall be automatically converted into common stock in accordance with the terms and conditions of the Certificate of Determination. 

F-62

By August of 2009 the Company had redeemed all of the Series E Preferred Stock and paid the related dividends. The Company issued 24,560,625 shares of Common Stock from February through August 2009 for the redemption of the Preferred Stock including dividends.  Additionally, the Company paid $697,000 in cash in December 2008 and January 2009 for the redemption of the Preferred Stock including dividends/interest.  The total interest expense recorded at fair market value of the Common Shares of Stock and cash issued for the dividends on the Preferred D and E Stock Issued was $1,787,000.

On June 17, 2009, NutraCea entered into a binding letter of intent (“LOI”) with Ceautamed Worldwide, LLC (“Ceautamed”), with respect to the acquisition by Ceautamed of the following:  (1) senior secured convertible promissory notes that VLI issued to various investors in December 2003 in the principal amount of approximately $4,226,446 and which NutraCea purchased for an aggregate purchase price of $4,226,446; (ii) 1,000,000 shares of VLI’s Series D Preferred Stock, which NutraCea purchased for $1,000,000; (iii) all of the rights of NutraCea in the action entitled NutraCea, Inc. v. Vital Living, Inc. in the Superior Court of Arizona, Maricopa County; and (iv) all of the rights of NutraCea under the security agreements granting a senior security interest in all existing and later acquired assets of VLI.

In consideration for the above, Ceautamed shall pay to NutraCea $3,600,000 plus a contingent amount based on Ceautamed’s gross earnings and revenues.  The purchase price is payable as follows:  $200,000 deposit that was paid to NutraCea on July 29, 2009 and the issuance by Ceautamed of a promissory note in the principal amount of $3,400,000 which shall be paid in 34 consecutive principal monthly installments of $100,000 beginning on August 15, 2009 with the interest to be paid in equal payments over two months following the final principal payment.  The interest rate for the note will be equal to the prime lending rate plus 1% but at no time will the rate be less than 2.5% or greater than 6%.  Following the three year anniversary of the closing of the definitive agreement and for a total term of 120 months, Ceautamed agrees to pay to NutraCea monthly payments equal to 10% of the gross earnings and revenues of Ceautamed (“Earn out”).  Each monthly payment under the promissory note and Earn Out shall be paid directly from a lockbox account that Ceautamed agrees to establish.  The promissory note and the Earn Out shall be secured by a first priority security interest in all of the assets in Ceautamed and the assets owned by VLI.  Upon the closing of the definitive agreement, Ceautamed will execute a stipulated judgment which will provide for immediate and final foreclosure of all the collateral in favor of NutraCea and obligate immediate repayment of any deficiencies in the payment of amounts due under the promissory note or Earn Out and will be filed in the event of Ceautamed’s default under the agreement.

On August 1, 2009, Ceautamed entered into a strict foreclosure agreement with VLI giving Ceautamed substantially all of the assets and business operations of VLI and its subsidiaries to Ceautamed. Upon execution and delivery of the bill of sale under the strict foreclosure agreement, Ceautamed executed and filed on September 29, 2009 with the Court the Stipulation to Dismiss the Lawsuit.  As of September 29, 2009 Ceautamed’s payments and contractual commitments to NutraCea pursuant to this agreement are current.

On July 6, 2009, W. John Short was appointed as President of NutraCea effective July 6, 2009.  Mr. Short and NutraCea entered into an employment agreement on July 6, 2009 which was amended on July 7, 2009 (“Employment Agreement”).  The Employment Agreement has a term ending on June 30, 2012, with the term extended automatically for successive one-year terms unless either party notifies the other in writing at least 180 days prior to the expiration of the then-effective term of such party’s intention not to renew the Employment Agreement.  

F-63

On July 9, 2009, Olga Hernandez-Longan resigned as Chief Financial Officer of NutraCea effective as of July 31, 2009.  

On July 9, 2009, NutraCea received a letter from Wells Fargo Bank, N.A. (“Wells Fargo”) stating that NutraCea (i) had failed to provide audited annual and quarterly financial statements and (ii) allowed a non-permitted lien to be placed on the Monterosa Property (as defined below).  These events constitute an “Event of Default” under the Credit and Security Agreement, dated as of December 18, 2008 between NutraCea and Wells Fargo (the “Agreement”).  Based on these “Events of Default”, Wells Fargo has accelerated the entire principal balance due under the three separate credit facilities as described in NutraCea’s Current Report on Form 8-K filed on December 24, 2008.  NutraCea owes approximately $3.3 million under the credit facilities, which includes principal and interest.  Due to the “Event of Default”, the interest rate was increased to 3.0% above the applicable interest rate for each credit facility.  In addition, Wells Fargo may exercise its right to setoff against NutraCea’s demand deposit account it has with Wells Fargo in order to partially satisfy the amounts due under the credit facilities.  The credit facilities are secured against property owned by NutraCea located at 4502 W. Monterosa Street, Phoenix, Arizona.

On July 23, 2009, Medan, a wholly owned subsidiary of NutraCea, entered into a Stock Purchase Agreement with FFOL to sell 12,750 shares of capital stock of PIN to FFOL, which shares represent 51% of the currently issued and outstanding capital stock of PIN (the “Agreement”).  Pursuant to the Agreement, FFOL agreed to pay $1,675,000 to Medan for the shares, thus completely liquidating NutraCea’a ownership in PIN.  

Effective July 27, 2009, NutraCea announced the appointment of William J. (Bill) Cadigan as Vice President - Finance. Mr. Cadigan is a partner with Tatum, LLC, a nationwide executive services firm and has served in numerous business and financial executive positions and interim chief financial officer roles throughout his 30 year career. Mr. Cadigan will report to John Short and will have direct responsibility for all financial and administrative matters of the Company. Following the completion of the Company's 10K and 10Q filings, Mr. Cadigan is expected to be appointed Chief Financial Officer of NutraCea.

On July 28, 2009, NutraCea and Leo Gingras, Chief Operating Officer of the Company, entered into an employment agreement extending the term of Mr. Gingras’ prior employment agreement to June 30, 2012 as well as setting forth revised terms and conditions to Mr. Gingras’ employment.

On July 31, 2009, NutraCea and NutraPhoenix, LLC, a wholly-owned subsidiary of NutraCea, entered into a Forbearance Agreement and Amendment to Credit and Security Agreement ("Forbearance Agreement") with Wells Fargo. The Forbearance Agreement relates to credit facilities under a Credit and Security Agreement dated as of December 18, 2008 (“Credit Agreement”).

The Forbearance Agreement identifies certain existing defaults under the Credit Agreement and provides that Wells Fargo will forbear from exercising its rights and remedies under the Credit Agreement on the terms and conditions set forth in the Forbearance Agreement, until the earlier of January 31, 2010 or until the date that any new default occurs under the Credit Agreement.  In addition, by October 31, 2009, NutraCea must obtain financing of at least $1,250,000 in the form of equity or subordinated debt to be used as working capital.

The Company has determined it is probable that we will not be in compliance with the terms of the forbearance agreement as of October 31, 2009, and therefore the entire loan balance has been classified as a current liability.

The Forbearance Agreement increased the interest rates applicable to each credit facility to the default rates under the Credit Agreement, which is 3.0% above the applicable interest rate for each credit facility.  In addition, the Forbearance Agreement amended the Credit Agreement by (i) decreasing the maximum amount advanced under the line of credit to $1,500,000 from $2,500,000, (ii) terminating the term loan, and (iii) and terminating any obligations Wells Fargo has to make any further advances to NutraCea in connection with the real estate loan.  Pursuant to the Forbearance Agreement, NutraCea agrees to deliver to Wells Fargo a first priority lien on certain real property located in Dillon, Montana.

F-64

On August 6, 2009, the Company provided an update on business strategy via a press release.  A key component in the Company’s overall business strategy is to right size its overhead and production capacity and to realign that capacity appropriately to the geographic markets we serve. The Company has been able to meet its manufacturing needs in the production of SRB at its facilities in California and in May 2009 shuttered the facilities in Louisiana in order to reduce expenses while it focus’s on increasing sales. The Company is working to restart production at its Mermentau, LA facility to meet anticipated demand. The Company is involved in litigation related to its Lake Charles, Louisiana facility due to late payments on certain leases and supply agreements. The Company is diligently working to resolve these issues.

Also discussed in the August 6, 2009 press release was that the Phoenix facility is not operating and all cereal and refined SRB products are being manufactured in Dillon, Montana. The Phoenix facility was completed in January, 2009 and the Company received a temporary operating permit from the City of Phoenix at that time. Employees were hired and trained in the fourth quarter of 2008 and test production runs were made in January and February, 2009, in order to train employees and test the equipment. In February, the Company began to reduce its workforce at the facility because of a lack of customer orders. Based on the current level of demand for product and our ability to meet that demand with production from the Dillon facility, the Company is not producing out of its Phoenix facility since April 2009.

On August 14, 2009, NutraCea’s Board of Directors appointed James C. Lintzenich as Interim Principal Financial Officer and Interim Chief Accounting Officer.

On August 14, 2009, NutraCea’s Board of Directors increased the authorized number of directors from seven to nine.  NutraCea currently has six directors.  

On August 19, 2009, the Board of Directors determined that in the best interests of NutraCea's shareholders it will immediately modify the compensation arrangements for its board members, chairman, committee chairs, and interim chief executive officer who also serves on the board, to forego cash compensation for all of 2009 and instead receive stock option grants thereby more directly aligning the Board's compensation with the interests of the shareholders. Pursuant to the modified plan, directors will receive options to purchase NutraCea common stock in lieu of cash compensation.  Each director will receive an option to purchase 15,000 shares of NutraCea common stock for each calendar quarter served to be granted at the end of each quarter and to vest immediately.  In addition to the compensation above, the chairman of the board and each committee chairman will receive an option to purchase 9,375 and 3,000 shares of NutraCea common stock, respectively, for each calendar quarter served in 2009 to be granted at the end of each quarter and to vest immediately.  Mr. Lintzenich, as an employee director of NutraCea, will be entitled to one-half of the options as described above.

Note 26. Quarterly Financial Data (Unaudited)

The following tables set forth certain quarterly unaudited operating data for years ended December 31, 2008, 2007 and 2006.  The unaudited quarterly information includes all adjustments which management considers necessary for a fair presentation of the information shown. Please note the sum of the quarterly earnings (loss) per share amounts within a fiscal year may differ from the total earnings (loss) per share for the fiscal year due to the impact of differing weighted average share outstanding calculations. The Company has restated its previously issued unaudited Consolidated Financial Statements for the first three quarters of the year ended December 31, 2008, all quarters of the year ended December 31, 2007, and the fourth quarter of the year ended December 31, 2006. The 2008 quarterly restatements will be given full effect in the financial statements to be included in the Company’s Quarterly Reports on Form 10-Q for the December 31, 2009 quarters, when they are filed.

F-65

Statements of Operations Data: (In thousands, except per share data)
	Year Ended December 31, 2008
	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
	(Restated)			(Restated)			(Restated)			(a)
Revenues, as previously reported	$	5,111		$	10,314			11,058		$	6,902
Change to revenues for product revenue recognition		723			702			414			-
Change to revenues for license fee revenue recognition					-			-			-
Revenues, as restated		5,834			11,016			11,472			6,902
Cost of Goods Sold, as previously reported		4,794			7,277			8,704			8,394
Change to cost of goods sold for product revenue recognition		467			469			311			-
Cost of Goods Sold, as restated		5,261			7,746			9,015			8,394
Gross Profit, as reported		317			3,037			2,354			(1,492	)
Gross Profit, as restated		573			3,270			2,457			(1,492	)
Operating Expenses, as reported		7,400			7,734			7,053			46,730
Change for decrease in bad debt expense		(62	)
Change for decrease in legal expense expense		(289	)		(33	)		(11	)
Change for increase in SG&A expenses for VLI		803			139			(942	)
Change for decrease in amortization expenses for VLI		(113	)		(112	)		225
Change for increase in rent expense		(42	)		(42	)		(42	)
Change for increase in depreciation expense		23			23			24
Operating Expenses, as restated		7,720			7,709			6,307			46,730
Other Income/(Expense) as reported		368			(1,184	)		388			(621	)
Change for equity in subsidiary					(14	)		14
Change for decrease in interest expense for VLI		170			170			(340	)
Change for increase in interest income		119
Other Income/(Expense), as restated		657			(1,028	)		62			(621	)
Income Tax Expense, as reported		37			282			222			(476	)
Change for decrease in income tax expense					(1	)
Income Tax Expense, as restated		37			281			222			(476	)
Net Income/(Loss) before minority interest, as reported		(6,752	)		(6,163	)		(4,533	)		(48,367	)
Net Income/(Loss) before minority interest, as restated		(6,527	)		(5,748	)		(4,010	)		(48,367	)
Minority Interest, as reported		-			(70	)		-			(10	)
Minority Interest, as restated		-			(70	)		-			(10	)
Net Income/(Loss) after minority interest, as reported		(6,752	)		(6,093	)		(4,533	)		(48,357	)
Net Income/(Loss) after minority interest, as restated		(6,527	)		(5,678	)		(4,010	)		(48,357	)
Earnings/(Loss) per Share
Basic, as previously Reported	$	(0.05	)	$	(0.04	)	$	(0.03	)	$	(0.30	)
Change to income for product revenue recognition		-			-			-			-
Change to revenues for license fee revenue recognition		-			-			-			-
Change to operating expenses for various items		-			-			0.01			-
Basic, as restated	$	(0.05	)	$	(0.04	)	$	(0.02	)	$	(0.30	)
Diluted, as previously Reported	$	(0.05	)	$	(0.04	)	$	(0.03	)	$	(0.30	)
Change to income for product revenue recognition		-			-			-			-
Change to revenues for license fee revenue recognition		-			-			-			-
Change to operating expenses for various items		-			-			0.01			-
Diluted, as restated	$	(0.05	)	$	(0.04	)	$	(0.02	)	$	(0.30	)
Weighted average basic number of shares outstanding, as reported		144,779			151,867			167,866			160,585
Weighted average basic number of shares outstanding, as restated		144,779			151,867			167,994			160,585
Weighted average diluted number of shares outstanding, as reported		144,779			151,867			167,866			160,585
Weighted average diluted number of shares outstanding, as restated		144,779			151,867			167,994			160,585

 (a) Amounts and per share amounts for the fourth quarter of fiscal 2008 have not been previously reported and, accordingly, amounts as shown represent currently reported amounts.

F-66

Statements of Operations Data: (In thousands, except per share data)
	Year Ended December 31, 2007
	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
	(Restated)			(Restated)			(Restated)			(Restated)
Revenues, as previously reported	$	1,997		$	12,996		$	1,520		$	5,648
Change to revenues for product revenue recognition					(4,682	)		1,901			(1,654	)
Change to revenues for license fee revenue recognition					(5,000	)		-			-
Revenues, as restated		1,997			3,314			3,421			3,994
Cost of Goods Sold, as previously reported		1,113			3,863			1,635			3,287
Change to cost of goods sold for product revenue recognition					(558	)		268			(725	)
Cost of Goods Sold, as restated		1,113			3,305			1,903			2,562
Gross Profit, as reported		884			9,133			(115	)		2,361
Gross Profit, as restated		884			9			1,518			1,432
Operating Expenses, as reported		2,893			7,363			5,478			11,659
Change for decrease in bad debt expense					(775	)		(25	)		(2,179	)
Change for increase in SG&A expenses for VLI					52			237			714
Change for increase in rent expense					139			(42	)		(42	)
Change for decrease in amortization expenses for VLI					(38	)		(36	)		(39	)
Change for increase in depreciation expense					23			23			24
Operating Expenses, as restated		2,893			6,764			5,635			10,137
Other Income/(Expense) as reported		1,762			317			742			418
Change for decrease in interest expense for VLI					169			170			171
Change for decrease in interest income					(5	)		(57	)		(57	)
Other Income/(Expense), as restated		1,762			481			855			532
Income Tax Expense, as reported		-			85			(67	)		2
Change for decrease in income tax expense
Income Tax Expense, as restated		-			85			(67	)		2
Net Income/(Loss) before minority interest, as reported		(247	)		2,002			(4,784	)		(8,882	)
Net Income/(Loss) before minority interest, as restated		(247	)		(6,359	)		(3,195	)		(8,175	)
Minority Interest, as reported		-			-			-			-
Minority Interest, as restated		-			-			-			-
Net Income/(Loss) after minority interest, as reported		(247	)		2,002			(4,784	)		(8,882	)
Net Income/(Loss) after minority interest, as restated		(247	)		(6,359	)		(3,195	)		(8,175	)
Earnings/(Loss) per Share
Basic, as previously Reported	$	-		$	0.01		$	(0.03	)	$	(0.06	)
Change to income for product revenue recognition		-			(0.01	)		0.01		$	(0.01	)
Change to revenues for license fee revenue recognition		-		$	(0.04	)	$	-		$	0.01
Change to operating expenses for various items		-		$	0.01		$	-		$	-
Basic, as restated	$	-		$	(0.03	)	$	(0.02	)	$	(0.06	)
Diluted, as previously Reported	$	-		$	0.01		$	(0.03	)	$	(0.06	)
Change to income for product revenue recognition		-		$	(0.01	)	$	0.01		$	(0.01	)
Change to revenues for license fee revenue recognition		-		$	(0.04	)	$	-		$	0.01
Change to operating expenses for various items		-		$	0.01		$	-		$	-
Diluted, as restated	$	-		$	(0.03	)	$	(0.02	)	$	(0.06	)
Weighted average basic number of shares outstanding, as reported		111,959			136,257			141,084			142,895
Weighted average basic number of shares outstanding, as restated		111,959			136,907			141,084			142,895
Weighted average diluted number of shares outstanding, as reported		111,959			167,259			141,084			142,895
Weighted average diluted number of shares outstanding, as restated		111,959			136,907			141,084			142,895

F-67

Statements of Operations Data: (In thousands, except per share data)
	Year Ended December 31, 2006
	First Quarter			Second Quarter		Third Quarter		Fourth Quarter
								(Restated)
Revenues, as previously reported	$	3,782		$	4,166	$	4,946	$	5,196
Change to revenues for product revenue recognition									(1,551	)
Revenues, as restated		3,782			4,166		4,946		3,645
Cost of Goods Sold, as previously reported		2,100			2,333		2,535		2,162
Change to cost of goods sold for product revenue recognition									(268	)
Cost of Goods Sold, as restated		2,100			2,333		2,535		1,894
Gross Profit, as reported		1,682			1,833		2,411		3,034
Gross Profit, as restated		1,682			1,833		2,411		1,751
Operating Expenses, as reported		1,941			1,543		1,951		2,478
Operating Expenses, as restated		1,941			1,543		1,951		2,478
Other Income/(Expense) as reported		26			109		181		222
Other Income/(Expense), as restated		26			109		181		222
Income Tax Expense, as reported		-			-		-		-
Income Tax Expense, as restated		-			-		-		-
Net Income/(Loss) before minority interest, as reported		(233	)		399		641		778
Net Income/(Loss) before minority interest, as restated		(233	)		399		641		(505	)
Minority Interest, as reported		-			-		-		-
Minority Interest, as restated		-			-		-		-
Net Income/(Loss) after minority interest, as reported		(233	)		399		641		778
Net Income/(Loss) after minority interest, as restated	$	(233	)	$	399	$	641	$	(505	)
Earnings/(Loss) per Share
Basic, as previously Reported	$	(0.003	)	$	0.006	$	0.009	$	0.010
Change to income for product revenue recognition	$	-		$	-	$	-	$	(0.020	)
Basic, as restated	$	(0.003	)	$	0.006	$	0.009	$	(0.007	)
Diluted, as previously Reported	$	(0.003	)	$	0.006	$	0.009	$	0.008
Change to income for product revenue recognition	$	-		$	-	$	-	$	(0.020	)
Diluted, as restated	$	(0.003	)	$	0.006	$	0.009	$	(0.007	)
Weighted average basic number of shares outstanding, as reported		67,119			68,808		71,685		76,692
Weighted average basic number of shares outstanding, as restated		67,119			68,808		71,685		76,692
Weighted average diluted number of shares outstanding, as reported		67,119			68,808		71,685		102,636
Weighted average diluted number of shares outstanding, as restated		67,119			68,808		71,685		76,692

Note 27.  Impairment of Goodwill

Goodwill is initially recorded at fair value and is not amortized, but is evaluated for impairment at least annually or more frequently if impairment indicators are present.  In accordance with Statement of Financial Accounting Standards, No. 142, “Goodwill and Other Intangible Assets”, (“SFAS No. 142”), the Company is required to test goodwill for impairment at least annually and more often if an event occurs or circumstances change that “more likely than not” reduce the fair value of a reporting unit below its carrying value . In assessing the recoverability of goodwill, the Company makes estimates and assumptions about sales, operating margin terminal growth rates and discount rates based on our budgets, business plans, economic projections, anticipated future cash flows and marketplace data.   There are inherent uncertainties related to these factors and management’s judgment in applying these factors.  The fair value of a reporting unit has been determined using an income approach based on the present value of the future cash flows of each reporting unit. The goodwill impairment test compares the fair value of individual reporting units to the carrying value of these reporting units. If fair value is less than carrying value then goodwill impairment may be present. The market value of the Company’s common stock is an indicator of fair value and a consideration in determining the fair value of the company’s reporting units.

F-68

For the twelve months ended December 31, 2008 the Company assessed the fair value of its reporting units compared to their respective carry values as of December 31, 2008.  As a result the Company determined that the carrying value of the Company NutraCea segment exceeded the fair value and therefore the Company recorded a non-cash goodwill impairment charge of $33,231,000.  The impairment charge is a result of a combination of factors, including declining current and projected sales, insufficient working capital cash flows and continued decline in Company’s share price.

The first step of the SFAS No. 142 impairment analysis consisted of a comparison of the fair value of the reporting unit with its carrying amount, including the goodwill. The Company performed extensive valuation analyses, utilizing both income and market-based approaches, in its goodwill assessment process. The following describes the valuation methodologies used to derive the estimated fair value of the reporting unit.

Income Approach: To determine fair value, the Company discounted the expected future cash flows of the reporting unit, using a discount rate, which reflected the overall level of inherent risk and the rate of return an outside investor would have expected to earn. To estimate cash flows beyond the final year of its model, the Company used a terminal value approach. Under this approach, the Company used estimated operating income before interest, taxes, depreciation and amortization in the final year of its model, adjusted to estimate a normalized cash flow, applied a perpetuity growth assumption, and discounted by a perpetuity discount factor to determine the terminal value. The Company incorporated the present value of the resulting terminal value into its estimate of fair value.

Market-Based Approach: To corroborate the results of the income approach described above, the Company estimated the fair value of its reporting unit using several market-based approaches, including the guideline company method which focused on comparing its risk profile and growth prospects to a select group of publicly traded companies with reasonably similar guidelines.

Based on the SFAS No. 142 “step one” analysis that was performed, the Company determined that the carrying amount of the net assets of the reporting unit was in excess of its estimated fair value. As such, the Company was required to perform the “step two” analysis, in order to determine the amount of any goodwill impairment. The “step two” analysis consisted of comparing the implied fair value of the goodwill with the carrying amount of the goodwill, with an impairment charge resulting from any excess of the carrying value of the goodwill over the implied fair value of the goodwill based on a hypothetical allocation of the estimated fair value to the net assets. Based on the “step two” analysis, the Company concluded that the recorded goodwill was impaired. As a result, the Company recorded a non-cash goodwill impairment charge of $33,231,000. The allocation discussed above was performed only for purposes of assessing goodwill for impairment; accordingly, the Company has not adjusted the net book value of the assets and liabilities on the Company’s Consolidated Balance Sheet, other than goodwill, as a result of this process.

In May 2009, the Company’s Grainovation facility in Freeport, Texas was closed due to lack of demand and reduction in company wide capacity needs.  Goodwill of $917,000 associated with the purchase of Grainovation was impaired as of December 31, 2008.

 In April, 2007, the Company purchased, for $5,226,000, certain debt securities of VLI (see Note 12 to the Consolidated Financial Statements).  In September 2007, the Company entered into an asset purchase agreement in which the company agreed to buy the assets of VLI for an additional $1,500,000 and the forgiveness of the debt securities and certain other indebtedness of VLI.  We recorded that contingent liability in our financial statements as of December 31, 2007.  As a result, the total increase in goodwill on the Company’s Consolidate Financial Statements in 2007 associated with this transaction was $7,579,000.  The Company evaluated this intangible and determined that the value based upon the Company’s analysis was $6,279,000 as of December 31, 2007.  As a result the Company recorded an intangible impairment of $1,300,000 in 2007.

F-69

	Balance		2007					Balance		2008					VLI			Balance
	12/31/2006		Addition		Impairment			12/31/2007		Addition		Impairment			Deconsolidation			12/31/2008
NutraCea		32,314,000		-		-			32,314,000		-		(32,314,000	)		-			-
Grainnovation		-		917,000		-			917,000		-		(917,000	)		-			-
Vital Living Inc.		-		7,579,000		(1,300,000	)		6,279,000		-		-			(6,279,000	)		-
Irgovel		-		-		-			-		5,579,000		-			-			5,579,000
Total		32,314,000		8,496,000		(1,300,000	)		39,510,000		5,579,000		(33,231,000	)		(6,279,000	)		5,579,000

F-70

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	NUTRACEA
Dated:  October 18, 2009	/s/ James C. Lintzenich
	Name: James C. Lintzenich
	Title: Interim Chief Executive Officer
	NutraCea

F-71

EX-10.29

Exhibit 10.29

[*] - - Designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the commission.

ASSET PURCHASE AGREEMENT

  This Asset Purchase Agreement (this "Agreement"), is dated as of December 1, 2008, is by and between Farmers' Rice Cooperative, a cooperative association organized under the California Food and Agricultural Code ("FRC" or "Seller"), with principal offices at 2525 Natomas Park Drive, Sacramento, California 95851, and NutraCea, a California corporation with principal offices at 5090 40th North Street, Suite 400, Phoenix, Arizona 85018 ("Buyer"). Seller and Buyer agree as follows:

1.           Sale and Purchase.

  1.1           Agreement. Seller agrees to sell, convey and transfer to Buyer and Buyer agrees to purchase and assume from Seller certain assets of Seller's business identified in Section 1.2 (the "Assets"), for the Purchase Price (as defined below) and on the terms and conditions set forth herein. The sale of the Assets is entire and inseverable, and Buyer shall have no obligation to purchase any of the Assets unless all Assets shall be simultaneously sold.

  1.2           The Assets. The Assets to be sold and purchased under this Agreement are as follows:

  (a)           All rights and interest in and to all of the accounts (the "Customer Accounts") of the customers (the "Customers") of Seller identified in that certain Stabilized Rice Bran Processing, Sales and Marketing Agreement, dated September 1, 2005 (the "Prior Marketing Agreement"), between the Seller and The RiceX Company (as predecessor-in-interest to the Buyer) and listed on Schedule A attached hereto; and

  (b)           All rights in and title to the "Fiberice" trademark, and any associated trade names, logos, common law trademarks and service mark registrations and applications registrations and applications therefore and all goodwill associated therewith throughout the world identified on Schedule B attached hereto (collectively, the "Trademarks").

The Customer Accounts and the Trademarks are referred to collectively as the "Assets".

For avoidance of doubt, all rights and claims of Seller to collect accounts receivable from Customers for shipments completed by Seller to such Customers prior to the Closing (as defined below) and all obligations and liabilities of Seller with regard to the Customer Accounts and Trademarks arising with regard to any shipments, acts, omissions, or obligations for the period prior to the Closing ("Retained Liabilities") are not part of the sale and purchase contemplated hereunder, are excluded from the Assets and assumed obligations and shall remain the property and liabilities of Seller after the Closing.

  1.3           Restated Stabilized Rice Bran Agreement. At the Closing, the parties hereto further agree to enter into a Restated and Amended Stabilized Rice Bran Processing, Sales and Marketing Agreement in the form attached hereto as Exhibit B (the "Restated Marketing Agreement"), to extend and amend the Prior Marketing Agreement.

1

2.           Purchase Price and Payment.

  2.1           Purchase Price. In consideration of the transfer of the Assets and the covenant not to compete described in Section 7.2, Buyer shall pay to Seller the aggregate purchase price of Three Million One Hundred Thousand Dollars ($3,100,000) in cash (the "Purchase Price").

  2.2           Payment of Purchase Price. The Purchase Price shall be delivered by Buyer to Seller as follows:

  (a)           At the Closing, Buyer shall deliver to Seller One Million Dollars ($1,000,000) (the "Initial Payment") by wire transfer of immediately available funds to the account specified by the Seller.

  (b)           The balance of the Purchase Price (i.e. $2,100,000) shall be payable in twelve (12) equal quarterly installments of One Hundred and Seventy-Five Thousand Dollars ($175,000) each, commencing on March 1, 2009 and continuing on each following June 1, September 1, December 1, and March 1 thereafter until paid in full, such that the entire Purchase Price shall be paid in full by December 1, 2011. Such payments shall be made by wire transfer of good and valuable funds to the account specified by Seller.

  2.3           Security Interest. As security for the prompt, complete and indefeasible payment when due (whether on the payment dates or otherwise) of the Purchase Price, Buyer grants to Seller a security interest in the following personal property of Buyer (collectively, the "Collateral"): (a) the Assets, and (b) to the extent not otherwise included, all proceeds (as defined in the Uniform Commercial Code as the same is, from time to time, in effect in the State of California (the "UCC")) of the foregoing.

  2.4           Events of Default. The occurrence of any one or more of the following events shall be an "Event of Default" " with respect to Buyer or Seller, as applicable:

  (a)           Buyer fails to pay Seller any portion or installments of the Purchase Price and such failure continues for more than ten (10) days after written notice of default from Seller to Buyer specifying the amounts past due in sufficient detail to allow Buyer the reasonable opportunity to cure within such ten (10) day period;

  (b)           Buyer or Seller breaches or defaults in the performance of any covenant or obligation under this Agreement or the Restated Marketing Agreement, and such breach or default continues for more than thirty (30) days after written notice of such default from Seller to Buyer, or Buyer to Seller, as applicable, specifying the breach or default in sufficient detail to allow Buyer or Seller, as applicable, the reasonable opportunity to cure within such thirty (30) day period; or

  (c)           Buyer or Seller (A) (i) shall file a voluntary petition in bankruptcy; or (ii) shall seek or consent to or acquiesce in the appointment of any trustee, receiver, or liquidator of Buyer or Seller, as applicable, or of all or substantially all of the assets or property of Buyer or Seller, as applicable; or (iii) ninety (90) days shall have expired after the commencement of an involuntary action against Buyer or Seller, as applicable, seeking reorganization, liquidation, dissolution or similar relief in bankruptcy without such action being dismissed; or (iv) Buyer or Seller, as applicable, shall file any answer admitting or not contesting the material allegations of a petition filed against Buyer or Seller, as applicable, in any such proceedings; or (v) the court in which such proceedings are pending shall enter a decree or order granting the relief sought in any such proceedings.

2

  2.5           Remedies Upon an Event of Default.

  2.5.1.       Event of Default of Buyer.

  (a)           General. Upon the occurrence and during the continuance of any one or more Events of Default of Buyer, Seller may, at its option, accelerate and demand payment of all or any part of the Purchase Price and declare it to be immediately due and payable. Seller may exercise all rights and remedies with respect to the Collateral available to it under the UCC and other applicable law, including the right to release, hold, sell, lease, liquidate, collect, realize upon, or otherwise dispose of all or any part of the Collateral and the right to occupy, utilize, process and commingle the Collateral. All Seller's rights and remedies shall be cumulative and not exclusive.

  (b)           Collection; Foreclosure. Upon the occurrence and during the continuance of any Event of Default of Buyer, Seller may, at any time or from time to time, apply, collect, liquidate, sell in one or more sales, lease or otherwise dispose of, any or all of the Collateral, in its then condition or following any commercially reasonable preparation or processing, in such order as Seller may elect. Any such sale may be made either at public or private sale at its place of business or elsewhere. Buyer agrees that any such public or private sale may occur upon ten (10) calendar days' prior written notice to Buyer. The proceeds of any sale, disposition or other realization upon all or any part of the Collateral shall be applied by Seller in the following order of priorities:

  First, to Seller in an amount sufficient to pay in full Seller's reasonable attorneys' fees and expenses;

  Second, to Seller in an amount equal to the then unpaid amount of the Purchase Price; and

  Finally, to Buyer or its representatives.

Seller shall be deemed to have acted reasonably in the custody, preservation and disposition of any of the Collateral if it complies with the obligations of a secured party under the UCC.

  (c)           Termination of Covenant Not to Compete. Upon the occurrence of any Event of Default of Buyer, the covenant not to compete set forth in Section 7.2 shall immediately terminate and be suspended until Seller shall have received the full amount of the Purchase Price, after which it shall again apply as set forth in Section 7.2; provided that if Buyer cures all existing Events of Default later than six months after the first event giving rise to any existing Event of Default, Buyer's covenant not to compete shall be reinstated and once again take effect only if Buyer also reimburses Seller for all costs and expenditures expended in good faith in an effort to obtain an alternate source of stabilized rice bran for distribution to the Customers.

3

  (d)           No Waiver. Seller shall be under no obligation to marshal any of the Collateral for the benefit of Buyer or any other person, and Buyer expressly waives all rights, if any, to require Seller to marshal any Collateral.

  (e)           Cumulative Remedies. The rights, powers and remedies of Seller hereunder shall be in addition to all rights, powers and remedies given by statute or rule of law and are cumulative. The exercise of any one or more of the rights, powers and remedies provided herein shall not be construed as a waiver of or election of remedies with respect to any other rights, powers and remedies of Seller.

  2.5.2.       Event of Default of Seller.

  (a)           Offset Against or Satisfaction of Purchase Price. In addition to any other rights at law or in equity, upon the occurrence of any one or more Events of Default of Seller, Buyer's payment obligations under Section 2.2(b) shall be reduced by the greater of (i) Buyer's actual damages resulting from such Event of Default or (ii) if Seller's breach consists in whole or in part of a breach of the covenant not to compete, two times the amount of Seller's net profits earned in violation of the covenant not to compete; provided, if Seller breaches this Agreement a third time after two prior breaches for which Buyer has given notice of default and such third breach is not cured within the applicable cure period and a third Event of Default occurs, the Purchase Price shall be deemed satisfied and paid in full, and all obligations of Seller under this Agreement shall continue in full force and effect.

  (b)           Cumulative Remedies. The rights, powers and remedies of Buyer hereunder shall be in addition to all rights, powers and remedies given by statute or rule of law and are cumulative. The exercise of any one or more of the rights, powers and remedies provided herein shall not be construed as a waiver of or election of remedies with respect to any other rights, powers and remedies of Buyer.

  2.6           Assumed Liabilities. At the Closing, Buyer assumes and agrees to discharge all obligations under the Customer Accounts arising with regard to any shipments, acts, omissions, or obligations for the period on and after the Closing (the "Assumed Liabilities").

  2.7           Allocation of Purchase Price. The Purchase Price shall be allocated as provided on Schedule C. Buyer shall provide Seller with an allocation of the Purchase Price among the Assets, which shall be determined in accordance with Treasury Regulation Section 1.1060-1T and which, absent manifest error, shall apply for purposes of completing IRS Form 8594 (as provided for below). Except in the event of a subsequent adjustment to the Purchase Price which adjustment shall be reflected in the allocation hereunder in a manner consistent with the Treasury Regulations, neither Seller nor Buyer shall file any return or take a position with any taxing authority that is inconsistent with any allocation pursuant hereto. "Treasury Regulations" means the Treasury Regulations (including Temporary Regulations) promulgated by the United States Department of Treasury with respect to the Internal Revenue Code of 1986, as amended to the date hereof (the "Code"), or other federal tax statutes.

  2.8           Payments Received After Closing; Pending Shipments. In the event that, after the Closing, (a) Buyer shall receive any payment of any amount from a Customer that is not an Asset acquired hereunder or (b) Seller shall receive any payment from a Customer that is included in the Assets or shall hold a deposit for shipments not completed prior to the Closing, the party receiving such payment (or deposit amount) shall promptly deliver it to Seller (in the case of any such amounts received by Buyer) or Buyer (in the case of any such amounts received by Seller), endorsed where necessary, without recourse in favor of such other party, provided, however, that Seller's obligations under this Section 2.8 shall automatically cease and terminate upon an Event of Default. In addition, if all or any portion of any Customer orders are pending as of the Closing, then for the product shipments that are not completed as of the Closing Buyer shall reimburse Seller for Seller's third-party expenses (excluding items of salary and other overhead) with respect to such pending shipments and Buyer shall be entitled to all Customer payments for such shipments.

4

3.           Closing. The closing of the purchase and sale contemplated by this Agreement and transfer of possession of the Assets shall be given to Buyer (the "Closing") at the offices of Weintraub Genshlea Chediak Law Corporation, 400 Capitol Mall, 11th Floor, Sacramento, California, on the date hereof (the "Closing Date"). At the Closing:

  3.1           Seller. At the Closing, Seller shall deliver to Buyer:

  (a)           All documents and instruments necessary to carry out the terms and provisions of this Agreement and to effectuate the purpose of the transactions, including, without limitation, properly executed assignments of Seller's rights to the Customer Accounts, a list of the following information related to the Customer Accounts: names, titles, addresses, e-mail addresses, phone numbers, and complete account history for each such client and customer, conveyances of all of its right, title and interest in and to the Trademarks, including without limitation, the Assignment of Trademark instrument attached hereto as Exhibit A, and the duly executed Restated Marketing Agreement; and

  (b)           Resolutions of the Board of Directors of Seller authorizing the execution and delivery of this Agreement and the performance of the transactions contemplated hereby, certified by its Secretary.

  3.2           Buyer. Buyer shall deliver to Seller the Initial Payment by wire transfer to an account specified by Seller.

  3.3           Other Documents. Each of Seller and Buyer shall execute and deliver each of the agreements and documents required to be executed and delivered by such party pursuant to Section 8.

  3.4           Form and Content. Unless otherwise provided herein, all such instruments so delivered shall be dated the Closing Date and be satisfactory as to form and content to each party and their respective counsel; provided however that neither party shall disapprove any instrument that gives that party the substance of what the party is entitled to receive hereunder.

5

4.           Representations, Undertakings and Warranties by Seller. The Seller makes the following representations and warranties, each of which shall be true and correct as of the Effective Date of this Agreement and as of the Closing:

  4.1           Power and Authority. Seller has full requisite power to own and use the Assets as currently used, and to convey the Assets to Seller.

  4.2           Binding Agreement. This Agreement has been duly executed and delivered by Seller and constitutes the valid and binding agreement of Seller enforceable in accordance with its terms subject, as to the enforcement of remedies, to general equitable principles and to bankruptcy, insolvency and similar laws affecting creditors' rights generally.

  4.3           Absence of Conflicts and Consent Requirements. Seller's execution and delivery of this Agreement and performance of its obligations hereunder do not: (a) conflict with or violate Seller's Articles of Incorporation or Bylaws; (b) violate or, alone or with notice or the passage of time, result in the breach or the termination of, or otherwise give any contracting party the right to terminate or declare a default under, the terms of any written agreement relating to the Assets to which Seller is a party, or (c) violate any judgment, order, decree, law, statute, regulation or other judicial or governmental restriction to which Seller is subject. There is no requirement applicable to Seller to make any filing with, or to obtain any permit, authorization, consent or approval of, any governmental or regulatory authority as a condition to the lawful performance by Seller and of its obligations hereunder. No person has any power of attorney to act on behalf of Seller in connection with its Assets. The parties acknowledge that the consents set forth on Schedule 4.3 are required in connection with the transactions contemplated herein. Seller shall obtain all such consents prior to Closing.

  4.4           Title to Assets. Seller has good and marketable fee simple title to the Assets, and the Assets are (or as of the Closing shall be) free and clear of all liens, charges, pledges, claims, security interests, mortgages, adverse claims of ownership or use, restrictions on transfer, defect of title or other encumbrance of any kind or character. After the date hereof and prior to the Closing, Seller will not, without Buyer's written permission, sell or otherwise dispose of any of the Assets to be acquired hereunder.

  4.5           Litigation. There are no actions, suits, arbitrations or proceedings filed or commenced by or before any court, arbitrator or any governmental or administrative agency with respect to the Assets and there are no orders, injunctions, awards, judgments or decrees outstanding against, affecting or relating to the Assets.

  4.6           Customer Accounts. The list of the Customer Accounts on Exhibit A includes a true, correct and complete list of the Customers and all Customer deposits and advance payments for orders not shipped to the Customers prior to the Closing (which Exhibit shall be updated by Seller immediately prior to the Closing).

  4.7           Disclosure. The representations and warranties of Seller set forth in this Agreement or any exhibit, schedule, list or other document delivered by Seller to Buyer pursuant hereto, do not contain any untrue statement of material fact or omit to state any material fact necessary in light of the circumstances under which they were made to make the statements contained herein not misleading.

6

  4.8           No Omissions. No representation or warranty of Seller, nor any statement, certificate, schedule or exhibit, schedule, list or other document furnished or to be furnished by or on behalf of Seller or pursuant hereto contains or will contain any untrue statement of a material fact or will omit to state a material fact necessary to make the statements herein or therein not misleading under the circumstances. No investigation by or on behalf of Buyer or information revealed as a consequence thereof shall absolve Seller from any liability for any such untrue statement or omission.

5.           Representations and Warranties by Buyer.   Buyer makes the following representations and warranties:

  5.1           Organization. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of California.

  5.2           Authority; Binding Agreement. Buyer has duly approved and ratified the execution and delivery of this Agreement and the consummation of the transactions provided for herein. This Agreement has been duly executed and delivered by Buyer and constitutes the valid and binding agreement of Buyer enforceable in accordance with its terms subject, as to the enforcement of remedies, to general equitable principles and to bankruptcy, insolvency and similar laws affecting creditors' rights generally.

  5.3           No Violation. Buyer is not subject to, and is not a party to any charter or by-law, or any mortgage, lien, lease, agreement, contract, instrument, law, rule, regulation, order, judgment or decree, or any other restriction of any kind or character, which (i) would prevent consummation of the transactions contemplated by this Agreement or would be violated or breached in any material respects by consummation of such transactions, or (ii) would prevent Buyer from complying in any material respects with the terms, conditions and provisions of this Agreement, or (iii) would require the consent of any third party to the transactions contemplated herein.

6.           Indemnity.

  6.1           Seller Indemnity. Seller agrees to indemnify, defend, save and hold Buyer and Buyer's agents, affiliates, employees and representatives ("Buyer Indemnitees") harmless from and against any and all damage, liability, loss, expense, assessment, judgment or deficiency of any nature whatsoever (including and without limitation, reasonable attorneys' fees and other costs and expenses incident to any suit, action or proceeding) (collectively, "Damages") incurred or sustained by a Buyer Indemnitee that arises out of or in connection with (i) a breach of any representation, warranty or covenant of this Agreement, or non-fulfillment of any obligation of Seller under this Agreement or any certificate furnished in connection herewith, or (ii) the use of the Assets by Seller prior to the Closing, or (iii) the Retained Liabilities, whether disclosed or undisclosed, known or unknown, fixed or contingent.

  6.2           Buyer Indemnity. Buyer hereby agrees to indemnify, defend, save and hold Seller and Seller's agents, affiliates, employees and representatives harmless from and against any Damages incurred or sustained by Seller that arises out of or in connection with (i) a breach of any representation, warranty or covenant of this Agreement, or non-fulfillment of any obligation of Buyer under this Agreement or any certificate furnished in connection herewith, (ii) the use of the Assets by Buyer following the Closing, but not resulting from any misconduct of Seller, or (iii) the Assumed Liabilities.

7

  6.3           Claims Procedure. A party seeking indemnification hereunder (the "Indemnitee") will give prompt written notice to the party from which indemnification is sought (the "Indemnitor") of any claim which it discovers or of which it receives notice after the Closing and which might give rise to a right of indemnification by it against Indemnitor under this Agreement (a "Claim"), stating the nature, basis and (to the extent known) amount thereof; provided that failure to give prompt notice of such Claims shall not jeopardize Indemnitee's right to indemnification unless such failure shall have materially prejudiced the ability of Indemnitor to defend such Claim. In the case of any Claim by any third party with respect to which Indemnitor may have liability under this Agreement, Indemnitor shall be entitled to participate in the defense thereof and, to the extent desired by Indemnitor, to assume the defense thereof, and after written notice from Indemnitor to Indemnitee of its election to assume such defense, Indemnitor will not be liable to any Indemnitee for any legal or other expenses subsequently incurred by such Indemnitee in connection with its participation in the defense of the Claim, other than reasonable costs of investigation, unless Indemnitor does not actually assume the defense of the Claim following Indemnitor's notice of such election. The parties will render to each other such assistance as may reasonably be required of each other in order to insure proper and adequate defense of any such Claim. Indemnitor will not agree to a compromise or settlement of any such suit, Claim or proceeding that would require the payment of any amounts by Indemnitee without the written consent of Indemnitee; provided that if Indemnitee shall fail or refuse to provide such written consent, then Indemnitor's liability under this Agreement with respect to such Claim shall be limited to the amount so offered in compromise or settlement, together with all legal and other expenses which may have been incurred prior to the date on which Indemnitee has refused to consent to such compromise or settlement.

  6.4           Damages. Notwithstanding anything to the contrary elsewhere in this Agreement, no Indemnitor will be liable to any Indemnitee for any Damages other than direct, compensatory Damages. Each party agrees that it is not entitled to recover and hereby waives any claim with respect to, and will not seek, indirect, lost profit, lost opportunity, diminution-in-value, consequential, punitive or any other special Damages as to any matter under, relating to or arising out of the transactions contemplated by this Agreement.

  6.5           No Double Recovery. Notwithstanding the fact that any party may have the right to assert claims for indemnification under or in respect of more than one provision of this Agreement in respect of any fact, event, condition or circumstance, no party shall be entitled to recover the amount of any Damages suffered by such party more than once, regardless of whether such Damages may be as a result of a breach of more than one representation or warranty or covenant

  6.6           Adjustments to Purchase Price. Any payments made pursuant to this Section 6 shall be consistently treated as adjustments to Purchase Price for all tax purposes by the parties.

8

7.           Additional Covenants.

  7.1           Goodwill Preservation. Except as otherwise requested by Buyer, and without making any commitments on Buyer's behalf, Seller shall use commercially reasonable efforts in the normal course of business to preserve for Buyer the goodwill of the Customer Accounts. Seller will use commercially reasonable efforts to preserve the Assets intact. Seller shall notify Buyer of any event or transaction of which they become aware prior to Closing which could materially affect the Assets in an adverse manner.

  7.2           Covenant Not to Compete. In consideration of payment of the Purchase Price to Seller as set forth in Section 2, a portion of which shall be allocated to this covenant not to compete, Seller agrees that, for a period of three (3) years from and after the Closing Date, Seller shall refrain from, unless first obtaining the Buyer's prior written consent, in any county in California, any state in the United States of America and any other country in which Buyer has conducted the Business, directly or indirectly, engaging in, being employed by, being associated with, being under contract with, owning, managing, operating, joining, controlling, or participating in the ownership, management, operation, or control of, being connected in any manner with, or having any interest in, any business, firm, sole proprietorship, partnership or corporation that engages in the Business. As used in this Section 7.2, "Business" means the business of selling stabilized rice bran and/or enhanced stabilized rice bran to third-party end consumers, and for avoidance of doubt, "Business" shall not include the sale or processing of raw rice bran.

  7.3           Further Assurances. Seller and Buyer agree that, from time to time, at or after the Closing Date, each of them will execute and deliver such further instruments of conveyance and transfer and take such other action as may be reasonably necessary to carry out the purpose and intent of this Agreement.

8.           Conditions to Close.

  8.1          Conditions of Buyer. The obligations of Buyer to consummate the transactions herein contemplated are subject to the satisfaction on or prior to the Closing of the following conditions, and if Buyer shall not consummate the transactions herein contemplated by reason of the failure of such conditions to have been satisfied as herein provided, then Buyer shall have no liability to Seller:

  (a)           The representations and warranties of Seller contained in this Agreement and in any exhibit, schedule, instrument, agreement or other document delivered to Buyer pursuant thereto, shall be true and correct in all respects on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date, and the covenants and agreements of Seller to be performed on or before the Closing Date in accordance with this Agreement shall have been duly performed in all respects;

  (b)           No litigation or order shall have been instituted by a court or other governmental body or any public authority restraining or prohibiting the transaction contemplated herein;

9

  (c)           Each of the required consents identified on Schedule 4.3 shall have been obtained and shall be in full force and effect;

  (d)           Seller shall have delivered to Buyer the Restated Marketing Agreement, duly executed by Seller; and

  (e)           Buyer shall have received from Seller such other and further certificates, assurances and documents as may reasonably be required by Buyer in connection with the consummation of the transactions contemplated hereby.

  8.2           Conditions of Seller. The obligations of Seller to consummate the transactions herein contemplated are subject to the satisfaction on or prior to the Closing of the conditions set forth herein below, and if Seller shall not consummate the transactions herein contemplated by reason of the failure of such conditions to have been satisfied as herein provided, then Seller shall have no liability to Buyer:

  (a)           The representations and warranties of Buyer contained in this Agreement and in any exhibit, schedule, instrument, agreement or other document delivered to Seller pursuant thereto, shall be true and correct on and as of the Closing with the same effect as though such representations and warranties had been made on and as of such Closing, or such schedules and instruments had been delivered on such date, and the covenants and agreements of Buyer to be performed on or before the Closing Date in accordance with this Agreement shall have been duly performed in all respects;

  (b)           No litigation or order shall have been instituted by a court or other governmental body or any public authority restraining or prohibiting the transaction contemplated herein;

  (c)           Each of the required consents identified on Schedule 4.3 shall have been obtained and shall be in full force and effect;

  (d)           Buyer shall have delivered to Seller the Restated Marketing Agreement, duly executed by Buyer; and

  (e)           Seller shall have received from Buyer such other and further certificates, assurances and documents as may reasonably be required by Seller in connection with the consummation of the transactions contemplated hereby.

9.           Miscellaneous.

  9.1           Survival of Representations, Warranties and Covenants. Each representation and warranty and covenant contained herein or made pursuant hereto shall be deemed to be material and to have been relied upon, and shall survive the execution and delivery of this Agreement, the Closing, any investigation at any time made by or on behalf of any party hereto, and the transfer of and payment for the Assets. Every schedule or other document referred to herein and every certificate delivered pursuant hereto shall be deemed to constitute a representation and warranty made pursuant hereto. This Agreement creates continuing obligations and it is binding and active until all undertakings, direct and indirect, are fulfilled.

10

  9.2           Successors and Assigns. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto. Neither this Agreement nor any of the rights, interests, or obligations hereunder shall be assigned by any party hereto by operation of law or otherwise without the prior written consent of Buyer; provided, that Buyer, in its sole discretion, may assign all or any portion of its rights, interests and obligations hereunder to any affiliate of Buyer, and provided, further, that such assignee assumes and agrees in writing to perform all of Buyer's obligations hereunder. This Agreement shall be binding upon and inure to the benefit of successors and assigns of the parties hereto.

  9.3           Governing Law. This Agreement shall be governed by and construed under the laws of the State of California.

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

  9.5           Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

  9.6           Notices. Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed effective upon personal delivery to the party to be notified, upon deposit with an overnight delivery service, by facsimile upon receipt of confirmation of transmission, or upon deposit with the United States Post Office, by registered or certified mail, postage prepaid and addressed to the party to be notified at the address indicated for such party above, or at such other address as such party may designate by ten (10) days' advance written notice to the other parties.

  9.7           Expenses. Irrespective of whether any closing is effected, each party shall pay all costs and expenses that it incurs with respect to the negotiation, execution, delivery and performance of this Agreement.

  9.8           Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of Seller.

  9.9           Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

  9.10         Entire Agreement. This Agreement and the documents referred to herein constitute the entire agreement among the parties and no party shall be liable or bound to any other party in any manner by any warranties, representations, or covenants except as specifically set forth herein or therein.

  9.11        Attorneys' Fees. If the services of an attorney are used by any party to secure the performance of this Agreement or otherwise upon the breach or default of another party to this Agreement, or if any judicial remedy or arbitration is sought to enforce or interpret any provision of this Agreement or the rights and duties if any person in relation thereto, the prevailing party shall be entitled to reasonable attorneys' fees, costs and other expenses, in addition to any other relief to which such party may be entitled in accordance with applicable law.

11

  9.12        Remedies. In the event of breach of any of the representations, warranties, promises or covenants of any party hereto or the non-fulfillment of any obligation on the part of such party under this Agreement, the other party's remedies following the Closing shall be cumulative and not exclusive, and the exercise by such other party of any of its remedies at law or in equity to recover any damages shall not affect any other remedy such other party may have.

  9.13         Publicity. No notices to third parties or other publicity, including press releases, prior to Closing concerning any of the transactions provided for herein shall be made by any party hereto unless planned and coordinated jointly among the parties hereto, except to the extent otherwise required by law.

[REMAINDER OF PAGE LEFT BLANK]

12

  Farmers' Rice Cooperative and NutraCea have executed and delivered this Agreement as of the date first set forth above.

Seller:

Farmers' Rice Cooperative

/s/ Kirk Messick

Kirk Messick

Senior Vice President

Buyer:

NutraCea

/s/ Bradley Edson

Bradley Edson

Chief Executive Officer

Signature Page to Asset Purchase Agreement

13

Schedule A

Customer Accounts

[*]

14

Schedule B

Trademarks

FIBERICE

15

Schedule C

Allocation of Purchase Price

Allocation will be subject to a fair market analysis to be conducted after Closing.

16

Exhibit A

ASSIGNMENT AGREEMENT

This Trademark Assignment Agreement ("Agreement") is entered into by and between NutraCea, a California corporation ("NutraCea") with principal offices at 5090 North 40th Street, Suite 400, Phoenix, Arizona, 85018, and Farmers' Rice Cooperative, a cooperative association organized under the California Food and Agricultural Code ("FRC"), with principal offices at 2525 Natomas Park Drive, Sacramento, California, 95851. The parties agree as follows, effective as of December 1, 2008:

1.           Assignment.

1.1         Trademarks. For valuable consideration, FRC hereby grants, transfers and assigns to NutraCea all of FRC's right, title and interest in and to the "FIBERICE" trademark and any associated trade names, logos, common law trademarks and service marks, trademark and service mark registrations and applications therefore and all goodwill associated therewith throughout the world.

2.           Miscellaneous. This Agreement shall (i) be binding on the successors and assigns of NutraCea and FRC, (ii) inure to the benefit of the successors and assigns of the aforementioned properties, and (iii) be governed by and construed in accordance with the laws of the State of California.

  IN WITNESS WHEREOF, the parties hereto have executed and delivered this Trademark Assignment Agreement as of the date first written above.

Farmers' Rice Cooperative
By:	/s/ H. Kirk Messick
Its:	SR Vice President
NutraCea
By:	/s/ Brad Edson
Brad Edson, CEO

17

Exhibit B

RESTATED MARKETING AGREEMENT

18

Schedule 4.3

Consents

1.           [*]

2.           National Rice Company

  Confirmation of sale No. 270454 Dated September 28, 2007

  Seller: Farmers' Rice Cooperative Buyer: Dainty Foods

3.           Bank of America

4.           Co Bank

19

EX-10.30

WELLS FARGO BUSINESS CREDIT

CREDIT AND SECURITY AGREEMENT

THIS CREDIT AND SECURITY AGREEMENT (this "Agreement") is dated December 18, 2008, and is entered into among NutraCea, a California corporation, NutraPhoenix, LLC, a Delaware limited liability company (collectively, the "Company"), and Wells Fargo Bank, National Association (as more fully defined in Exhibit A, "Wells Fargo"), acting through its Wells Fargo Business Credit operating division.

RECITALS

Company has asked Wells Fargo to provide it with a $2,500,000.00 revolving line of credit (the "Line of Credit") for working capital purposes and to facilitate the issuance of standby letters of credit. Company has also requested: (i) a $5,000,000.00 term loan (the "Real Estate Loan") to be secured by Company-owned real estate, and (ii) a $2,500,000.00 term loan (the "Term Loan"), for additional working capital purposes. Wells Fargo is agreeable to meeting Company's request, provided that Company agrees to the terms and conditions of this Agreement.

For purposes of this Agreement, capitalized terms not otherwise defined in the Agreement shall have the meaning given them in Exhibit A.

1.  AMOUNT AND TERMS OF THE LINE OF CREDIT AND TERM LOAN

1.1  Line of Credit; Limitations on Borrowings; Termination Date; Use of Proceeds.

(a) Line of Credit and Limitations on Borrowing. Wells Fargo shall make Advances to Company under the Line of Credit that, together with the L/C Amount, shall not at any time exceed in the aggregate the lesser of (i) $2,500,000.00 (the "Maximum Line Amount"), or (ii) the Borrowing Base limitations described in Section 1.2. Within these limits, Company may periodically borrow, prepay in whole or in part, and reborrow. Wells Fargo has no obligation to make an Advance during a Default Period or at any time Wells Fargo believes that an Advance would result in an Event of Default.

(b) Maturity and Termination Dates. Company may request Line of Credit Advances from the date that the conditions set forth in Section 3 are satisfied until the earlier of: (i) November 30, 2011 (the "Maturity Date"), (ii) the date Company terminates the Line of Credit, or (iii) the date Wells Fargo terminates the Line of Credit following an Event of Default. (The earliest of these dates is the "Termination Date.")

(c) Use of Line of Credit Proceeds. Company shall use the proceeds of each Line of Credit Advance and each Letter of Credit for ordinary working capital purposes.

(d) Revolving Note. Company's obligation to repay Line of Credit Advances, regardless of how initiated under Section 1.3, shall be evidenced by a revolving promissory note (as renewed, amended or replaced from time to time, the "Revolving Note").

1.2  Borrowing Base; Mandatory Prepayment.

-1-

(a)           Borrowing Base. The borrowing base (the "Borrowing Base") is an amount equal to:

(i)            75% or such lesser percentage of Eligible Accounts as Wells Fargo in its sole discretion may deem appropriate, plus

(ii)           50% or such lesser percentage of Eligible Inventory as Wells Fargo in its sole discretion may deem appropriate, or $1,000,000.00, whichever is less, less

(iii)          the Borrowing Base Reserve, less

(iv)          Indebtedness that Company owes Wells Fargo that has not been advanced on the Revolving Note, less

(v)           Indebtedness that is not otherwise described in Section 1, including Indebtedness that Wells Fargo in its sole discretion finds on the date of determination to be equal to Wells Fargo's net credit exposure with respect to any swap, derivative, foreign exchange, hedge, deposit, treasury management or similar transaction or arrangement extended to Company by Wells Fargo and any Indebtedness owed by Company to Wells Fargo Merchant Services, L.L.C.

(b) Mandatory Prepayment; Overadvances. If unreimbursed Line of Credit Advances evidenced by the Revolving Note plus the L/C Amount exceed the Borrowing Base or the Maximum Line Amount at any time, then Company shall immediately prepay the Revolving Note in an amount sufficient to eliminate the excess, and if payment in full of the Revolving Note is insufficient to eliminate this excess and the L/C Amount continues to exceed the Borrowing Base, then Company shall deliver cash to Wells Fargo in an amount equal to the remaining excess for deposit to the Special Account, unless in each case, Wells Fargo has delivered to Company an Authenticated Record consenting to the Overadvance prior to its occurrence, in which event the Overadvance shall be temporarily permitted on such terms and conditions as Wells Fargo in its sole discretion may deem appropriate, including the payment of additional fees or interest, or both.

1.3  Procedures for Line of Credit Advances.

(a) Advances to Operating Account. Line of Credit Advances shall be credited to Company's demand deposit account maintained with Wells Fargo (the "Operating Account"), unless the parties agree in a Record Authenticated by both of them to disburse to another account.

(i)Advances upon Company's Request. Each Advance will be funded as a Floating Rate Advance upon Company's request, which must be communicated to Wells Fargo no later than 10:59 a.m. Arizona Time on the Business Day on which Company wants the Advance to be funded, and no request will be deemed received until Wells Fargo acknowledges receipt, and Company, if requested by Wells Fargo, confirms the request in an Authenticated Record. Company shall repay all Advances, even if the Person requesting the Advance on behalf of Company lacked authorization.

-2-

(ii)Advances through Loan Manager. If Wells Fargo has separately agreed that Company may use the Wells Fargo Loan Manager service ("Loan Manager"), Line of Credit (but not Real Estate Loan or Term Loan) Advances will be initiated by Wells Fargo and credited to the Operating Account as Floating Rate Advances as of the end of each Business Day in an amount sufficient to maintain an agreed upon ledger balance in the Operating Account, subject only to Line of Credit availability as provided in Section 1.1(a). If Wells Fargo terminates Company's access to Loan Manager, Company may continue to request Line of Credit Advances as provided in Section 1.3(a)(i). Wells Fargo shall have no obligation to make an Advance through Loan Manager during a Default Period, or in an amount in excess of Line of Credit availability, and may terminate Loan Manager at any time in its sole discretion.

(b) Protective Advances; Advances to Pay Indebtedness Due. Wells Fargo may initiate a Floating Rate Advance on the Line of Credit in its sole discretion for any reason at any time, without Company's compliance with any of the conditions of this Agreement, and (i) disburse the proceeds directly to third Persons in order to protect Wells Fargo's interest in Collateral or to perform any of Company's obligations under this Agreement, or (ii) apply the proceeds to the amount of any Indebtedness then due and payable to Wells Fargo.

1.4  Collection of Accounts and Application to Revolving Note.

(a) The Collection Account. Company has granted a security interest to Wells Fargo in the Collateral, including all Accounts. Except as otherwise agreed by both parties in an Authenticated Record, all Proceeds of Accounts and other Collateral, upon receipt or collection, shall be deposited each Business Day into the Collection Account. Funds so deposited ("Account Funds") are the property of Wells Fargo, and may only be withdrawn from the Collection Account by Wells Fargo.

(b) Payment of Accounts by Company's Account Debtors. Company shall instruct all account debtors to make payments, as Lender shall designate, either directly to the Lockbox for deposit by Wells Fargo directly to the Collection Account, or instruct them to deliver such payments to Wells Fargo by wire transfer, ACH, or other means as Wells Fargo may direct for deposit to the Collection Account or for direct application to the Line of Credit. If Company receives a payment or the Proceeds of Collateral directly, Company will promptly deposit the payment or Proceeds into the Collection Account. Until deposited, it will hold all such payments and Proceeds in trust for Wells Fargo without commingling with other funds or property. All deposits held in the Collection Account shall constitute Proceeds of Collateral and shall not constitute the payment of Indebtedness.

(c) Application of Payments to Revolving Note. Wells Fargo will withdraw Account Funds deposited to the Collection Account and pay down borrowings on the Line of Credit by applying them to the Revolving Note on the first Business Day following the Business Day of deposit to the Collection Account, or, if payments are received by Wells Fargo that are not first deposited to the Collection Account pursuant to any treasury management service provided to Company by Wells Fargo, such payments shall be applied to the Revolving Note as provided in the Master Agreement for Treasury Management Services and the relevant service description.

-3-

1.5  Real Estate Loan.

(a) Real Estate Loan. Wells Fargo shall extend the Real Estate Loan to Company through a single Advance in the amount of $5,000,000.00.

(b) Real Estate Term Note. Company's obligation to repay the Real Estate Loan shall be evidenced by an installment promissory note (as renewed, amended, or replaced from time to time, the "Real Estate Term Note").

(c) Real Estate Loan Advance and Disbursement. Subject to the terms and conditions of this Agreement, the Real Estate Loan Advance shall be made on the same date as the initial Advance on the Line of Credit.

(d) Reserve; Cash Collateralization. Concurrently with the Real Estate Loan Advance, Lender shall reserve $1,500,000.00 from the proceeds Real Estate Loan Advance (including any interest or profits thereon, the "Cash Collateral"), which Cash Collateral shall be deposited in an account with Lender. The Cash Collateral shall be held by Lender as collateral for the payment and performance of the obligations of Company under this Agreement. Lender shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Other than any interest earned on the investment of such deposits, which investments shall be made at the option and sole discretion of Lender and at Company's risk and expense, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. The Cash Collateral in such account may be applied by Lender to reimburse Lender for expenses recoverable under the Loan Documents, and to the extent not so applied, shall be held for the satisfaction of the Obligations of the Company. Lender agrees to release the Cash Collateral to Company upon delivery to Lender of publicly filed financial statements for Company, reflecting debt service coverage in excess of 1.0 for a period of three rolling quarters, and provided that no default or Event of Default exists and provided that the Company's unadvanced amount under the Line of Credit is greater than $350,000.00.

(e) Setoff. Whenever an Event of Default shall have occurred and be continuing on account of which Lender shall have the right to exercise any of its rights hereunder, Company hereby irrevocably authorizes Lender to set off the Obligations under this Agreement and the other Loan Documents or otherwise owed to Lender against the Cash Collateral and all deposits and credits of Company with, and any all claims of Company against, Lender, but only to the extent that said Liabilities of Company to Lender shall be then due, whether by acceleration or otherwise

(f) Payments and Adjustments to Payments. The unpaid principal amount of the Real Estate Term Note shall be amortized over a 120 month period, but shall be due and payable in equal monthly principal installments of $41,667.00, beginning on February 1, 2009, and on the first calendar day of each succeeding month until the earlier of December 31, 2018 or, if Lender elects, the Termination Date, when the unpaid principal and interest evidenced by the Real Estate Term Note shall be fully due and payable. Additionally, accrued and unpaid interest shall be due and payable monthly, beginning on January 1, 2009 and on the first calendar day of each succeeding month until the earlier of December 31, 2018 or, if Lender elects, the Termination Date. Payments shall be collected by Wells Fargo through a debit to the Real Estate Term Note and a simultaneous Line of Credit Advance in the same amount, or by such other method as the parties may agree. Proceeds from the liquidation of Collateral acquired with Real Estate Loan proceeds will be applied first to the Real Estate Term Note, then to the Term Loan and Line of Credit in such order as Lender may elect.

-4-

(g) Prepayments and Mandatory Prepayments. Company may prepay the Real Estate Loan at any time. If Wells Fargo obtains an appraisal of the Real Estate at any time as permitted under this Agreement, and the appraisal shows the aggregate unpaid principal amount of the Real Estate Term Note to exceed sixty-three percent (63%) of the appraised value of the Real Estate, then Company, shall immediately prepay the unpaid principal of the Real Estate Term Note in the amount of such excess.

(h) Collection of Prepayments and Related Fees. All Real Estate Loan prepayments, including mandatory prepayments and prepayments due on the Termination Date, must be accompanied by any prepayment and breakage fees payable under this Agreement, which will be applied to the most remote principal installments then due and payable. Any prepayment of principal and any related fees shall be collected by Wells Fargo through a debit to the Real Estate Term Note and a simultaneous Line of Credit Advance in the same amount, or by such other method as the parties may agree.

1.6 Term Loan

(a) Term Loan. Wells Fargo shall extend the Term Loan to Company through a single Advance in an amount not in excess of the lesser of (i) $2,500,000.00, (ii) ninety percent (90%) of the Net Forced Liquidation Value of Company's Eligible Equipment, or (iii) eighty percent (80%) of the Net Orderly Liquidation Value of Company's Eligible Equipment.

(b) Term Note. Company's obligation to repay the Term Loan and each Term Loan Advance shall be evidenced by an installment promissory note (as renewed, amended, or replaced from time to time, the "Term Note").

(c) Term Loan Advance and Disbursement. The Term Loan Advance shall be made no later than June 30, 2010, and only upon satisfaction of the conditions in Section 3.3.

(d) Payments and Adjustments to Payments. The unpaid principal amount of the Term Note shall be amortized over a 36 month period, but shall be due and payable in equal monthly installments of principal and interest beginning on the first calendar day of the first calendar month after Lender makes the Term Loan Advance, and on the first calendar day of each succeeding month until the earlier of November 30, 2011 or the Termination Date, when the unpaid principal and interest evidenced by the Term Note shall be fully due and payable. Payments shall be collected by Wells Fargo through a debit to the Term Note and a simultaneous Line of Credit Advance in the same amount, or by such other method as the parties may agree. Proceeds from the liquidation of Collateral acquired with Term Loan proceeds will be applied first to the Term Note, then to the Real Estate Loan and Line of Credit in such order as Lender may elect.

-5-

(e) Prepayments and Mandatory Prepayments. Company may prepay the Term Loan at any time. If Wells Fargo obtains an appraisal of the Equipment at any time as permitted under this Agreement, and the appraisal shows the aggregate unpaid principal amount of the Term Note to exceed (i) ninety percent (90%) of the Net Forced Liquidation Value of Company's Eligible Equipment, or (ii) eighty percent (80%) of the Net Orderly Liquidation Value of Company's Eligible Equipment, then Company, shall immediately prepay the unpaid principal of the Term Note in the amount of such excess.

(f) Collection of Prepayments and Related Fees. All Term Loan prepayments, including mandatory prepayments and prepayments due on the Termination Date, must be accompanied by any prepayment and breakage fees payable under this Agreement, which will be applied to the most remote principal installments then due and payable. Any prepayment of principal and any related fees shall be collected by Wells Fargo through a debit to the Term Note and a simultaneous Line of Credit Advance in the same amount, or by such other method as the parties may agree.

1.7  Interest and Interest Related Matters.

(a) Interest Rates Applicable to Line of Credit and Term Loan. Except as otherwise provided in this Agreement, the unpaid principal amount of each Line of Credit Advance evidenced by the Revolving Note, the Real Estate Loan Advance evidenced by the Real Estate Term Note, and the Term Loan Advance evidenced by the Term Note, shall accrue interest at an annual interest rate calculated as follows:

Floating Rate:

Line of Credit Advances = the Prime Rate plus two and one half percent (2.5%);

Real Estate Loan Advance = the Prime Rate plus three percent (3.0%);

Term Loan Advance = the Prime Rate plus three percent (3.0%);

which interest rate shall change whenever the Prime Rate changes (the "Floating Rate").

(b) Minimum Interest Charge. Notwithstanding the other terms of Section 1.7 to the contrary, and except as limited by the usury savings provision of Section 1.7(e), Company shall pay Wells Fargo at least $10,000.00 of interest each calendar month (the "Minimum Interest Charge") during the term of this Agreement, and Company shall pay any deficiency between the Minimum Interest Charge and the amount of interest otherwise payable on first day of each month and on the Termination Date.

-6-

(c) Default Interest Rate. Commencing on the day an Event of Default occurs, through and including the date identified by Wells Fargo in a Record as the date that the Event of Default has been waived (each such period a "Default Period"), or during a time period specified in Section 1.10, or at any time following the Termination Date, in Wells Fargo's sole discretion and without waiving any of its other rights or remedies, the principal amount of the Revolving Note, the Real Estate Term Note, and the Term Note shall bear interest at a rate that is three percent (3.0%) above the contractual rate set forth in Section 1.7(a) (the "Default Rate"), or any lesser rate that Wells Fargo may deem appropriate, starting on the first day of the month in which the Default Period begins through the last day of that Default Period, or any shorter time period to which Wells Fargo may agree in an Authenticated Record.

(d) Interest Accrual on Payments Applied to Revolving Note. Payments received by Wells Fargo shall be applied to the Revolving Note as provided in Section 1.4(c), but the principal amount paid down shall continue to accrue interest through the end of the second Business Day following the Business Day that the payment was applied to the Revolving Note.

(e) Usury. No interest rate shall be effective which would result in a rate greater than the highest rate permitted by law. Payments in the nature of interest and other charges made under any Loan Documents or any other document or agreement described in or related to this Agreement that are later determined to be in excess of the limits imposed by applicable usury law will be deemed to be a payment of principal, and the Indebtedness shall be reduced by that amount so that such payments will not be deemed usurious.

1.8  Fees.

(a) Origination Fee. Company shall pay Wells Fargo a one time origination fee of $100,000.00, which fee shall be fully earned and payable upon the execution of this Agreement.

(b) Unused Line Fee. Company shall pay Wells Fargo an annual unused line fee of one quarter of one percent (0.25%) of the daily average of the Maximum Line Amount reduced by outstanding Advances and the L/C Amount, from the date of this Agreement to and including the Termination Date (the "Unused Amount"), which unused line fee shall be payable monthly in arrears on the first day of each month and on the Termination Date.

(c) Facility Fee. Company shall pay Wells Fargo an annual facility fee of $25,000.00, which facility fee shall be payable annually on each the fifteenth of December each year, commencing December 15, 2009.

(d) Collateral Exam Fees. Company shall pay Wells Fargo fees in connection with any collateral exams, audits or inspections conducted by or on behalf of Wells Fargo at the current rates established from time to time by Wells Fargo as its collateral exam fees (which fees are currently $1,000.00 per day per collateral examiner), together with all actual out-of-pocket costs and expenses incurred in conducting any collateral examination or inspection.

-7-

(e) Credit Facility Termination and/or Reduction Fees. If (i) Wells Fargo terminates the Line of Credit, the Real Estate Loan and the Term Loan (collectively, the "Credit Facility") during a Default Period, or if (ii) Company terminates or prepays all or any portion of the Credit Facility on a date prior to the Maturity Date, or if (iii) Company and Wells Fargo agree to reduce the Maximum Line Amount, then Company shall pay Wells Fargo as liquidated damages a termination or reduction fee in an amount equal to the percentage of the Maximum Line Amount plus the principal balance outstanding on the Real Estate Loan, calculated as follows: (A) three percent (3.0%) if the termination or reduction occurs on or before the first anniversary of the first Line of Credit Advance; (B) two percent (2.0%) if the termination or reduction occurs after the first anniversary of the first Line of Credit Advance, but on or before the second anniversary of the first Line of Credit Advance; and (C) one percent (1.0%) if the termination or reduction occurs after the second anniversary of the first Line of Credit Advance.

(f) Overadvance Fees. Company shall pay a $500.00 Overadvance fee for each day that an Overadvance exists which was not agreed to by Wells Fargo in an Authenticated Record prior to its occurrence; provided that Wells Fargo's acceptance of the payment of such fees shall not constitute either consent to the Overadvance or waiver of the resulting Event of Default; and following an Event of Default, this fee shall increase to $1,000.00 for each day that an Overadvance exists, commencing on the first day of the month in which the Default Period begins and continuing through the last day of such Default Period, or any shorter time period that Wells Fargo in its sole discretion may deem appropriate, without waiving any of its other rights and remedies. Company shall pay additional Overadvance fees and interest in such amounts and on such terms as Wells Fargo in its sole discretion may consider appropriate for any Overadvance to which Wells Fargo has specifically consented in an Authenticated Record prior to its occurrence.

(g) Treasury Management Fees. Company will pay service fees to Wells Fargo for treasury management services provided pursuant to the Master Agreement for Treasury Management Services or any other agreement entered into by the parties, in the amount prescribed in Wells Fargo's current service fee schedule.

(h) Letter of Credit Fees. Company shall pay a fee with respect to each Letter of Credit issued by Wells Fargo of three percent (3.0%) of the aggregate undrawn amount of the Letter of Credit (the "Aggregate Face Amount") accruing daily from and including the date the Letter of Credit is issued until the date that it either expires or is returned, which shall be payable monthly in arrears on the first day of each month and on the date that the Letter of Credit either expires or is returned; and following an Event of Default, this fee shall increase to six percent (6.0%) of the Aggregate Face Amount, commencing on the first day of the month in which the Default Period begins and continuing through the last day of such Default Period, or any shorter time period that Wells Fargo in its sole discretion may deem appropriate, without waiving any of its other rights and remedies.

-8-

(i) Letter of Credit Administrative Fees. Company shall pay all administrative fees charged by Wells Fargo in connection with the honoring of drafts under any Letter of Credit, and any amendments to or transfers of any Letter of Credit, and any other activity with respect to the Letters of Credit at the current rates published by Wells Fargo for such services rendered on behalf of its customers generally.

(j) Other Fees and Charges. Wells Fargo may impose additional fees and charges during a Default Period for (i) waiving an Event of Default, or for (ii) the administration of Collateral by Wells Fargo. All such fees and charges shall be imposed at Wells Fargo's sole discretion following oral notice to Company on either an hourly, periodic, or flat fee basis, and in lieu of or in addition to imposing interest at the Default Rate, and Company's request for an Advance following such notice shall constitute Company's agreement to pay such fees and charges.

(k) Termination and Prepayment Fees Following Transfer Between Wells Fargo Operating Divisions. If the Loan Documents, following Company's request and the consent of Wells Fargo Business Credit (which consent may be withheld by Wells Fargo Business Credit in its sole discretion), are transferred at any time after the expiration of 24 months from the date of this Agreement, to an operating division of Wells Fargo other than Wells Fargo Business Credit, the transfer will not be deemed a termination or prepayment resulting in the payment of termination and/or prepayment fees, provided that Company agrees, at the time of transfer, to the payment of comparable fees in an amount not less than that set forth in this Agreement, in the event that any facilities extended under this Agreement are terminated early or prepaid after the transfer.

1.9 Interest Accrual; Principal and Interest Payments; Computation.

(a) Interest Payments and Interest Accrual. Accrued and unpaid interest under the Revolving Note, the Real Estate Term Note, the Term Note on Floating Rate Advances shall be due and payable on the first day of each month (each an "Interest Payment Date") and on the Termination Date, and shall be paid in the manner provided in Section 1.4(c) and Section 1.5(f). Interest shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of Advance to the Interest Payment Date.

(b) Payment of Revolving Note, Real Estate Term Note, and Term Note Principal. The principal amount of the Revolving Note, Real Estate Term Note, and Term Note shall be paid from time to time as provided in this Agreement, and shall be fully due and payable on the Termination Date.

(c) Payments Due on Non-Business Days. If an Interest Payment Date or the Termination Date falls on a day which is not a Business Day, payment shall be made on the next Business Day, and interest shall continue to accrue during that time period.

(d) Computation of Interest and Fees. Interest accruing on the unpaid principal amount of the Revolving Note and fees payable under this Agreement shall be computed on the basis of the actual number of days elapsed in a year of 360 days.

-9-

(e) Liability Records. Wells Fargo shall maintain accounting and bookkeeping records of all Advances and payments with respect to the Indebtedness in such form and content as Wells Fargo in its sole discretion deems appropriate. Wells Fargo's calculation of the amount of the Indebtedness shall be presumed correct unless proven otherwise by Company. Upon request, Company will admit and certify to Wells Fargo in a Record the exact unpaid principal amount of Indebtedness that Company then believes to be due and payable to Wells Fargo. Any billing statement or accounting provided by Wells Fargo shall be conclusive and binding unless Company notifies Wells Fargo in a detailed Record of its intention to dispute the billing statement or accounting within 30 days of receipt.

1.10 Termination, Reduction or Non-Renewal of Line of Credit by Company; Notice.

(a) Termination or Reduction by Company after Advance Notice. Company may terminate or reduce the Line of Credit, or terminate the Real Estate Loan or Term Loan, at any time prior to the Maturity Date, if it (i) delivers an Authenticated Record notifying Wells Fargo of its intentions at least 90 days prior to the proposed Termination Date, (ii) pays Wells Fargo the termination fee set forth in Section 1.8(e), and (iii) pays the Indebtedness in full or down to the reduced Maximum Line Amount. Any reduction in the Maximum Line Amount shall be in multiples of $100,000.00.

(b) Termination or Reduction by Company without Advance Notice. If Company fails to deliver Wells Fargo timely notice of its intention to terminate the Line of Credit, Real Estate Loan or Term Loan, or reduce the Maximum Line Amount as provided in Section 1.10(a), Company may nevertheless terminate the Line of Credit, Real Estate Loan or Term Loan, or reduce the Maximum Line Amount and pay the Indebtedness in full or down to the reduced Maximum Line Amount if it (i) pays the termination fee set forth in Section 1.8(e), and (ii) pays additional interest for each day that the notice was short of the required 90 days notice, which interest shall be in an amount that is equal to the greater of (A) interest calculated at the Default Rate based on the Company's average borrowings under the Line of Credit for the two months prior to the date that Wells Fargo receives delivery of an Authenticated Record giving it actual notice of Company's intention to terminate or reduce the Line of Credit, or (B) the unused line fee for the 3 months prior to the date that Wells Fargo receives delivery of an Authenticated Record giving it actual notice of Company's intention to terminate any portion of the Credit Facility or reduce the Line of Credit, calculated as provided in Section 1.8(b) of this Agreement.

(c) Non-Renewal by Company; Notice. If Company does not wish Wells Fargo to consider renewal of the Line of Credit on the next Maturity Date, Company shall deliver an Authenticated Record to Wells Fargo at least 90 days prior to the Maturity Date notifying Wells Fargo of its intention not to renew. If Company fails to deliver to Wells Fargo such timely notice, then the Revolving Note shall accrue interest at the Default Rate commencing on the 90th day prior to the Maturity Date and continuing through the date that Wells Fargo receives delivery of an Authenticated Record giving it actual notice of Company's intention not to renew.

-10-

1.11 Letters of Credit.

(a) Issuance of Letters of Credit; Amount. Wells Fargo, subject to the terms and conditions of this Agreement, shall issue, on or after the date that Wells Fargo is obligated to make its first Advance under this Agreement and prior to the Termination Date, one or more irrevocable standby letters of credit (each, a "Letter of Credit", and collectively, "Letters of Credit") for Company's account. Wells Fargo will not issue any Letter of Credit if the face amount of the Letter of Credit would exceed the lesser of: (i) $250,000.00 less the L/C Amount, or (ii) the Borrowing Base, less an amount equal to aggregate unreimbursed Line of Credit Advances plus the L/C Amount.

(b) Additional Letter of Credit Documentation. Prior to requesting issuance of a Letter of Credit, Company shall first execute and deliver to Wells Fargo a Standby Letter of Credit Agreement or a Commercial Letter of Credit Agreement, as applicable, an L/C Application, and any other documents that Wells Fargo may request, which shall govern the issuance of the Letter of Credit and Company's obligation to reimburse Wells Fargo for any related Letter of Credit draws (the "Obligation of Reimbursement").

(c) Expiration. No Letter of Credit shall be issued that has an expiry date that is later than one year from the date of issuance, or the Maturity Date in effect on the date of issuance, whichever is earlier.

(d) Obligation of Reimbursement During Default Periods. If Company is unable, due to the existence of a Default Period or for any other reason, to obtain an Advance to pay any Obligation of Reimbursement, Company shall pay Wells Fargo on demand and in immediately available funds, the amount of the Obligation of Reimbursement together with interest, accrued from the date presentment of the underlying draft until reimbursement in full at the Default Rate. Wells Fargo is authorized, alternatively and in its sole discretion, to make an Advance in an amount sufficient to discharge the Obligation of Reimbursement and pay all accrued but unpaid interest and fees with respect to the Obligation of Reimbursement.

1.12 Special Account. If the Line of Credit is terminated for any reason while a Letter of Credit is outstanding, or if after prepayment of the Revolving Note the L/C Amount continues to exceed the Borrowing Base, then Company shall promptly pay Wells Fargo in immediately available funds for deposit to the Special Account, an amount equal, as the case may be, to either (a) the L/C Amount plus any anticipated fees and costs, or (b) the amount by which the L/C Amount exceeds the Borrowing Base. If Company fails to pay these amounts promptly, then Wells Fargo may in its sole discretion make an Advance to pay these amounts and deposit the proceeds to the Special Account. The Special Account shall be an interest bearing account maintained with Wells Fargo or any other financial institution acceptable to Wells Fargo. Wells Fargo may in its sole discretion apply amounts on deposit in the Special Account to the Indebtedness. Company may not withdraw amounts deposited to the Special Account until the Line of Credit has been terminated and all outstanding Letters of Credit have either been returned to Wells Fargo or have expired and the Indebtedness has been fully paid.

-11-

2. SECURITY INTEREST AND OCCUPANCY OF COMPANY'S PREMISES

2.1 Grant of Security Interest. Company hereby pledges, assigns and grants to Wells Fargo, for the benefit of Wells Fargo and as agent for Wells Fargo Merchant Services, L.L.C., a Lien and security interest (collectively referred to as the "Security Interest") in the Collateral, as security for the payment and performance of all Indebtedness. Following request by Wells Fargo, Company shall grant Wells Fargo, for the benefit of Wells Fargo and as agent for Wells Fargo Merchant Services, L.L.C., a Lien and security interest in all commercial tort claims that it may have against any Person.

2.2 Notifying Account Debtors and Other Obligors; Collection of Collateral. Wells Fargo may at any time (whether or not a Default Period then exists) deliver a Record giving an account debtor or other Person obligated to pay an Account, a General Intangible, or other amount due, notice that the Account, General Intangible, or other amount due has been assigned to Wells Fargo for security and must be paid directly to Wells Fargo. Company shall join in giving such notice and shall Authenticate any Record giving such notice upon Wells Fargo's request. After Company or Wells Fargo gives such notice, Wells Fargo may, but need not, in Wells Fargo's or in Company's name, demand, sue for, collect or receive any money or property at any time payable or receivable on account of, or securing, such Account, General Intangible, or other amount due, or grant any extension to, make any compromise or settlement with or otherwise agree to waive, modify, amend or change the obligations (including collateral obligations) of any account debtor or other obligor. Wells Fargo may, in Wells Fargo's name or in Company's name, as Company's agent and attorney-in-fact, notify the United States Postal Service to change the address for delivery of Company's mail to any address designated by Wells Fargo, otherwise intercept Company's mail, and receive, open and dispose of Company's mail, applying all Collateral as permitted under this Agreement and holding all other mail for Company's account or forwarding such mail to Company's last known address.

2.3 Assignment of Insurance. As additional security for the Indebtedness, Company hereby assigns to Wells Fargo and to Wells Fargo Merchant Services, L.L.C., all rights of Company under every policy of insurance covering the Collateral and all business records and other documents relating to it, and all monies (including proceeds and refunds) that may be payable under any policy, and Company hereby directs the issuer of each policy to pay all such monies directly to Wells Fargo. At any time, whether or not a Default Period then exists, Wells Fargo may (but need not), in Wells Fargo's or Company's name, execute and deliver proofs of claim, receive payment of proceeds and endorse checks and other instruments representing payment of the policy of insurance, and adjust, litigate, compromise or release claims against the issuer of any policy. Any monies received under any insurance policy assigned to Wells Fargo, other than liability insurance policies, or received as payment of any award or compensation for condemnation or taking by eminent domain, shall be paid to Wells Fargo and, as determined by Wells Fargo in its sole discretion, either be applied to prepayment of the Indebtedness or disbursed to Company under staged payment terms reasonably satisfactory to Wells Fargo for application to the cost of repairs, replacements, or restorations which shall be effected with reasonable promptness and shall be of a value at least equal to the value of the items or property destroyed.

-12-

2.4 Company's Premises

(a) Wells Fargo's Right to Occupy Company's Premises. Company hereby grants to Wells Fargo the right, at any time during a Default Period and without notice or consent, to take exclusive possession of all locations where Company conducts its business or has any rights of possession, including the locations described on Exhibit B (the "Premises"), until the earlier of (i) payment in full and discharge of all Indebtedness and termination of the Line of Credit, or (ii) final sale or disposition of all items constituting Collateral and delivery of those items to purchasers.

(b) Wells Fargo's Use of Company's Premises. Wells Fargo may use the Premises to store, process, manufacture, sell, use, and liquidate or otherwise dispose of items that are Collateral, and for any other incidental purposes deemed appropriate by Wells Fargo in good faith.

(c) Company's Obligation to Reimburse Wells Fargo. Wells Fargo shall not be obligated to pay rent or other compensation for the possession or use of any Premises, but if Wells Fargo elects to pay rent or other compensation to the owner of any Premises in order to have access to the Premises, then Company shall promptly reimburse Wells Fargo all such amounts, as well as all taxes, fees, charges and other expenses at any time payable by Wells Fargo with respect to the Premises by reason of the execution, delivery, recordation, performance or enforcement of any terms of this Agreement.

2.5 License. Without limiting the generality of any other Security Document, Company hereby grants to Wells Fargo a non-exclusive, worldwide and royalty-free license to use or otherwise exploit all Intellectual Property Rights of Company for the purpose of: (a) completing the manufacture of any in-process materials during any Default Period so that such materials become saleable Inventory, all in accordance with the same quality standards previously adopted by Company for its own manufacturing and subject to Company's reasonable exercise of quality control; and (b) selling, leasing or otherwise disposing of any or all Collateral during any Default Period.

2.6  Financing Statements.

(a) Authorization to File. Company authorizes Wells Fargo to file financing statements describing Collateral to perfect Wells Fargo's Security Interest in the Collateral, and Wells Fargo may describe the Collateral as "all personal property" or "all assets" or describe specific items of Collateral including commercial tort claims as Wells Fargo may consider necessary or useful to perfect the Security Interest. All financing statements filed before the date of this Agreement to perfect the Security Interest were authorized by Company and are hereby re-authorized.

(b) Termination. Wells Fargo shall, at Company's expense, release or terminate any filings or other agreements that perfect the Security Interest, provided that there are no suits, actions, proceedings or claims pending or threatened against any Indemnitee under this Agreement with respect to any Indemnified Liabilities, upon Wells Fargo's receipt of the following, in form and content satisfactory to Wells Fargo: (i) cash payment in full of all Indebtedness and a completed performance by Company with respect to its other obligations under this Agreement, (ii) evidence that the commitment of Wells Fargo to make Advances under the Line of Credit or under any other facility with Company has been terminated, (iii) a release of all claims against Wells Fargo by Company relating to Wells Fargo's performance and obligations under the Loan Documents, and (iv) an agreement by Company, any guarantor, and any new lender to Company to indemnify Wells Fargo for any payments received by Wells Fargo that are applied to the Indebtedness as a final payoff that may subsequently be returned or otherwise not paid for any reason.

-13-

2.7 Setoff. Wells Fargo may at any time, in its sole discretion and without demand or notice to anyone, setoff any liability owed to Company by Wells Fargo against any Indebtedness, whether or not due.

2.8 Collateral Related Matters. This Agreement does not contemplate a sale of Accounts or chattel paper, and, as provided by law, Company is entitled to any surplus and shall remain liable for any deficiency. Wells Fargo's duty of care with respect to Collateral in its possession (as imposed by law) will be deemed fulfilled if it exercises reasonable care in physically keeping such Collateral, or in the case of Collateral in the custody or possession of a bailee or other third Person, exercises reasonable care in the selection of the bailee or third Person, and Wells Fargo need not otherwise preserve, protect, insure or care for such Collateral. Wells Fargo shall not be obligated to preserve rights Company may have against prior parties, to liquidate the Collateral at all or in any particular manner or order or apply the Proceeds of the Collateral in any particular order of application. Wells Fargo has no obligation to clean-up or prepare Collateral for sale. Company waives any right it may have to require Wells Fargo to pursue any third Person for any of the Indebtedness.

2.9 Notices Regarding Disposition of Collateral. If notice to Company of any intended disposition of Collateral or any other intended action is required by applicable law in a particular situation, such notice will be deemed commercially reasonable if given in the manner specified in Section 7.4 at least ten calendar days before the date of intended disposition or other action.

3. CONDITIONS PRECEDENT

3.1 Conditions Precedent to Initial Advance and Issuance of Initial Letter of Credit.

Wells Fargo's obligation to make the initial Advance or issue the first Letter of Credit shall be subject to the condition that Wells Fargo shall have received this Agreement and each of the Loan Documents, and any document, agreement, or other item described in or related to this Agreement, and all fees and information described in Exhibit C, executed and in form and content satisfactory to Wells Fargo.

-14-

3.2 Additional Conditions Precedent to All Advances and Letters of Credit. Wells Fargo's obligation to make any Advance (including the initial Advance) or issue any Letter of Credit shall be subject to the further additional conditions: (a) that the representations and warranties described in Exhibit D are correct on the date of the Advance or the issuance of the Letter of Credit, except to the extent that such representations and warranties relate solely to an earlier date; and (b) that no event has occurred and is continuing, or would result from the requested Advance or issuance of the Letter of Credit that would result in an Event of Default.

3.3 Additional Conditions Precedent to Term Loan Advance. Wells Fargo's obligation to make the Term Loan Advance shall be subject to the further additional condition that Company shall have provided to Lender an appraisal of Company's equipment in form and substance acceptable to Lender, as well as evidence satisfactory to Lender in its sole and absolute discretion, that (i) Company's operations have produced a positive cash flow for at least 3 rolling fiscal quarters as determined in accordance with GAAP, and (ii) Company is current with its trade vendors.

4.  REPRESENTATIONS AND WARRANTIES

To induce Wells Fargo to enter into this Agreement, Company makes the representations and warranties described in Exhibit D. Any request for an Advance will be deemed a representation by Company that all representations and warranties described in Exhibit D are true, correct and complete as of the time of the request, unless they relate exclusively to an earlier date. Company shall promptly deliver a Record notifying Wells Fargo of any change in circumstance that would affect the accuracy of any representation or warranty, unless the representation and warranty specifically relates to an earlier date.

5.  COVENANTS

So long as the Indebtedness remains unpaid, or the Line of Credit has not been terminated, Company shall comply with each of the following covenants, unless Wells Fargo shall consent otherwise in an Authenticated Record delivered to Company.

5.1 Reporting Requirements. Company shall deliver to Wells Fargo the following information, compiled where applicable using GAAP consistently applied, in form and content acceptable to Wells Fargo:

(a) Annual Financial Statements. As soon as available and in any event within 90 days after Company's fiscal year end, Company's audited financial statements prepared by an independent certified public accountant acceptable to Wells Fargo, which shall include Company's balance sheet, income statement, and statement of retained earnings and cash flows prepared on a consolidated and consolidating basis to include Company's Affiliates. The annual financial statements shall be accompanied by a certificate (the "Compliance Certificate") in the form of Exhibit E that is signed by Company's chief financial officer.

-15-

Each Compliance Certificate that accompanies an annual financial statement shall also be accompanied by (i) copies of all management letters prepared by Company's accountants; and (ii) a report signed by the accountant stating that in making the investigations necessary to render the opinion, the accountant obtained no knowledge, except as specifically stated, of any Event of Default under the Agreement, and a detailed statement, including computations, demonstrating whether or not Company is in compliance with the financial covenants of this Agreement.

(b) Interim Financial Statements. So long as the principal outstanding on the Line of Credit is less than $500,000.00, as soon as available and in any event within 40 days of each calendar quarter, a Company prepared balance sheet, income statement, and statement of retained earnings prepared for that quarter and for the year-to-date period then ended, prepared, if requested by Wells Fargo, on a consolidated and consolidating basis to include Company's Affiliates, and stating in comparative form the figures for the corresponding date and periods in the prior fiscal year, subject to year-end adjustments. For any month in which the principal outstanding on the Line of Credit is at any time $500,000.00 or greater, as soon as available and in any event within 30 days after the end of such month, a Company prepared balance sheet, income statement, and statement of retained earnings prepared for that month and for the year-to-date period then ended, prepared, if requested by Wells Fargo, on a consolidated and consolidating basis to include Company's Affiliates, and stating in comparative form the figures for the corresponding date and periods in the prior fiscal year, subject to year-end adjustments. In each case, the financial statements shall be accompanied by a Compliance Certificate in the form of Exhibit E that is signed by Company's chief financial officer.

(c) Collateral Reports. No later than 15 days after each month end (or more frequently if Wells Fargo shall request it), a Borrowing Base certificate, detailed agings of Company's accounts receivable and accounts payable, a detailed inventory report, and a calculation of Company's Accounts, Eligible Accounts, Inventory and Eligible Inventory as of the end of that month or shorter time period requested by Wells Fargo.

(d) Projections. No later than 30 days prior to each fiscal year end, Company's projected balance sheet and income statement and statement of cash flows for each month of the next fiscal year, certified as accurate by Company's chief financial officer and accompanied by a statement of assumptions and supporting schedules and information.

(e) Supplemental Reports. When an Advance made pursuant to an Advance request of the Company is outstanding, weekly, or more frequently if Wells Fargo requests, standard form "daily collateral report," together with receivables schedules, collection reports, and copies of invoices in excess of $50,000.00, shipment documents and delivery receipts for goods sold to account debtors in excess of $50,000.00.

(f) Litigation. No later than three days after discovery, a Record notifying Wells Fargo of any litigation or other proceeding before any court or governmental agency which seeks a monetary recovery against Company in excess of $10,000.00.

-16-

(g) Intellectual Property, (i) No later than 30 days before it acquires material Intellectual Property Rights, a Record notifying Wells Fargo of Company's intention to acquire such rights; (ii) except for transfers permitted under Section 5.18, no later than 30 days before it disposes of material Intellectual Property Rights, a Record notifying Wells Fargo of Company's intention to dispose of such rights, along with copies of all proposed documents and agreements concerning the disposal of such rights as requested by Wells Fargo; (iii) promptly upon discovery, a Record notifying Wells Fargo of (A) any Infringement of Company's Intellectual Property Rights by any Person, (B) claims that Company is Infringing another Person's Intellectual Property Rights and (C) any threatened cancellation, termination or material limitation of Company's Intellectual Property Rights; and (iv) promptly upon receipt, copies of all registrations and filings with respect to Company's Intellectual Property Rights.

(h) Defaults. No later than three days after learning of the probable occurrence of any Event of Default, a Record notifying Wells Fargo of the Event of Default and the steps being taken by Company to cure the Event of Default.

(i) Disputes. Promptly upon discovery, a Record notifying Wells Fargo of (i) any disputes or claims by Company's customers exceeding $5,000.00 individually or $10,000.00 in the aggregate during any fiscal year; (ii) credit memos not previously reported in Section 5.1(e); and (iii) any goods returned to or recovered by Company outside of the ordinary course of business or in the ordinary course of business but with a value in an amount in excess of $50,000.00.

(j) Changes in Officers and Directors. Promptly following occurrence, a Record notifying Wells Fargo of any change in the persons constituting Company's Officers and Directors.

(k) Collateral. Promptly upon discovery, a Record notifying Wells Fargo of any loss of or material damage to any Collateral or of any substantial adverse change in any Collateral or the prospect of its payment.

(l) Commercial Tort Claims. Promptly upon discovery, a Record notifying Wells Fargo of any commercial tort claims brought by Company against any Person, including the name and address of each defendant, a summary of the facts, an estimate of Company's damages, copies of any complaint or demand letter submitted by Company, and such other information as Wells Fargo may request.

(m) Reports to Owners. Promptly upon distribution, copies of all financial statements, reports and proxy statements which Company shall have sent to its Owners.

(n) Tax Returns of Company. No later than five days after they are required to be filed, copies of Company's signed and dated state and federal income tax returns and all related schedules, and copies of any extension requests.

(o) Violations of Law. No later than three days after discovery of any violation, a Record notifying Wells Fargo of Company's violation of any law, rule or regulation, the non­compliance with which could have a Material Adverse Effect on Company.

-17-

(p) Pension Plans, (i) Promptly upon discovery, and in any event within 30 days after Company knows or has reason to know that any Reportable Event with respect to any Pension Plan has occurred, a Record authenticated by Company's chief financial officer notifying Wells Fargo of the Reportable Event in detail and the actions which Company proposes to take to correct the deficiency, together with a copy of any related notice sent to the Pension Benefit Guaranty Corporation; (ii) promptly upon discovery, and in any event within 10 days after Company fails to make a required quarterly Pension Plan contribution under Section 412(m) of the IRC, a Record authenticated by Company's chief financial officer notifying Wells Fargo of the failure in detail and the actions that Company will take to cure the failure, together with a copy of any related notice sent to the Pension Benefit Guaranty Corporation; and (iii) promptly upon discovery, and in any event within 10 days after Company knows or has reason to know that it may be liable or may be reasonably expected to have liability for any withdrawal, partial withdrawal, reorganization or other event under any Multiemployer Plan under Sections 4201 or 4243 of ERISA, a Record authenticated by Company's chief financial officer notifying Wells Fargo of the details of the event and the actions that Company proposes to take in response.

(q) Other Reports. From time to time, with reasonable promptness, all customer lists, receivables schedules, inventory reports, collection reports, deposit records, equipment schedules, invoices to account debtors, shipment documents and delivery receipts for goods sold, and such other materials, reports, records or information as Wells Fargo may request.

5.2 Financial Covenants. Company agrees to comply with the financial covenants described below, which shall be calculated using GAAP consistently applied, except as they may be otherwise modified by the following capitalized definitions, and which shall be if requested by Wells Fargo, calculated on a consolidated and consolidating basis to include Company's Affiliates:

(a) Minimum Quarterly Net Income. Company shall achieve, for each period described below, Net Income of not less than the amount set forth for each such period (numbers appearing between "< >" are negative):    

Quarter Ending	Minimum Net Income
December 31, 2008	<$3,000,000.00>

(b)           Minimum Cumulative Quarterly Net Income. Company will maintain, as of the end of each period described below, year-to-date consolidated aggregate Net Income, minus the Company's year-to-date consolidated aggregate Net Income, as of December 31st of the preceding year (as set forth in the Company's audited financial statements), in an amount not less than the amount set forth for each such period (numbers appearing between "< >" are negative):

-18-

Quarter Ending	Minimum Quarterly Cumulative Net Income Step Up
Each March 31, 2009	<$1,000,000.00>
Each June 30, 2009	<$500,000.00>
Each September 30, 2009	$750,000.00
Each December 31, 2009	$2,000,000.00

(c)           Minimum Debt Service Coverage Ratio. Company will maintain, as of each fiscal quarter end, a cumulative quarterly Debt Service Coverage Ratio of not less than 1.2 to 1.0, beginning the quarter ending March 31, 2009.

(d)           Capital Expenditures. Company shall not incur or contract to incur Capital Expenditures of more than $5,000,000.00 in the aggregate during the fourth quarter 2008. Company shall not incur or contract to incur Capital Expenditures of more than $4,500,000.00 in the aggregate during 2009; except that Company may carry over up to $2,500,000.00 of the above-referenced fourth quarter 2008 Capital Expenditures to 2009. Lender may, in its sole discretion, increase the Capital Expenditure limit in the event that Company subsequently raises additional capital.

(e)           Minimum Availability. Company's availability under the Line of Credit plus its unrestricted cash shall not be less than $4,000,000.00 measured at each month end.

(f)            Future Covenants. Company and Lender shall establish financial covenants for the Company, which covenants shall be acceptable to Lender in its sole and absolute discretion, for fiscal year 2010 by December 31, 2009.

5.3  Other Liens and Permitted Liens.

(a) Other Liens; Permitted Liens. Company shall not create, incur or suffer to exist any Lien upon any of its assets, now owned or later acquired, as security for any indebtedness, with the exception of the following (each a "Permitted Lien"; collectively, "Permitted Liens"): (i) In the case of real property, covenants, restrictions, rights, easements and minor irregularities in title which do not materially interfere with Company's business or operations as presently conducted; (ii) Liens in existence on the date of this Agreement that are described in Exhibit F and secure indebtedness for borrowed money permitted under Section 5.4; (iii) The Security Interest and Liens created by the Security Documents; and (iv) Purchase money Liens relating to the acquisition of Equipment not exceeding the lesser of cost or fair market value, not exceeding $500,000.00 for any one purchase or $1,000,000.00 in the aggregate during any fiscal year, and so long as no Default Period is then in existence and none would exist immediately after such acquisition.

(b) Financing Statements. Company shall not authorize the filing of any financing statement by any Person as Secured Party with respect to any of Company's assets, other than Wells Fargo. Company shall not amend any financing statement filed by Wells Fargo as Secured Party except as permitted by law.

-19-

5.4 Indebtedness. Company shall not incur, create, assume or permit to exist any indebtedness or liability on account of deposits or letters of credit issued on Company's behalf, or advances or any indebtedness for borrowed money of any kind, whether or not evidenced by an instrument, except: (a) Indebtedness described in this Agreement; (b) indebtedness of Company described in Exhibit F; and (c) indebtedness secured by Permitted Liens.

5.5 Guaranties. Company shall not assume, guarantee, endorse or otherwise become directly or contingently liable for the obligations of any Person, except: (a) the endorsement of negotiable instruments by Company for deposit or collection or similar transactions in the ordinary course of business; and (b) guaranties, endorsements and other direct or contingent liabilities in connection with the obligations of other Persons in existence on the date of this Agreement and described in Exhibit F.

5.6 Investments and Subsidiaries. Company shall not make or permit to exist any loans or advances to, or make any investment or acquire any interest whatsoever in, any Person or Affiliate, including any partnership or joint venture, nor purchase or hold beneficially any stock or other securities or evidence of indebtedness of any Person or Affiliate, except:

(a) Investments in direct obligations of the United States of America or any of its political subdivisions whose obligations constitute the full faith and credit obligations of the United States of America and have a maturity of one year or less, commercial paper issued by U.S. corporations rated "A-l" or "A-2" by Standard & Poor's Ratings Services or "P-1" or "P-2" by Moody's Investors Service or certificates of deposit or bankers' acceptances having a maturity of one year or less issued by members of the Federal Reserve System having deposits in excess of $100,000,000.00 (which certificates of deposit or bankers' acceptances are fully insured by the Federal Deposit Insurance Corporation);

(b) Travel advances or loans to Company's Officers and employees not exceeding at any one time an aggregate of $10,000.00;

(c)  Prepaid rent not exceeding one month or security deposits; and

(d) Current investments in those Subsidiaries in existence on the date of this Agreement which are identified on Exhibit D.

5.7 Dividends and Distributions. Company shall not declare or pay any dividends (other than dividends payable solely in stock or membership interests of Company, as applicable) on any class of its stock or membership interests, or make any payment on account of the purchase, redemption or retirement of any shares of its stock or membership interests, or other securities or evidence of its indebtedness or make any distribution regarding its stock or membership interests, either directly or indirectly.

5.8 Salaries. Company shall not pay excessive or unreasonable salaries, bonuses, commissions, consultant fees or other compensation. Company shall not increase the salary, commissions, consultant fees or other compensation of any Director, Officer or consultant, or any member of their families, by more than 20% in any one year, either individually or for all such Persons in the aggregate, or pay such an increase from any source other than profits earned in the year of payment; provided however, that the restriction in this sentence shall not apply to existing employment contracts that have been approved by Company's board of directors. No bonuses shall be paid that would result in the occurrence of an Event of Default.

-20-

5.9  Books and Records; Collateral Examination; Inspection and Appraisals.

(a) Books and Records; Inspection. Company shall keep complete and accurate books and records with respect to the Collateral and Company's business and financial condition and any other matters that Wells Fargo may request, in accordance with GAAP. Company shall permit any employee, attorney, accountant or other agent of Wells Fargo to audit, review, make extracts from and copy any of its books and records at any time during ordinary business hours, and to discuss Company's affairs with any of its Directors, Officers, employees, Owners or agents.

(b) Authorization to Company's Agents to Make Disclosures to Wells Fargo. Company authorizes all accountants and other Persons acting as its agent to disclose and deliver to Wells Fargo's employees, accountants, attorneys and other Persons acting as its agent, at Company's expense, all financial information, books and records, work papers, management reports and other information in their possession regarding Company, other than materials subject to attorney-client privilege.

(c) Collateral Exams and Inspections. Company shall permit Wells Fargo's employees, accountants, attorneys or other Persons acting as its agent, to examine and inspect any Collateral or any other property of Company at any time during ordinary business hours.

(d) Collateral Appraisals. Wells Fargo may also obtain, from time to time, at Company's expense, an appraisal of Company's Collateral, by an appraiser acceptable to Wells Fargo in its sole discretion.

5.10  Account Verification; Payment of Permitted Liens.

(a) Account Verification. Wells Fargo or its agents may (i) contact account debtors and other obligors at any time to verify Company's Accounts; and (ii) require Company to send requests for verification of Accounts or send notices of assignment of Accounts to account debtors and other obligors.

(b) Covenant to Pay Permitted Liens. Company shall pay when due each account payable due to any Person holding a Permitted Lien (as a result of such payable) on any Collateral.

5.11  Compliance with Laws.

(a) General Compliance with Applicable Law; Use of Collateral. Company shall (i) comply, and cause each Subsidiary to comply, with the requirements of applicable laws and regulations, the non-compliance with which would have a Material Adverse Effect on its business or its financial condition and (ii) use and keep the Collateral, and require that others use and keep the Collateral, only for lawful purposes, without violation of any federal, state or local law, statute or ordinance.

-21-

(b) Compliance with Federal Regulatory Laws. Company shall (i) prohibit, and cause each Subsidiary to prohibit, any Person that is an Owner or Officer from being listed on the Specially Designated Nationals and Blocked Person List or other similar lists maintained by the Office of Foreign Assets Control ("OFAC"), the Department of the Treasury or included in any Executive Orders, (ii) not permit the proceeds of the Line of Credit or any other financial accommodation extended by Wells Fargo to be used in any way that violates any foreign asset control regulations of OFAC or other applicable law, (iii) comply, and cause each Subsidiary to comply, with all applicable Bank Secrecy Act laws and regulations, as amended from time to time, and (iv) otherwise comply with the USA Patriot Act and Wells Fargo's related policies and procedures.

(c) Compliance with Environmental Laws. Company shall (i) comply, and cause each Subsidiary to comply, with the requirements of applicable Environmental Laws and obtain and comply with all permits, licenses and similar approvals required by them, and (ii) not generate, use, transport, treat, store or dispose of any Hazardous Substances in such a manner as to create any material liability or obligation under the common law of any jurisdiction or any Environmental Law.

5.12 Payment of Taxes and Other Claims. Company shall pay or discharge, when due, and cause each Subsidiary to pay or discharge, when due, (a) all taxes, assessments and governmental charges levied or imposed upon it or upon its income or profits, upon any properties belonging to it (including the Collateral) or upon or against the creation, perfection or continuance of the Security Interest, prior to the date on which penalties attach, (b) all federal, state and local taxes required to be withheld by it, and (c) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a Lien upon any properties of Company, although Company shall not be required to pay any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which proper reserves have been made.

5.13  Maintenance of Collateral and Properties.

(a) Company shall keep and maintain the Collateral and all of its other properties necessary or useful in its business in good condition, repair and working order (normal wear and tear excepted) and will from time to time replace or repair any worn, defective or broken parts, although Company may discontinue the operation and maintenance of any properties if Company believes that such discontinuance is desirable to the conduct of its business and not disadvantageous in any material respect to Wells Fargo. Company shall take all commercially reasonable steps necessary to protect and maintain its Intellectual Property Rights.

(b) Company shall defend the Collateral against all Liens, claims and demands of all third Persons claiming any interest in the Collateral. Company shall keep all Collateral free and clear of all Liens except Permitted Liens. Company shall take all commercially reasonable steps necessary to prosecute any Person Infringing its Intellectual Property Rights and to defend itself against any Person accusing it of Infringing any Person's Intellectual Property Rights.

-22-

5.14 Insurance. Company shall at all times maintain insurance with insurers acceptable to Wells Fargo, in such amounts and on such terms (including deductibles) as Wells Fargo in its sole discretion may require and including, as applicable and without limitation, business interruption insurance (including force majeure coverage), hazard coverage on an "all risks" basis for all tangible Collateral, and theft and physical damage coverage for Collateral consisting of motor vehicles. All insurance policies must contain an appropriate lender's interest endorsement or clause, and name Wells Fargo as an additional insured.

5.15 Preservation of Existence. Company shall preserve and maintain its existence and all of its rights, privileges and franchises necessary or desirable in the normal conduct of its business and shall conduct its business in an orderly, efficient and regular manner.

5.16 Delivery of Instruments, etc. Upon request by Wells Fargo, Company shall promptly deliver to Wells Fargo in pledge all instruments, documents and chattel paper constituting Collateral, endorsed or assigned by Company.

5.17 Sale or Transfer of Assets; Suspension of Business Operations. Company shall not sell, lease, assign, transfer or otherwise dispose of (a) the stock of any Subsidiary, (b) all or a substantial part of its assets, or (c) any Collateral or any interest in Collateral (whether in one transaction or in a series of transactions) to any other Person other than the sale of Equipment not exceeding $250,000.00 in the aggregate or Inventory in the ordinary course of business and shall not liquidate, dissolve or suspend business operations. Company shall not transfer any part of its ownership interest in any Intellectual Property Rights and shall not permit its rights as licensee of Licensed Intellectual Property to lapse, except that Company may transfer such rights or permit them to lapse if it has reasonably determined that such Intellectual Property Rights are no longer useful in its business. If Company transfers any Intellectual Property Rights for value, Company shall pay the Proceeds to Wells Fargo for application to the Indebtedness. Company shall not license any other Person to use any of Company's Intellectual Property Rights, except that Company may grant licenses in the ordinary course of its business in connection with sales of Inventory or the provision of services to its customers.

5.18 Consolidation and Merger; Asset Acquisitions. Company shall not consolidate with or merge into any other entity, or permit any other entity to merge into it, or acquire (in a transaction analogous in purpose or effect to a consolidation or merger) all or substantially all of the assets of any other entity.

5.19 Sale and Leaseback. Company shall not enter into any arrangement, directly or indirectly, with any other Person pursuant to which Company shall sell or transfer any real or personal property, whether owned now or acquired in the future, and then rent or lease all or part of such property or any other property which Company intends to use for substantially the same purpose or purposes as the property being sold or transferred.

-23-

5.20 Restrictions on Nature of Business. Company will not engage in any line of business materially different from that presently engaged in by Company, and will not purchase, lease or otherwise acquire assets not related to its business.

5.21 Accounting. Company will not adopt any material change in accounting principles except as required by GAAP, consistently applied. Company will not change its fiscal year.

5.22 Discounts, etc. After notice from Wells Fargo, Company will not grant any discount, credit or allowance to any customer of Company or accept any return of goods sold. Company will not at any time modify, amend, subordinate, cancel or terminate any Account.

5.23 Pension Plans. Except as disclosed to Wells Fargo in a Record prior to the date of this Agreement, neither Company nor any ERISA Affiliate will (a) adopt, create, assume or become party to any Pension Plan, (b) become obligated to contribute to any Multiemployer Plan, (c) incur any obligation to provide post-retirement medical or insurance benefits with respect to employees or former employees (other than benefits required by law) or (d) amend any Plan in a manner that would materially increase its funding obligations.

5.24 Place of Business; Name. Company will not transfer its chief executive office or principal place of business, or move, relocate, close or sell any business Premises. Company will not permit any tangible Collateral or any records relating to the Collateral to be located in any state or area in which, in the event of such location, a financing statement covering such Collateral would be required to be, but has not in fact been, filed in order to perfect the Security Interest. Company will not change its name or jurisdiction of organization.

5.25 Constituent Documents; S Corporation Status. Company will not amend its Constituent Documents. Company will not become an S Corporation.

5.26 Performance by Wells Fargo. If Company fails to perform or observe any of its obligations under this Agreement at any time, Wells Fargo may, but need not, perform or observe them on behalf of Company and may, but need not, take any other actions which Wells Fargo may reasonably deem necessary to cure or correct this failure; and Company shall pay Wells Fargo upon demand the amount of all costs and expenses (including reasonable attorneys' fees and legal expense) incurred by Wells Fargo in performing these obligations, together with interest on these amounts at the Default Rate.

5.27 Wells Fargo Appointed as Company's Attorney in Fact. To facilitate Wells Fargo's performance or observance of Company's obligations under this Agreement, Company hereby irrevocably appoints Wells Fargo and Wells Fargo's agents, as Company's attorney in fact (which appointment is coupled with an interest) with the right (but not the duty) to create, prepare, complete, execute, deliver, endorse or file on behalf of Company any instruments, documents, assignments, security agreements, financing statements, applications for insurance and any other agreements or any Record required to be obtained, executed, delivered or endorsed by Company in accordance with the terms of this Agreement.

-24-

6.  EVENTS OF DEFAULT AND REMEDIES

6.1 Events of Default. An "Event of Default" means any of the following:

(a) Company fails to pay the amount of any Indebtedness on the date that it becomes due and payable;

(b) Company fails to observe or perform any covenant or agreement of Company set forth in this Agreement, or in any of the Loan Documents, or in any other document or agreement described in or related to this Agreement or to any Indebtedness, or any covenant in Section 5.2 becomes inapplicable due to the lapse of time, and Company and Wells Fargo fail to come to an agreement acceptable to Wells Fargo in Wells Fargo's sole discretion to amend the covenant to apply to future periods;

(c) An Overadvance arises as the result of any reduction in the Borrowing Base, or arises in any manner or on terms not otherwise approved of in advance by Wells Fargo in a Record that it has Authenticated;

(d) An event of default or termination event (however defined) occurs under any swap, derivative, foreign exchange, hedge or any similar transaction or arrangement entered into between Company and Wells Fargo;

(e)  A Change of Control shall occur;

(f) Company or any Guarantor becomes insolvent or admits in a Record an inability to pay debts as they mature, or Company or any Guarantor makes an assignment for the benefit of creditors; or Company or any Guarantor applies for or consents to the appointment of any receiver, trustee, or similar officer for the benefit of Company or any Guarantor, or for any of their properties; or any receiver, trustee or similar officer is appointed without the application or consent of Company or such Guarantor; or any judgment, writ, warrant of attachment or execution or similar process is issued or levied against a substantial part of the property of Company or any Guarantor;

(g) Company or any Guarantor files a petition under any chapter of the United States Bankruptcy Code or under the laws of any other jurisdiction naming Company or such Guarantor as debtor; or any such petition is instituted against Company or any such Guarantor; or Company or any Guarantor institutes (by petition, application, answer, consent or otherwise) any bankruptcy, insolvency, reorganization, debt arrangement, dissolution, liquidation or similar proceeding under the laws of any jurisdiction; or any such proceeding is instituted (by petition, application or otherwise) against Company or any such Guarantor.

-25-

(h) Any representation or warranty made by Company in this Agreement or by any Guarantor in any Guaranty, or by Company (or any of its Officers) or any Guarantor in any agreement, certificate, instrument or financial statement or other statement delivered to Wells Fargo in connection with this Agreement or pursuant to such Guaranty is untrue or misleading in any material respect when delivered to Wells Fargo;

(i) A final, non-appealable arbitration award, judgment, or decree or order for the payment of money in an amount in excess of $10,000.00 is entered against Company, which is not insured, subject to indemnity, immediately stayed or appealed, or paid immediately without resulting in an Event of Default;

(j) Company is in default with respect to any bond, debenture, note or other evidence of material indebtedness issued by Company that is held by any third Person other than Wells Fargo, or under any instrument under which any such evidence of indebtedness has been issued or by which it is governed, or under any material lease or other contract, and the applicable grace period, if any, has expired, regardless of whether such default has been waived by the holder of such indebtedness;

(k) Company liquidates, dissolves, terminates or suspends its business operations or otherwise fails to operate its business in the ordinary course, or merges with another Person; or sells or attempts to sell all or substantially all of its assets;

(1) Company fails to pay any indebtedness or obligation owed to Wells Fargo which is unrelated to the Line of Credit or this Agreement as it becomes due and payable;

(m) Any Guarantor repudiates or purports to revoke the Guarantor's Guaranty, or fails to perform any obligation under such Guaranty, or any individual Guarantor dies or becomes incapacitated, or any other Guarantor ceases to exist for any reason;

(n) Company engages in any act prohibited by any Subordination Agreement, or makes any payment on Subordinated Indebtedness (as defined in the Subordination Agreement) that the Subordinated Creditor was not contractually entitled to receive;

(o) Any event or circumstance occurs that Wells Fargo in good faith believes may impair the prospect of payment of all or a material part of the Indebtedness, or Company's ability to perform any of its material obligations under any of the Loan Documents, or any other document or agreement described in or related to this Agreement, or there occurs any Material Adverse Change.

(p) Any Director or Officer of Company is indicted for a felony offence under state or federal law, or Company hires an Officer or appoints a Director who has been convicted of any such felony offense.

(q) Any Reportable Event, which Wells Fargo in good faith believes to constitute sufficient grounds for termination of any Pension Plan or for the appointment of a trustee to administer any Pension Plan, has occurred and is continuing 30 days after Company gives Wells Fargo a Record notifying it of the Reportable Event; or a trustee is appointed by an appropriate court to administer any Pension Plan; or the Pension Benefit Guaranty Corporation institutes proceedings to terminate or appoint a trustee to administer any Pension Plan; or Company or any ERISA Affiliate files for a distress termination of any Pension Plan under Title IV of ERISA; or Company or any ERISA Affiliate fails to make any quarterly Pension Plan contribution required under Section 412(m) of the IRC, which Wells Fargo in good faith believes may, either by itself or in combination with other failures, result in the imposition of a Lien on Company's assets in favor of the Pension Plan; or any withdrawal, partial withdrawal, reorganization or other event occurs with respect to a Multiemployer Plan which could reasonably be expected to result in a material liability by Company to the Multiemployer Plan under Title IV of ERISA.

-26-

6.2 Rights and Remedies. During any Default Period, Wells Fargo may in its discretion exercise any or all of the following rights and remedies:

(a) Wells Fargo may terminate the Line of Credit and decline to make Advances including any unfunded Term Loan Advances, if any, and terminate any services extended to Company under the Master Agreement for Treasury Management Services;

(b) Wells Fargo may declare the Indebtedness to be immediately due and payable and accelerate payment of the Revolving Note, the Real Estate Term Note, and the Term Note, and all Indebtedness shall immediately become due and payable, without presentment, notice of dishonor, protest or further notice of any kind, all of which Company hereby expressly waives;

(c) Wells Fargo may, without notice to Company, apply any money owing by Wells Fargo to Company to payment of the Indebtedness;

(d) Wells Fargo may exercise and enforce any rights and remedies available upon default to a secured party under the UCC, including the right to take possession of Collateral, proceeding with or without judicial process (without a prior hearing or notice of hearing, which Company hereby expressly waives) and sell, lease or otherwise dispose of Collateral for cash or on credit (with or without giving warranties as to condition, fitness, merchantability or title to Collateral, and in the event of a credit sale, Indebtedness shall be reduced only to the extent that payments are actually received), and Company will upon Wells Fargo's demand assemble the Collateral and make it available to Wells Fargo at any place designated by Wells Fargo which is reasonably convenient to both parties;

(e) Wells Fargo may exercise and enforce its rights and remedies under any of the Loan Documents and any other document or agreement described in or related to this Agreement;

(f) Company will pay Wells Fargo upon demand in immediately available funds an amount equal to the Aggregate Face Amount plus any anticipated costs and fees for deposit to the Special Account pursuant to Section 1.12;

(g) Wells Fargo may for any reason apply for the appointment of a receiver of the Collateral, to which appointment Company hereby consents; and

-27-

(h) Wells Fargo may exercise any other rights and remedies available to it by law or agreement.

6.3 Immediate Default and Acceleration. Following the occurrence of an Event of Default described in Section 6.1(f) or (g), the Line of Credit shall immediately terminate and all of Company's Indebtedness shall immediately become due and payable without presentment, demand, protest or notice of any kind.

7. MISCELLANEOUS

7.1 No Waiver; Cumulative Remedies. No delay or any single or partial exercise by Wells Fargo of any right, power or remedy under the Loan Documents, or under any other document or agreement described in or related to this Agreement, shall constitute a waiver of any other right, power or remedy under the Loan Documents or granted by Company to Wells Fargo under other agreements or documents that are unrelated to the Loan Documents. No notice to or demand on Company in any circumstance shall entitle Company to any additional notice or demand in any other circumstances. The remedies provided in the Loan Documents or in any other document or agreement described in or related to this Agreement are cumulative and not exclusive of any remedies provided by law. Wells Fargo may comply with applicable law in connection with a disposition of Collateral, and such compliance will not be considered to adversely affect the commercial reasonableness of any sale of the Collateral.

7.2 Amendments; Consents and Waivers; Authentication. No amendment or modification of any Loan Documents, or any other document or agreement described in or related to this Agreement, or consent to or waiver of any Event of Default, or consent to or waiver of the application of any covenant or representation set forth in any of the Loan Documents, or any other document or agreement described in or related to this Agreement, or any release of Wells Fargo's Security Interest in any Collateral, shall be effective unless it has been agreed to by Wells Fargo and memorialized in a Record that: (a) specifically states that it is intended to amend or modify specific Loan Documents, or any other document or agreement described in or related to this Agreement, or waive any Event of Default or the application of any covenant or representation of any terms of specific Loan Documents, or any other document or agreement described in or related to this Agreement, or is intended to release Wells Fargo's Security Interest in specific Collateral; and (b) is Authenticated by the signature of an authorized employee of both parties, or by an authorized employee of Wells Fargo with respect to a consent or waiver. The terms of an amendment, consent or waiver memorialized in any Record shall be effective only to the extent, and in the specific instance, and for the limited purpose to which Wells Fargo has agreed.

7.3 Execution in Counterparts; Delivery of Counterparts. This Agreement and all other Loan Documents, or any other document or agreement described in or related to this Agreement, and any amendment or modification to them may be Authenticated by the parties in any number of counterparts, each of which, once authenticated and delivered in accordance with the terms of this Section 7.3, will be deemed an original, and all such counterparts, taken together, shall constitute one and the same instrument. Delivery by fax or by encrypted e-mail or e-mail file attachment of any counterpart to any Loan Document Authenticated by an authorized signature will be deemed the equivalent of the delivery of the original Authenticated instrument. Company shall send the original Authenticated counterpart to Wells Fargo by first class U.S. mail or by overnight courier, but Company's failure to deliver a Record in this form shall not affect the validity, enforceability, and binding effect of this Agreement or the other Loan Documents, or any other document or agreement described in or related to this Agreement.

-28-

7.4 Notices, Requests, and Communications; Confidentiality. Except as otherwise expressly provided in this Agreement:

(a) Delivery of Notices, Requests and Communications. Any notice, request, demand, or other communication by either party that is required under the Loan Documents, or any other document or agreement described in or related to this Agreement, to be in the form of a Record (but excluding any Record containing information Company must report to Wells Fargo under Section 5.1) may be delivered (i) in person, (ii) by first class U.S. mail, (iii) by overnight courier of national reputation, or (iv) by fax, or the Record may be sent as an Electronic Record and delivered (v) by an encrypted e-mail, or (vi) through Wells Fargo's Commercial Electronic Office® ("CEO®") portal or other secure electronic channel to which the parties have agreed.

(b) Addresses for Delivery. Delivery of any Record under this Section 7.4 shall be made to the appropriate address set forth on the last page of this Agreement (which either party may modify by a Record sent to the other party), or through Wells Fargo's CEO portal or other secure electronic channel to which the parties have agreed.

(c) Date of Receipt. Each Record sent pursuant to the terms of this Section 7.4 will be deemed to have been received on (i) the date of delivery if delivered in person, (ii) two business days after the date deposited in the mail if sent by mail, (iii) one business day after the date delivered to the courier if sent by overnight courier, (iv) the date of transmission if sent by fax, or (v) the date of transmission, if sent as an Electronic Record by electronic mail or through Wells Fargo's CEO portal or similar secure electronic channel to which the parties have agreed; except that any request for an Advance or any other notice, request, demand or other communication from Company required under Section 1, and any request for an accounting under Section 9-210 of the UCC, will not be deemed to have been received until actual receipt by Wells Fargo on a Business Day by an authorized employee of Wells Fargo.

(d) Confidentiality of Unencrypted E-mail. Company acknowledges that if it sends an Electronic Record to Wells Fargo without encryption by e-mail or as an e-mail file attachment, there is a risk that the Electronic Record may be received by unauthorized Persons, and that by so doing it will be deemed to have accepted this risk and the consequences of any such unauthorized disclosure.

7.5 Company Information Reporting; Confidentiality. Except as otherwise expressly provided in this Agreement:

-29-

(a) Delivery of Company Information Records. Any information that Company is required to deliver under Section 5.1 in the form of a Record may be delivered to Wells Fargo (i) in person, or by (ii) first class U.S. mail, (iii) overnight courier of national reputation, or (iv) fax, or the Record may be sent as an Electronic Record (v) by encrypted e-mail, or (vi) through the file upload service of Wells Fargo's CEO portal or other secure electronic channel to which the parties have agreed.

(b) Addresses for Delivery. Delivery of any Record to Wells Fargo under this Section 7.5 shall be made to the appropriate address set forth on the last page of this Agreement (which Wells Fargo may modify by a Record sent to Company), or through Wells Fargo's CEO portal or other secure electronic channel to which the parties have agreed.

(c) Date of Receipt. Each Record sent pursuant to this Section will be deemed to have been received on (i) the date of delivery to an authorized employee of Wells Fargo, if delivered in person, or by U.S. mail, overnight courier, fax, or e-mail; or (ii) the date of transmission, if sent as an Electronic Record through Wells Fargo's CEO portal or similar secure electronic channel to which the parties have agreed.

(d) Authentication of Company Information Records. Company shall Authenticate any Record delivered (i) in person, or by U.S. mail, overnight courier, or fax, by the signature of the Officer or employee of Company who prepared the Record; (ii) as an Electronic Record sent via encrypted e-mail, by the signature of the Officer or employee of Company who prepared the Record by any file format signature that is acceptable to Wells Fargo, or by a separate certification signed and sent by fax; or (iii) as an Electronic Record via the file upload service of Wells Fargo's CEO portal or similar secure electronic channel to which the parties have agreed, through such credentialing process as Wells Fargo and Company may agree to under the CEO agreement.

(e) Certification of Company Information Records. Any Record (including any Electronic Record) Authenticated and delivered to Wells Fargo under this Section 7.5 will be deemed to have been certified as materially true, correct, and complete by Company and each Officer or employee of Company who prepared and Authenticated the Record on behalf of Company, and may be legally relied upon by Wells Fargo without regard to method of delivery or transmission.

(f) Confidentiality of Company Information Records Sent by Unencrypted E-mail. Company acknowledges that if it sends an Electronic Record to Wells Fargo without encryption by e-mail or as an e-mail file attachment, there is a risk that the Electronic Record may be received by unauthorized Persons, and that by so doing it will be deemed to have accepted this risk and the consequences of any such unauthorized disclosure. Company acknowledges that it may deliver Electronic Records containing Company information to Wells Fargo by e-mail pursuant to any encryption tool acceptable to Wells Fargo and Company, or through Wells Fargo's CEO portal file upload service without risk of unauthorized disclosure.

7.6 Further Documents. Company will from time to time execute, deliver, endorse and authorize the filing of any instruments, documents, conveyances, assignments, security agreements, financing statements, control agreements and other agreements that Wells Fargo may reasonably request in order to secure, protect, perfect or enforce the Security Interest or Wells Fargo's rights under the Loan Documents, or any other document or agreement described in or related to this Agreement (but any failure to request or assure that Company executes, delivers, endorses or authorizes the filing of any such item shall not affect or impair the validity, sufficiency or enforceability of the Loan Documents, or any other document or agreement described in or related to this Agreement, and the Security Interest, regardless of whether any such item was or was not executed, delivered or endorsed in a similar context or on a prior occasion).

-30-

7.7 Costs and Expenses. Company shall pay on demand all costs and expenses, including reasonable attorneys' fees, incurred by Wells Fargo in connection with the Indebtedness, this Agreement, the Loan Documents, or any other document or agreement described in or related to this Agreement, and the transactions contemplated by this Agreement, including all such costs, expenses and fees incurred in connection with the negotiation, preparation, execution, delivery, amendment, administration, performance, collection and enforcement of the Indebtedness and all such documents and agreements and the creation, perfection, protection, satisfaction, foreclosure or enforcement of the Security Interest.

7.8 Indemnity. In addition to its obligation to pay Wells Fargo's expenses under the terms of this Agreement, Company shall indemnify, defend and hold harmless Wells Fargo, its parent Wells Fargo & Company, and any of its affiliates and successors, and all of their present and future Officers, Directors, employees, attorneys and agents (each an "Indemnitee") for, from and against any of the following (collectively, "Indemnified Liabilities"):

(a) Any and all transfer taxes, documentary taxes, assessments or charges made by any governmental authority by reason of the execution and delivery of the Loan Documents, or any other document or agreement described in or related to this Agreement, or the making of the Advances;

(b) Any claims, loss or damage to which any Indemnitee may be subjected if any representation or warranty contained in Exhibit D proves to be incorrect in any respect or as a result of any violation of the covenants contained in Section 5.12; and

(c) Any and all other liabilities, losses, damages, penalties, judgments, suits, claims, costs and expenses of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel) in connection with this Agreement and any other investigative, administrative or judicial proceedings, whether or not such Indemnitee shall be designated a party to such proceedings, which may be imposed on, incurred by or asserted against any such Indemnitee, in any manner related to or arising out of or in connection with the making of the Advances and the Loan Documents, or any other document or agreement described in or related to this Agreement, or the use or intended use of the proceeds of the Advances, with the exception of any Indemnified Liability caused by the gross negligence or willful misconduct of an Indemnitee.

-31-

If any investigative, judicial or administrative proceeding described in this Section is brought against any Indemnitee, upon the Indemnitee's request, Company, or counsel designated by Company and satisfactory to the Indemnitee, will resist and defend the action, suit or proceeding to the extent and in the manner directed by the Indemnitee, at Company's sole cost and expense. Each Indemnitee will use its best efforts to cooperate in the defense of any such action, suit or proceeding. If this agreement to indemnify is held to be unenforceable because it violates any law or public policy, Company shall nevertheless make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities to the extent permissible under applicable law. Company's obligations under this Section shall survive the termination of this Agreement and the discharge of Company's other obligations under this Agreement.

7.9 Retention of Company's Records. Wells Fargo shall have no obligation to maintain Electronic Records or retain any documents, schedules, invoices, agings, or other Records delivered to Wells Fargo by Company in connection with the Loan Documents, or any other document or agreement described in or related to this Agreement for more than 30 days after receipt by Wells Fargo. If there is a special need to retain specific Records, Company must notify Wells Fargo of its need to retain or return such Records with particularity, which notice must be delivered to Wells Fargo in accordance with the terms of this Agreement at the time of the initial delivery of the Record to Wells Fargo.

7.10 Binding Effect; Assignment; Complete Agreement. The Loan Documents, or any other document or agreement described in or related to this Agreement, shall be binding upon and inure to the benefit of Company and Wells Fargo and their respective successors and assigns, except that Company shall not have the right to assign its rights under this Agreement or any interest in this Agreement without Wells Fargo's prior consent, which must be confirmed in a Record Authenticated by Wells Fargo. To the extent permitted by law, Company waives and will not assert against any assignee any claims, defenses or set-offs which Company could assert against Wells Fargo. This Agreement shall also bind all Persons who become a party to this Agreement as a borrower. This Agreement, together with the Loan Documents, or any other document or agreement described in or related to this Agreement, comprises the complete and integrated agreement of the parties on the subject matter of this Agreement and supersedes all prior agreements, whether oral or evidenced in a Record. To the extent that any provision of this Agreement contradicts other provisions of the Loan Documents other than this Agreement, or any other document or agreement described in or related to this Agreement, this Agreement shall control.

7.11 Sharing of Information. Wells Fargo may share any Confidential Information that it may have regarding Company and its Affiliates with its accountants, lawyers, and other advisors, and with each business unit and line of business within Wells Fargo and each direct and indirect subsidiary of Wells Fargo & Company.

7.12 Severability of Provisions. Any provision of this Agreement which is prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining terms of this Agreement.

-32-

7.13 Headings. Section and subsection headings in this Agreement are included for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.

7.14 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial. The Loan Documents (other than real estate related documents, if any) shall be governed by and construed in accordance with the substantive laws (other than conflict laws) of the State of Arizona. The parties to this Agreement (a) consent to the personal jurisdiction of the state and federal courts located in the State of Arizona in connection with any controversy related to this Agreement; (b) waive any argument that venue in any such forum is not convenient; (c) agree that any litigation initiated by Wells Fargo or Company in connection with this Agreement or the other Loan Documents may be venued in either the state or federal courts located in the City of Phoenix, County of Maricopa, State of Arizona; and (d) agree that a final judgment in any such suit, action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.

COMPANY AND WELLS FARGO WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION AT LAW OR IN EQUITY OR IN ANY OTHER PROCEEDING BASED ON OR PERTAIING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.

COMPANY AND WELLS FARGO have executed this Agreement through their authorized officers as of the date set forth above.

NutraCea, a California corporation By: /s/ Bradley D. Edson Name: Bradley D. Edson Its: CEO	Address: 5090 N. 40th Street, Suite 400 Phoenix, Arizona 85018 Attention: Olga Longan Fax: 602-522-7575 Email: olongan@nutracea.com Federal EIN: 87-0673375 Org. ID No.
NutraPhoenix, LLC, a Delaware limited liability company By: /s/ Bradley D. Edson Name: Bradley D. Edson Its: President	Address: 5090 N. 40th Street, Suite 400 Phoenix, Arizona 85018 Attention: Olga Longan Fax: 602-522-7575 Email: olongan@nutracea.com Federal EIN: 26-2233062 Org. ID No.

With a copy to: Shawn M. Kent, Esq.

Weintraub Genshelea Chediak

400 Capitol Mall, 11th Floor

Sacramento, CA 95814

Fax: 916-446-1611  Email: skent@weintraub.com

-33-

Wells Fargo Bank, National Association	Address:
By: /s/ Shane Luke	100 W Washington St., 15th Floor
Name: Shane Luke	MAC S4101-158, Phoenix, Arizona 85003
Its: Vice President	Attention: Shane Luke
	Fax: 602-378-6215
	Email: lukesha@wellsfargo.com

-34-

REVOLVING NOTE

$2,500,000.00 December 18, 2008

FOR VALUE RECEIVED, the undersigned, NutraCea, a California corporation, and NutraPhoenix, LLC, a Delaware limited liability company, (collectively, the "Company"), hereby promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Wells Fargo"), acting through its WELLS FARGO BUSINESS CREDIT operating division, on the Termination Date described in the Credit and Security Agreement dated December 2008 (as amended from time to time, the "Agreement") and entered into between Wells Fargo and Company, at Wells Fargo's office at 100 W. Washington Street, 15th Floor, Phoenix, Arizona 85003, or at any other place designated at any time by the holder, in lawful money of the United States of America and in immediately available funds, the principal sum of Two Million Five Hundred Thousand Dollars ($2,500,000.00) or the aggregate unpaid principal amount of all Advances under the Line of Credit made by Wells Fargo to Company under the terms of the Agreement, together with interest on the outstanding principal amount of all Advances computed on the basis of actual days elapsed in a 360-day year, from the date of this Revolving Note until this Revolving Note is fully paid at the rate from time to time in effect under the terms of the Agreement. Principal and interest accruing on the unpaid principal amount of all Advances under this Revolving Note shall be due and payable as provided in the Agreement. This Revolving Note may be prepaid only in accordance with the Agreement.

This Revolving Note is the Revolving Note referred to in the Agreement, and is subject to the terms of the Agreement, which provides, among other things, for the acceleration of this Revolving Note. This Revolving Note is secured, among other things, by the Agreement and the Security Documents as defined in the Agreement, and by any other security agreements, mortgages, deeds of trust, assignments or other instruments or agreements that may subsequently be given for good and valuable consideration as security for this Revolving Note.

Company shall pay all costs of collection, including reasonable attorneys' fees and legal expenses if this Revolving Note is not paid when due, whether or not legal proceedings are commenced.

Presentment or other demand for payment, notice of dishonor and protest are expressly waived.

NUTRACEA, a California corporation
By:	/s/ Bradley D. Edson
Name:	Bradley D Epson
Its:	C.E.O
NUTRAPHOENIX, LLC, a Delaware limited liability company
By:	/s/ Bradley D. Edson
Name:	Bradley D Epson
Its:	CEO

REAL ESTATE TERM NOTE

$5,000,000.00 December 18, 2008

FOR VALUE RECEIVED, the undersigned, NutraCea, a California corporation, and NutraPhoenix, LLC, a Delaware limited liability company, (collectively, the "Company"), hereby promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Wells Fargo"), acting through its WELLS FARGO BUSINESS CREDIT operating division, on the Termination Date described in the Credit and Security Agreement dated December 18, 2008 (as amended from time to time, the "Agreement") and entered into between Wells Fargo and Company, at Wells Fargo's office at 100 W. Washington Street, 15th Floor, Phoenix, Arizona 85003, or at any other place designated at any time by the holder, in lawful money of the United States of America and in immediately available funds, the principal sum of Five Million Dollars ($5,000,000.00) or the aggregate unpaid principal amount of the Real Estate Loan made by Wells Fargo to Company under the terms of the Agreement, together with interest on the outstanding principal amount computed on the basis of actual days elapsed in a 360-day year, from the date of this Real Estate Term Note until this Real Estate Term Note is fully paid at the rate from time to time in effect under the terms of the Agreement. Principal and interest accruing on the unpaid principal amount of this Real Estate Term Note shall be due and payable as provided in the Agreement. This Real Estate Term Note may be prepaid only in accordance with the Agreement.

This Real Estate Term Note is the Real Estate Term Note referred to in the Agreement, and is subject to the terms of the Agreement, which provides, among other things, for the acceleration of this Real Estate Term Note. This Real Estate Term Note is secured, among other things, by the Agreement, the Deed of Trust, and the Security Documents as defined in the Agreement, and by any other security agreements, mortgages, deeds of trust, assignments or other instruments or agreements that may subsequently be given for good and valuable consideration as security for this Real Estate Term Note.

Company shall pay all costs of collection, including reasonable attorneys' fees and legal expenses if this Real Estate Term Note is not paid when due, whether or not legal proceedings are commenced.

Presentment or other demand for payment, notice of dishonor and protest are expressly waived.

NUTRACEA, a California corporation
By:	/s/ Bradley D. Edson
Name:	Bradley D. Edson
Its:	C.E.O.
NUTRAPHOENIX, LLC, a Delaware limited liability company
By:	/s/ Bradley D. Edson
Name:	Bradley D. Edson
Its:	C.E.O.

TERM NOTE

$2,500,000.00 December 18, 2008

FOR VALUE RECEIVED, the undersigned, NutraCea, a California corporation, and NutraPhoenix, LLC, a Delaware limited liability company (collectively, the "Company"), hereby promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Wells Fargo"), acting through its WELLS FARGO BUSINESS CREDIT operating division, on the Termination Date described in the Credit and Security Agreement dated December 18, 2008 (as amended from time to time, the "Agreement") and entered into between Wells Fargo and Company, at Wells Fargo's office at 100 W. Washington Street, 15th Floor, Phoenix, Arizona 8500, or at any other place designated at any time by the holder, in lawful money of the United States of America and in immediately available funds, the principal sum of Two Million Five Hundred Thousand Dollars ($2,500,000.00) or the aggregate unpaid principal amount of the Term Loan made by Wells Fargo to Company under the terms of the Agreement, together with interest on the outstanding principal amount computed on the basis of actual days elapsed in a 360-day year, from the date of this Term Note until this Term Note is fully paid at the rate from time to time in effect under the terms of the Agreement. Principal and interest accruing on the unpaid principal amount of this Term Note shall be due and payable as provided in the Agreement. This Term Note may be prepaid only in accordance with the Agreement.

This Term Note is the Term Note referred to in the Agreement, and is subject to the terms of the Agreement, which provides, among other things, for the acceleration of this Term Note. This Term Note is secured, among other things, by the Agreement and the Security Documents as defined in the Agreement, and by any other security agreements, mortgages, deeds of trust, assignments or other instruments or agreements that may subsequently be given for good and valuable consideration as security for this Term Note.

Company shall pay all costs of collection, including reasonable attorneys' fees and legal expenses if this Term Note is not paid when due, whether or not legal proceedings are commenced.

Presentment or other demand for payment, notice of dishonor and protest are expressly waived.

NUTRACEA, a California corporation
By:	/s/ Bradley D. Edson
Name:	Bradley D. Edson
Its:	C.E.O.
NUTRAPHOENIX, LLC, a Delaware limited liability company
By:	/s/ Bradley D. Edson
Name:	Bradley D. Edson
Its:	C.E.O.

Exhibit A to Credit and Security Agreement

DEFINITIONS

"Account Funds" is defined in Section 1.4(a).

"Accounts" shall have the meaning given it under the UCC.

"Advance" and "Advances" means an advance or advances under the Line of Credit or the Term Loan.

"Affiliate" or "Affiliates" means any Person controlled by, controlling or under common control with Company, including any Subsidiary of Company. For purposes of this definition, "control," when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise.

"Aggregate Face Amount" means the aggregate amount that may then be drawn under each outstanding Letter of Credit, assuming compliance with all conditions for drawing.

"Agreement" means this Credit and Security Agreement.

"Authenticated" means (a) to have signed; or (b) to have executed or to have otherwise adopted a symbol, or have encrypted or similarly processed a Record in whole or in part, with the present intent of the authenticating Person to identify the Person and adopt or accept a Record.

"Book Net Worth" means the aggregate of the Owners' equity in Company, determined in accordance with GAAP.

"Borrowing Base" is defined in Section 1.2(a).

"Borrowing Base Reserve" means, as of any date of determination, an amount or a percent of a specified category or item that Wells Fargo establishes in its sole discretion from time to time to reduce availability under the Borrowing Base (a) to reflect events, conditions, contingencies or risks which affect the assets, business or prospects of Company, or the Collateral or its value, or the enforceability, perfection or priority of Wells Fargo's Security Interest in the Collateral, as the term "Collateral" is defined in this Agreement, or (b) to reflect Wells Fargo's judgment that any collateral report or financial information relating to Company and furnished to Wells Fargo may be incomplete, inaccurate or misleading in any material respect.

"Business Day" means a day on which the Federal Reserve Bank of New York is open for business.

"Capital Expenditures" means for a period, any expenditure of money during such for the lease, purchase or other acquisition of any capital asset, or for the lease of any other asset whether payable currently or in the future.

"CEO" is defined in Section 7.4(a).

A-1

"Change of Control" means the occurrence of any of the following events:

(a) Any Person or "group" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934) who does not have an ownership interest in Company on the date of the initial Advance is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that any such Person, entity or group will be deemed to have "beneficial ownership" of all securities that such Person, entity or group has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than ten percent (10%) of the voting power of all classes of ownership of Company;

(b) During any consecutive two-year period, individuals who at the beginning of such period constituted the board of Directors of Company (together with any new Directors whose election to such board of Directors, or whose nomination for election by the Owners of Company, was approved by a vote of two thirds of the Directors then still in office who were either Directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the board of Directors of Company then in office.

"Collateral" means all of Company's Accounts, chattel paper and electronic chattel paper, deposit accounts, documents, Equipment, General Intangibles, goods, instruments, Inventory, Investment Property, letter-of-credit rights, letters of credit, all sums on deposit in any Collection Account, and any items in any Lockbox; together with (a) all substitutions and replacements for and products of such property; (b) in the case of all goods, all accessions; (c) all accessories, attachments, parts, Equipment and repairs now or subsequently attached or affixed to or used in connection with any goods; (d) all warehouse receipts, bills of lading and other documents of title that cover such goods now or in the future; (e) all collateral subject to the Lien of any of the Security Documents; (f) any money, or other assets of Company that come into the possession, custody, or control of Wells Fargo now or in the future; (g) Proceeds of any of the above Collateral; (h) books and records of Company, including all mail or e-mail addressed to Company; and (i) all of the above Collateral, whether now owned or existing or acquired now or in the future or in which Company has rights now or in the future, but excluding, the Company's Owned Intellectual Property identified on Exhibit D.

"Collection Account" means "Collection Account" as defined in the Master Agreement for Treasury Management Services and related Lockbox and Collection Account Service Description or Collection Account Service Description, whichever is applicable.

"Compliance Certificate" is defined in Section 5.1(a) and is in the form of Exhibit E.

"Commercial Letter of Credit Agreement" means an agreement governing the issuance of documentary letters of credit entered into between Company as applicant and Wells Fargo as issuer.

"Constituent Documents" means with respect to any Person, as applicable, that Person's certificate of incorporation, articles of incorporation, by-laws, certificate of formation, articles of organization, limited liability company agreement, management agreement, operating agreement, shareholder agreement, partnership agreement or similar document or agreement governing such

A-2

Person's existence, organization or management or concerning disposition of ownership interests of such Person or voting rights among such Person's owners.

"Current Maturities of Long Term Debt" means as of each fiscal quarter end, the amount of Company's long-term debt and capitalized leases which become due during that quarterly period.

"Debt" means of a Person as of a given date, all items of indebtedness or liability which in accordance with GAAP would be included in determining total liabilities as shown on the liabilities side of a balance sheet for such Person and shall also include the aggregate payments required to be made by such Person at any time under any lease that is considered a capitalized lease under GAAP.

"Debt Service Coverage Ratio" means (a) the sum of (i) Funds from Operations and (ii) Interest Expense minus (iii) Unfinanced Capital Expenditures divided by (b) the sum of (i) Current Maturities of Long Term Debt and (ii) Interest Expense. For its fiscal year 2009, the Company may exclude $4,500,000.00 in Unfinanced Capital Expenditures from the calculation.

"Deed of Trust" means the Deed of Trust, Assignment of Rents and Leases, Security Agreement an Fixture Filing, of even date herewith, executed by NutraPhoenix, LLC, as trustor, in favor of Lender, as beneficiary.

"Default Period" is defined in Section 1.7(c).

"Default Rate" is defined in Section 1.7(c).

"Director" means a director if Company is a corporation, or a governor or manager if Company is a limited liability company.

"Earnings Before Taxes" means pretax earnings from operations, excluding extraordinary gains, but including extraordinary losses.

"Electronic Record" means a Record that is created, generated, sent, communicated, received, or stored by electronic means, but does not include any Record that is sent, communicated, or received by fax.

"Eligible Accounts" means all unpaid Accounts of Company arising from the sale or lease of goods or the performance of services, net of any credits, but excluding any Accounts having any of the following characteristics:

(a)  That portion of Accounts unpaid 90 days or more after the invoice date;

(b) That portion of Accounts related to goods or services with respect to which Company has received notice of a claim or dispute, which are subject to a claim of offset or a contra account, or which reflect a reasonable reserve for warranty claims or returns;

(c) That portion of Accounts not yet earned by the final delivery of goods or that portion of Accounts not yet earned by the final rendition of services by Company to the account debtor, including with respect to both goods and services, progress billings, and that portion of Accounts for which an invoice has not been sent to the applicable account debtor;

A-3

(d) Accounts constituting (i) Proceeds of copyrightable material unless such copyrightable material shall have been registered with the United States Copyright Office, or (ii) Proceeds of patentable inventions unless such patentable inventions have been registered with the United States Patent and Trademark Office;

(e) Accounts owed by any unit of government, whether foreign or domestic (except that there shall be included in Eligible Accounts that portion of Accounts owed by such units of government for which Company has provided evidence satisfactory to Wells Fargo that (i) Wells Fargo's Security Interest constitutes a perfected first priority Lien in such Accounts, and (ii) such Accounts may be enforced by Wells Fargo directly against such unit of government under all applicable laws);

(f)  Accounts denominated in any currency other than United States Dollars;

(g) Accounts owed by an account debtor located outside the United States or Canada which are not (i) backed by a bank letter of credit naming Wells Fargo as beneficiary or assigned to Wells Fargo, in Wells Fargo's possession or control, and with respect to which a control agreement concerning the letter-of-credit rights is in effect, and acceptable to Wells Fargo in all respects, in its sole discretion, or (ii) covered by a foreign receivables insurance policy acceptable to Wells Fargo in its sole discretion;

(h) Accounts owed by an account debtor who is insolvent or is the subject of bankruptcy proceedings or who has gone out of business;

(i)           Accounts owed by an Owner, Subsidiary, Affiliate, Officer or employee of Company;

(j) Accounts not subject to the Security Interest or which are subject to any Lien in favor of any Person other than Wells Fargo;

(k)           That portion of Accounts that has been restructured, extended, amended or modified;

(l) That portion of Accounts that constitutes advertising, finance charges, service charges or sales or excise taxes;

(m) Accounts owed by an account debtor and its affiliates, regardless of whether otherwise eligible, to the extent that the aggregate balance of such Accounts exceeds 15% of the aggregate amount of all Eligible Accounts;

(n) Accounts owed by an account debtor and its affiliates, regardless of whether otherwise eligible, if 25% or more of the total amount of Accounts due from such debtor is ineligible under clauses (a), (b), or (k) above; and

(o) Accounts, or portions of Accounts, otherwise deemed ineligible by Wells Fargo in its sole discretion.

"Eligible Equipment" means that Equipment of Company designated by Wells Fargo as eligible from time to time in its sole discretion, but excluding Equipment having any of the following characteristics:

(a)           Equipment that is subject to any Lien other than in favor of Wells Fargo;

A-4

(b)           Equipment that has not been delivered to the Premises;

(c)           Equipment in which Wells Fargo does not hold a first priority security interest;

(d)           Equipment that is obsolete or not currently saleable;

(e) Equipment that is not covered by standard "all risk" hazard insurance for an amount equal to its forced liquidation value;

(f) Equipment that requires proprietary software in order to operate in the manner in which it is intended when such software is not freely assignable to Wells Fargo or any potential purchaser of such Equipment;

(g)           Equipment consisting of computer hardware, software, tooling, or molds; and

(h)           Equipment otherwise deemed unacceptable by Wells Fargo in its sole discretion.

"Eligible Inventory" means all Inventory of Company, valued at the lower of cost or market in accordance with GAAP; but excluding Inventory having any of the following characteristics:

(a) Inventory that is: in-transit; located at any warehouse, job site or other premises not approved by Wells Fargo in an Authenticated Record delivered to Company; not subject to a perfected first priority Lien in Wells Fargo's favor; covered by any negotiable or non-negotiable warehouse receipt, bill of lading or other document of title; on consignment from any consignor; or on consignment to any consignee or subject to any bailment unless the consignee or bailee has executed an agreement with Wells Fargo;

(b)           Supplies, packaging, parts or sample Inventory, or customer supplied parts or Inventory;

(c)           Work-in-process Inventory;

(d) Inventory that is damaged, defective, obsolete, slow moving or not currently saleable in the normal course of Company's operations, or the amount of such Inventory that has been reduced by shrinkage;

(e) Inventory that Company has returned, has attempted to return, is in the process of returning or intends to return to the vendor of the Inventory;

(f)           Inventory that is live;

(g) Inventory manufactured by Company pursuant to a license unless the applicable licensor has agreed in a Record that has been Authenticated by licensor to permit Wells Fargo to exercise its rights and remedies against such Inventory;

(h)           Inventory that is subject to a Lien in favor of any Person other than Wells Fargo;

(i) Except as expressly agreed by Borrower and Lender, inventory stored at locations holding less than 10% of the aggregate value of Company's Inventory; and

(j)           Inventory otherwise deemed ineligible by Wells Fargo in its sole discretion.

A-5

"Environmental Law" means any federal, state, local or other governmental statute, regulation, law or ordinance dealing with the protection of human health and the environment.

"Equipment" shall have the meaning given it under the Uniform Commercial Code in effect in the state whose laws govern this Agreement.

"ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time.

"ERISA Affiliate" means any trade or business (whether or not incorporated) that is a member of a group which includes Company and which is treated as a single employer under Section 414 of the IRC.

"Event of Default" is defined in Section 6.1.

"Floating Rate" means an annual interest rate equal to (a) the Prime Rate plus 2.5% for a Line of Credit Advance, (b) the Prime Rate plus 3.0% for the Real Estate Loan, and (c) the Prime Rate plus 3.0% for the Term Loan Advance.

"Floating Rate Advance" is defined in Section 1.7(a).

"Funds from Operations" means for a given period, the sum of (a) Net Income, (b) depreciation and amortization, (c) any increase (or decrease) in deferred income taxes, (d) any increase (or decrease) in lifo reserves, and (e) other non-cash items, each as determined for such period in accordance with GAAP.

"GAAP" means generally accepted accounting principles, applied on a basis consistent with the accounting practices applied in the financial statements described on Exhibit D.

"General Intangibles" shall have the meaning given it under the UCC.

"Guarantor" means any Person now or in the future guaranteeing any Indebtedness through the issuance of a Guaranty.

"Guaranty" means an unconditional continuing guaranty executed by a Guarantor in favor of Wells Fargo (if more than one, the "Guaranties").

"Hazardous Substances" means pollutants, contaminants, hazardous substances, hazardous wastes, petroleum and fractions thereof, and all other chemicals, wastes, substances and materials listed in, regulated by or identified in any Environmental Law.

"Indebtedness" is used in its most comprehensive sense and means any debts, obligations and liabilities of Company to Wells Fargo, whether incurred in the past, present or future, whether voluntary or involuntary, and however arising, and whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, and including without limitation all obligations arising under any swap, derivative, foreign exchange, hedge, deposit, treasury management or similar transaction or arrangement however described or defined that Company may enter into at any time with Wells Fargo or with Wells Fargo Merchant Services, L.L.C., whether or not Company may be liable individually or jointly with others, or whether recovery upon such Indebtedness may subsequently become unenforceable.

A-6

"Indemnified Liabilities" is defined in Section 7.8.

"Indemnitee" is defined in Section 7.8.

"Infringement" or "Infringing" when used with respect to Intellectual Property Rights means any infringement or other violation of Intellectual Property Rights.

"Intellectual Property Rights" means all actual or prospective rights arising in connection with any intellectual property or other proprietary rights, including all rights arising in connection with copyrights, patents, service marks, trade dress, trade secrets, trademarks, trade names or mask works.

"Interest Expense" means for a fiscal year-to-date period, Company's total gross interest expense during such period (excluding interest income), and shall in any event include (a) interest expensed (whether or not paid) on all Debt, (b) the amortization of debt discounts, (c) the amortization of all fees payable in connection with the incurrence of Debt to the extent included in interest expense, and (d) the portion of any capitalized lease obligation allocable to interest expense.

"Interest Payment Date" is defined in Section 1.9(a). "Inventory" shall have the meaning given it under the UCC. "Investment Property" shall have the meaning given it under the UCC.

"L/C Amount" means the sum of (a) the Aggregate Face Amount of any outstanding Letters of Credit, plus (b) the amount of each Obligation of Reimbursement that either remains unreimbursed or has not been paid through an Advance on the Line of Credit.

"L/C Application" means an application for the issuance of standby or documentary Letters of Credit pursuant to the terms of a Standby Letter of Credit Agreement or Commercial Letter of Credit Agreement, in form acceptable to Wells Fargo.

"Letter of Credit" and "Letters of Credit" are each defined in Section 1.11(a). "Licensed Intellectual Property" is defined in Exhibit D.

"Lien" means any security interest, mortgage, deed of trust, pledge, lien, charge, encumbrance, title retention agreement or analogous instrument or device, including the interest of each lessor under any capitalized lease and the interest of any bondsman under any payment or performance bond, in, of or on any assets or properties of a Person, whether now owned or subsequently acquired and whether arising by agreement or operation of law.

"Line of Credit" is defined in the Recitals.

"Loan Documents" means this Agreement, the Revolving Note, the Real Estate Term Note, the Term Note, the Deed of Trust, the Master Agreement for Treasury Management Services, each Subordination Agreement, each Standby Letter of Credit Agreement, each Commercial Letter of Credit Agreement, any L/C Applications, and the Security Documents, together with every other agreement, note, document, contract or instrument to which Company now or in the future may be a party and which may be required by Wells Fargo in connection with, or as a condition to, the execution of this Agreement. Any documents or other agreements entered into between Company and Wells Fargo that relate to any swap, derivative, foreign exchange, hedge, or similar product or transaction, or which are entered into with an operating division of Wells Fargo other than Wells Fargo Business Credit, shall not be included in this definition.

A-7

"Loan Manager" means the treasury management service defined in the Master Agreement for Treasury Management Services and related Loan Manager Service Description.

"Lockbox" means "Lockbox" as defined in the Master Agreement for Treasury Management Services and related Lockbox and Collection Account Service Description.

"Master Agreement for Treasury Management Services" means the Master Agreement for Treasury Management Services, the related Acceptance of Services, and the Service Description governing each treasury management service used by Company.

"Material Adverse Effect" means any of the following:

(a) A material adverse effect on the business, operations, results of operations, prospects, assets, liabilities or financial condition of Company;

(b) A material adverse effect on the ability of Company to perform its obligations under the Loan Documents, or any other document or agreement related to this Agreement;

(c) A material adverse effect on the ability of Wells Fargo to enforce the Indebtedness or to realize the intended benefits of the Security Documents, including a material adverse effect on the validity or enforceability of any Loan Document or of any rights against any Guarantor, or on the status, existence, perfection, priority (subject to Permitted Liens) or enforceability of any Lien securing payment or performance of the Indebtedness; or

(d) Any claim against Company or threat of litigation which if determined adversely to Company would result in the occurrence of an event described in clauses (a), (b) and (c) above.

"Maturity Date" is defined in Section 1.1(b).

"Maximum Line Amount" is defined in Section 1.1(a).

"Minimum Interest Charge" is defined in Section 1.7(b).

"Multiemployer Plan" means a multiemployer plan (as defined in Section 4001(a)(3) of ERISA) to which Company or any ERISA Affiliate contributes or is obligated to contribute.

"Net Cash Proceeds" means the cash proceeds of any asset sale (including cash proceeds received as deferred payments pursuant to a note, installment receivable or otherwise, but only upon actual receipt) net of (a) attorney, accountant, and investment banking fees, (b) brokerage commissions, (c) amounts required to be applied to the repayment of debt secured by a Lien not prohibited by this Agreement on the asset being sold, and (c) taxes paid or reasonably estimated to be payable as a result of such asset sale.

A-8

"Net Forced Liquidation Value" means a professional opinion of the probable Net Cash Proceeds that could be realized at a properly advertised and professionally managed forced sale public auction conducted without reserve under economic trends current within 60 days of the appraisal, which opinion may consider physical location, difficulty of removal, adaptability, specialization, marketability, physical condition, overall appearance and psychological appeal.

"Net Income" means fiscal year-to-date after-tax net income from continuing operations, including extraordinary losses but excluding extraordinary gains, all as determined in accordance with GAAP.

"Net Loss" means fiscal year-to-date after-tax net loss from continuing operations including extraordinary losses but excluding extraordinary gains, as determined in accordance with GAAP.

"Net Orderly Liquidation Value" means a professional opinion of the probable Net Cash Proceeds that could be realized at a properly advertised and professionally conducted liquidation sale, conducted under orderly sale conditions for an extended period of time (usually six to nine months), under the economic trends existing at the time of the appraisal.

"Obligation of Reimbursement" is defined in Section 1.11(b).

"OFAC" is defined in Section 5.11(b).

"Officer" means with respect to Company, an officer if Company is a corporation, a manager if Company is a limited liability company, or a partner if Company is a partnership.

"Operating Account" is defined in Section 1.3(a), and maintained in accordance with the terms of Wells Fargo's Commercial Account Agreement in effect for demand deposit accounts.

"Overadvance" means the amount, if any, by which the unpaid principal amount of the Revolving Note, plus the L/C Amount, is in excess of the then-existing Borrowing Base.

"Owned Intellectual Property" is defined in Exhibit D.

"Owner" means with respect to Company, each Person having legal or beneficial title to an ownership interest in Company or a right to acquire such an interest.

"Pension Plan" means a pension plan (as defined in Section 3(2) of ERISA) maintained for employees of Company or any ERISA Affiliate and covered by Title IV of ERISA.

"Permitted Lien" and "Permitted Liens" are defined in Section 5.3(a).

"Person" means any individual, corporation, partnership, joint venture, limited liability company, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision of a governmental entity.

"Plan" means an employee benefit plan (as defined in Section 3(3) of ERISA) maintained for employees of Company or any ERISA Affiliate.

"Premises" is defined in Section 2.4(a).

A-9

"Prime Rate" means at any time the rate of interest most recently announced by Wells Fargo at its principal office as its Prime Rate, with the understanding that the Prime Rate is one of Wells Fargo's base rates, and serves as the basis upon which effective rates of interest are calculated for those loans making reference to it, and is evidenced by its recording in such internal publication or publications as Wells Fargo may designate. In no event, shall the Prime Rate be less than 4.0%. Each change in the rate of interest shall become effective on the date each Prime Rate change is announced by Wells Fargo.

"Proceeds" shall have the meaning given it under the UCC.

"Real Estate" means the real property located at 4502 W. Monterosa Street, Phoenix, Arizona and more particularly described on in the Deed of Trust.

"Real Estate Term Note" is defined in Section 1.5(b).

"Record" means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form, and includes all information that is required to be reported by Company to Wells Fargo pursuant to Section 5.1.

"Reportable Event" means a reportable event (as defined in Section 4043 of ERISA), other than an event for which the 30-day notice requirement under ERISA has been waived in regulations issued by the Pension Benefit Guaranty Corporation.

"Revolving Note" is defined in Section 1.1(d).

"Security Documents" means this Agreement, the Deed of Trust, and any other document delivered to Wells Fargo from time to time to secure the Indebtedness.

"Security Interest" is defined in Section 2.1.

"Special Account" means a specified cash collateral account maintained with Wells Fargo or another financial institution acceptable to Wells Fargo in connection with each undrawn Letter of Credit issued by Wells Fargo, as more fully described in Section 1.12.

"Standby Letter of Credit Agreement" means an agreement governing the issuance of standby letters of credit by Wells Fargo entered into between Company as applicant and Wells Fargo as issuer.

"Subordinated Creditor" means any Person now or in the future subordinating indebtedness of Company held by that Person to the payment of the Indebtedness.

"Subordinated Debt" means indebtedness due to Company that has been subordinated to Wells Fargo by a Subordinated Creditor pursuant to a Subordination Agreement.

"Subordination Agreement" means a subordination agreement executed by a Subordinated Creditor in favor of Wells Fargo (if more than one, the "Subordination Agreements").

"Subsidiary" means any Person of which more than 50% of the outstanding ownership interests having general voting power under ordinary circumstances to elect a majority of the board of directors or the equivalent of such Person, irrespective of whether or not at the time ownership interests of any other class or classes shall have or might have voting power by reason of the happening of any contingency, is at the time directly or indirectly owned by Company, by Company and one or more other Subsidiaries, or by one or more other Subsidiaries.

A-10

"Termination Date" is defined in Section 1.1(b).

"Term Loan" is defined in the Recitals.

"Term Note" is defined in Section 1.6(b).

"UCC" means the Uniform Commercial Code in effect in the state designated in this Agreement as the state whose laws shall govern this Agreement, or in any other state whose laws are held to govern this Agreement or any portion of this Agreement.

"Unfinanced Capital Expenditures" means for a period, any expenditure of money during such period for the purchase or construction of assets, or for improvements or additions to such assets, which are not financed with borrowed funds and are not capitalized on Company's balance sheet.

"Unused Amount" is defined in Section 1.8(b).

"Wells Fargo" means Wells Fargo Bank, National Association in its broadest and most comprehensive sense as a legal entity, and is not limited in its meaning to the Wells Fargo Business Credit operating division, or to any other operating division of Wells Fargo.

A-11

Exhibit B to Credit and Security Agreement

PREMISES

The Premises referred to in the Credit and Security Agreement have the following addresses:

NutraCea, Corporate Offices

5090 North 40th Street, Suite

400 Phoenix, AZ 85018

NutraCea, Phoenix Plant

4502 W. Monterosa

Phoenix, AZ 85031

ADM Arbuckle, CA 1603

Old Highway 99 West

Arbuckle, CA 95912

NutraCea, TX Office

200 West 2nd, Suite

205 Freeport,TX 77541

NutraCea, TX Plant 505

Port Road, Building 2B

Freeport, TX 77541

NutraCea, Paradise Warehouse

820 County Road 229

Freeport, TX 77541

Delta Western Indianola,

MS 1842 Highway 82 West

Indianola, MS 38751

NutraCea, Lake Charles

Plant 6029 Joe Spears Road

Iowa, LA 70647

NutraCea, Mermentau LA

Plant 170 S. 13th Street

Mermentau, LA 70556

NutraCea (RiceX Nutrients)

MT Plant

3512 East Bench Road

Dillon, MT 59725

NutraCea, West Sacramento Warehouse Facility

2928 Ramco, Suite 120

West Sacramento, 95691

MWD Sacramento, CA

4840 Lang Avenue

McClennan, CA 95652

NutraCea, Idaho office

1901 Conant Avenue

Burley,ID 83318

PT Panganmas Inti Nusantara

Kantor Taman E 3.3, No. D8, JI.

Mega Kuningan Log 8.6-7

Kawasan Mega Kuningan Jakarta

Indonesia

Irgovel - Industria Riograndense De oleos Vegetais Ltda.

Avenida Presidente Joao Goulart

7351, Distrito Industrial,

CEP 96-040-000

Pelotas, Rio Grande do Sul

Federative Republic of Brazil

Exhibit C to Credit and Security Agreement

CONDITIONS PRECEDENT

Wells Fargo's obligation to make an initial Advance shall be subject to the condition that Wells Fargo shall have received the following, executed and in form and content satisfactory to Wells Fargo. The following descriptions are limited descriptions for reference purposes only and should not be construed as limiting in any way the subject matter that Wells Fargo requires each document to address.

A.  Loan Documents to be Executed by Company:

(1)  The Revolving Note, the Real Estate Term Note, and the Term Note.

(2)  The Credit and Security Agreement.

(3) The Master Agreement for Treasury Management Services, the Acceptance of Services, and the related Service Description for each deposit or treasury management related product or service that Company will subscribe to, including without limitation the Collection Account Service Description.

(4)  The Deed of Trust.

(5) A Standby Letter of Credit Agreement and the Commercial Letter of Credit Agreement, and a separate L/C Application for each Letter of Credit that Company has requested that Wells Fargo issue.

B.  Loan Documents to be Executed by Third Parties:

(1) A Subordination Agreement, if applicable, pursuant to which each Subordinated Creditor shall unconditionally subordinate payment of any indebtedness of Company held by the Subordinated Creditor to the full and prompt payment of all Company's Indebtedness, and subordinates any Lien in favor of Subordinated Creditor to the Lien of Wells Fargo.

(2) An Acknowledgement of Warehouseman from each warehouse where Company stores Inventory, pursuant to which the warehouseman waives its Lien in the Inventory.

(3) An Acknowledgement of Subcontractor from each subcontractor or consignee of Company's Inventory, pursuant to which the subcontractor waives its Lien in the Inventory.

(4) A copy of each Notice of Ownership of Goods sent to each Person to whom tangible Collateral has been delivered but who will not be taking ownership of such property, notifying each such Person of the continued ownership interest of Company in such property and the Lien being retained by Wells Fargo in such Collateral.

(5) A Waiver of Setoff Rights from each account debtor to Company pursuant to which the account debtor waives its rights to exercise its rights to setoff against such Account any amounts owed by Company to the account debtor.

C-1

(6) A Landlord's Disclaimer and Consent to each lease entered into by Company and that Landlord with respect to the Premises, pursuant to which the Landlord waives its Lien in any goods or other Inventory of Company located on the Premises.

(7) Certificates Insurance required under this Agreement, with all hazard insurance containing a lender's interest endorsement in Wells Fargo's favor and with all liability insurance naming Wells Fargo as additional insured.

C.  Documents Related to the Premises

(1)  Any leases pursuant to which Company is leasing the Premises from a lessor.

(2) Any mortgages or deeds of trust pursuant to which Company or the landlord to Company has encumbered the Premises.

(3) Every bailment or consignment pursuant to which any property of Company is in the possession of a third Person such as a consignee or subcontractor, together with, in the case of any goods held by such Person for resale, UCC financing statements sufficient to protect Company's and Wells Fargo's interests in such goods.

D.  Federal Tax, State Tax, Judgment, UCC and Intellectual Property Lien Searches

(1) Current searches of Company in appropriate filing offices showing that (i) no Liens have been filed and remain in effect against Company and Collateral except Permitted Liens or Liens held by Persons who have agreed in an Authenticated Record that upon receipt of proceeds of the initial Advances, they will satisfy, release or terminate such Liens in a manner satisfactory to Wells Fargo, and (ii) Wells Fargo has filed all UCC financing statements necessary to perfect the Security Interest, to the extent the Security Interest is capable of being perfected by filing.

(2) Current searches of Third Persons in appropriate filing offices with respect to any of the Collateral that is in the possession of a Person other than Company that is held for resale, showing that (i) UCC financing statements sufficient to protect Company's and Wells Fargo's interests in such Collateral have been filed, and (ii) no other secured party has filed a financing statement against such Person and covering property similar to Company's, other than Company, or if there exists any such secured party, evidence that each such party has received notice from Company and Wells Fargo sufficient to protect Company's and Wells Fargo's interests in Company's goods from any claim by such secured party.

E.  Constituent Documents:

(1) The Certificate of Authority of Company, which shall include as part of the Certificate or as exhibits to the Certificate, (i) the Resolution of Company's Directors and, if required, Owners, authorizing the execution, delivery and performance of those Loan Documents and other documents or agreements described in or related to this Agreement to which Company is a party, (ii) an Incumbency Certificate containing the signatures of Company's Officers or agents authorized to execute and deliver those instruments, agreements and certificates referenced in (i) above, as well as Advance requests, on

C-2

Company's behalf, (iii) Company's Constituent Documents, (iv) a current Certificate of Good Standing or Certificate of Status issued by the secretary of state or other appropriate authority for Company's state of organization, certifying that Company is in good standing and in compliance with all applicable organizational requirements of the state of organization, and (v) a Secretary's Certificate of Company's secretary or assistant secretary certifying that the Certificate of Authority of Company is true, correct and complete.

(2) Evidence that Company is licensed or qualified to transact business in all jurisdictions where the character of the property owned or leased or the nature of the business transacted by it makes such licensing or qualification necessary.

(3) An Officer's Certificate of an appropriate Officer of Company confirming, in his or her personal capacity, the representations and warranties set forth in this Agreement.

(4) A Customer Identification Information Form and such other forms and verification as Wells Fargo may need to comply with the U.S.A. Patriot Act.

F. Real Estate Related Documents:

With respect to the Real Estate that is encumbered by the Deed of Trust given by Company to Wells Fargo:

(1) An appraisal ordered by Wells Fargo or its agent of said real property and all improvements thereon, conforming to Uniform Standards of Professional Appraisal Practice.

(2) An American Land Title Association policy of title insurance, with such endorsements as Wells Fargo may require, issued by an insurer in such amounts as Wells Fargo may require, insuring Wells Fargo's first priority lien on said real estate, subject only to such exceptions as Wells Fargo in its discretion may approve, together with such evidence relating to the payment of liens or potential liens as Wells Fargo may require.

(3) An American Land Title Association survey certified to Wells Fargo and to the title company.

(4) A current environmental site assessment indicating that the real property is subject to no "recognized environmental conditions", as that term is defined by the American Society for Testing and Materials, in its standards for environmental due diligence, and is not in need of remedial action to avoid subjecting its owner to any present or future liability or contingent liability with respect to the release of toxic or hazardous wastes or substances.

(5) A flood hazard determination form, confirming whether or not the parcel is in a flood hazard area and whether or not flood insurance must be obtained, and, if the real estate is located in a flood hazard area, a policy of flood insurance.

(6) Copies of management services and maintenance contracts, fire, health and safety reports, certificates of occupancy, leases and rent rolls.

C-3

G. Miscellaneous Matters or Documents:

(1) Payment of fees and reimbursable costs and expenses due under this Agreement through the date of initial Advance or issuance of a Letter of Credit, including all legal expenses incurred through the date of the closing of this Agreement.

(2) Evidence that after making the initial Advance, satisfying all obligations owed to Company's prior lender, paying all trade payables older than 60 days from invoice date, and paying all book overdrafts and closing costs, availability under the Line of Credit is not less than $8,000,000.00.

(3) Any documents or other agreements entered into by Company and Wells Fargo that relate to any swap, derivative, foreign exchange, hedge, deposit, treasury management or similar product or transaction extended to Company by Wells Fargo not already provided pursuant to the requirements of (A)-(F) above.

(4)  Such other documents as Wells Fargo in its sole discretion may require.

C-4

Exhibit D to Credit and Security Agreement

REPRESENTATIONS AND WARRANTIES

Company represents and warrants to Wells Fargo as follows:

(a) Existence and Power; Name: Chief Executive Office: Inventory and Equipment Locations; Federal Employer Identification Number and Organizational Identification Number. NutraCea is a corporation organized, validly existing and in good standing under the laws of the State of California, and NutraPhoenix, LLC is a limited liability company organized, validly existing and in good standing under the laws of the State of Delaware, and each entity is licensed or qualified to transact business in all jurisdictions where the character of the property owned or leased or the nature of the business transacted by it makes such licensing or qualification necessary. Company has all requisite power and authority to conduct its business, to own its properties and to execute and deliver, and to perform all of its obligations under, those Loan Documents and any other documents or agreements that it has entered into with Wells Fargo related to this Agreement. During its existence, Company has done business solely under the names set forth below in addition to its correct legal name. Company's chief executive office and principal place of business is located at the address set forth below, and all of Company's records relating to its business or the Collateral are kept at that location. All Inventory and Equipment is located at that location or at one of the other locations set forth below. Company's name, Federal Employer Identification Number and Organization Identification Number are correctly set forth at the end of the Agreement next to Company's signature.

Trade Names

None.

Chief Executive Office / Principal Place of Business

5090 N. 40th Street, Suite 400

Phoenix, Arizona 85018

Other Inventory and Equipment Locations

NutraCea, Corporate Offices

5090 North 40th Street, Suite 400

Phoenix, AZ 85018

NutraCea, Phoenix Plant

4502 W. Monterosa

Phoenix, AZ 85031

ADM Arbuckle, CA

1603 Old Highway 99 West

D-1

Arbuckle, CA 95912

NutraCea, TX Office

200 West 2nd, Suite 205

Freeport, TX 77541

NutraCea, TX Plant

505 Port Road, Building 2B

Freeport, TX 77541

NutraCea, Paradise Warehouse

820 County Road 229

Freeport, TX 77541

Delta Western Indianola, MS

1842 Highway 82 West

Indianola, MS 38751

NutraCea, Lake Charles Plant

6029 Joe Spears Road

Iowa, LA 70647

NutraCea, Mermentau

LA Plant

170 S. 13th Street

Mermentau, LA 70556

NutraCea (RiceX Nutrients)

MT Plant

3512 East Bench Road

Dillon, MT 59725

NutraCea, West Sacramento Warehouse Facility

2928 Ramco, Suite 120

West Sacramento, 95691

MWD Sacramento, CA

4840 Lang Avenue

McClennan, CA 95652

NutraCea, Idaho office

1901 Conant Avenue

Burley,ID 83318

PT Panganmas Inti Nusantara

Kantor Taman E 3.3, No. D8,

JI. Mega Kuningan Log 8.6-7

Kawasan Mega Kuningan Jakarta

Indonesia

D-2

Irgovel - Industria Riograndense De oleos Vegetais Ltda.

Avenida Presidente Joao Goulart

7351, Distrito Industrial,

CEP 96-040-000

Pelotas, Rio Grande do Sul

Federative Republic of Brazil

(b) Capitalization. The Capitalization Chart below constitutes a correct and complete list of all ownership interests of Company and all rights to acquire ownership interests, including the record holder, number of interests and percentage interests on a fully diluted basis, and the Organizational Chart below shows the ownership structure of all Subsidiaries of Company.

Capitalization Chart
NutraCea, Inc Equity Schedule December 10, 2008
	Number of Shares		Par Value		Warrants and Options		Combined Beneficial		Percentage Ownership Fully Diluted
Preferred Stock (1)
Series D - (8% dividend, quarterly beginning 1/1/09)
Midsummer Investments		1,945		1,945,000		2,000
Cranshire		3,000		3,000,000		3,000
Total preferred stock outstanding		4,945		4,945,000
Warrants to purchase Preferred Stock outstanding						5,000
Common Stock
5% or greater holders (2)		0				0		0		0.00	%
Board of directors and officers
Officers
Brad Edson		255,000				7,000,000		7,255,000		3.18	%
Olga Hernandez-Longan		0				600,000		600,000		0.26	%
Leo Gingras		53,000				600,000		653,000		0.29	%
Todd Crow		9,700				1,662,942		1,672,642		0.73	%
Kody Newland		26,700				600,000		626,700		0.27	%
Board of directors
David Bensol		52,500				205,000		257,500		0.11	%
James Lintzenich		1,396,411				1,691,608		3,088,019		1.35	%
Edward McMillan		17,740				281,798		299,538		0.13	%
Kenneth Shropshire		0				205,000		205,000		0.09	%
Steven Saunders		1,368,802				612,192		1,980,994		0.87	%
Wesley Clark		0				170,000		170,000		0.07	%
Total board of directors and officers		3,179,853				13,628,540		16,808,393
Other shares outstanding		164,944,701						164,944,701		72.30	%
Total common stock outstanding		168,124,554

D-3

Other options and warrants to purchase common stock	46,389,994	46,389,994	20.33	%
Options and warrants to purchase common stock	60,018,534
Fully diluted	228,143,088	228,143,088	100.00	%

(1) Preferred stock is not included in the fully diluted calculation as the conversion ratio is subject to current stock price (and other factors) at the time of conversion

(2) 5% or greater amounts would be 8,406,227 shares basic or 11,407,154 on a fully diluted basis

Organizational Chart

See attached organizational chart.

(c) Authorization of Borrowing; No Conflict as to Law or Agreements. The execution, delivery and performance by Company of the Loan Documents and any other documents or agreements described in or related to this Agreement, and all borrowing under the Line of Credit have been authorized and do not (i) require the consent or approval of Company's Owners; (ii) require the authorization, consent or approval by, or registration, declaration or filing with, or notice to, any governmental agency or instrumentality, whether domestic or foreign, or any other Person, except to the extent obtained, accomplished or given prior to the date of this Agreement; (iii) violate any provision of any law, rule or regulation (including Regulation X of the Board of Governors of the Federal Reserve System) or of any order, writ, injunction or decree presently in effect having applicability to Company or of Company's Constituent Documents; (iv) result in a breach of or constitute a default or event of default under any indenture or loan or credit agreement or any other material agreement, lease or instrument to which Company is a party or by which it or its properties may be bound or affected; or (v) result in, or require, the creation or imposition of any Lien (other than the Security Interest) upon or with respect to any of the properties now owned or subsequently acquired by Company.

(d) Legal Agreements. This Agreement, the other Loan Documents, and any other document or agreement described in or related to this Agreement, will constitute the legal, valid and binding obligations of Company, enforceable against Company in accordance with their respective terms.

(e)  Subsidiaries. Except as disclosed below, Company has no Subsidiaries.

Subsidiaries
NutraCea (Tax ID Number 87-0673375) List of Subsidiaries:
1.	NutraGlo Incorporated, a Nevada corporation wholly owned by NutraStar Technologies Incorporated. April 5, 2000 (43-1960638)

D-4

2.	NutraStar Technologies Incorporated, a Nevada corporation wholly owned by NutraCea, February 4, 2000 (68-0445761)
3.	NutraStarSport, Inc., a Nevada corporation, owned by NutraStar Technologies Incorporated and Chris Basio, April 26, 2001
4.	The RiceX Company, a Delaware corporation wholly owned by NutraCea, August 4, 1998 (68-0412200)
5.	RiceX Nutrients, Inc., a Montana corporation wholly owned by The RiceX Company, August 9, 2004 (68-0397535)
6.	Global Nutra, Inc., a Nevada corporation wholly-owned by NutraCea, December 13, 2006
7.	Nutramercials, Inc., a Nevada corporation wholly-owned by NutraCea, December 13, 2006 (26-0888871)
8.	Infomaxx, LLC, a Delaware limited liability company, owned by Nutramercials, December 12, 2006 (20-8083718)
9.	NutraCea Brazil Ltda., a Brazilian corporation and subsidiary of NutraCea
10.	Grain Enhancement LLC, a Delaware limited liability company, owned by NutraCea and Pacific Advisors Holdings Limited, June 30, 2007
11.	Medan, LLC, a Delaware limited liability company, owned by NutraCea, January 23, 2008 (26-1809684)
12.	Rice Rx, LLC, a Delaware limited liability company, owned by NutraCea and HerbalScience Singapore Pte. Ltd., December 26, 2007 (26-1644643)
13.	Rice Science, LLC, a Delaware limited liability company, owned by NutraCea and HerbalScience Singapore Pte. Ltd., December 26, 2007 (26-1644685)
14.	NutraPhoenix, LLC, a Delaware limited liability company owned by NutraCea, January 15, 2008 (26-2233062)
15.	NutraSA, LLC, a Delaware limited liability company owned by NutraCea, January 11, 2008 (26-3258449)
16.	Irgovel - Industria Riograndens De Oleos Vegetais Ltda., a limited liability company organized under the laws of the Federative Republic of Brazil owned by NutraSA, LLC
17.	PT Panganmas Inti Nusantara, an Indonesian company owned by Medan, LLC (51%) and Fortune BVI
18.	NutraCea/Cura, LLC, a Delaware limited liability company owned by NutraCea (90%) and Cura Pharamceutical Co., Inc. (10%), August 15, 2007 (26-0851100)

D-5

19.	NutraCea Offshore LTD., an exempted company organized under the laws of the Cayman Islands owned by NutraCea
20.	Global Nutra Solutions LLC, a Delaware limited liability company owned by NutraCea, December 12, 2006
21.	Grainovation, Inc., a Tennessee corporation, Incorporated January 22, 1988 (acquired 5/1/2007) (62-1340914)

(f) Financial Condition; No Adverse Change. Company has furnished to Wells Fargo its audited financial statements for its fiscal year ended December 31, 2007 and unaudited financial statements for the fiscal-year-to-date period ended September 30, 2008, and those statements fairly present Company's financial condition as of those dates and the results of Company's operations and cash flows for the periods then ended and were prepared in accordance with GAAP. Since the date of the most recent financial statements, there has been no Material Adverse Effect in Company's business, properties or condition (financial or otherwise). The Company has disclosed to Wells Fargo that in connection with the standard three year review of filings by the Securities Exchange Commission ("SEC"), the SEC provided a comment letter and requested that the Company elaborate on its accounting for certain transactions during the three year period ending December 31, 2007. Based on its review, the SEC may require the Company to make revisions to the financial statements under review. However, the Company believes that the requested revisions, if any, will not materially effect the Company's balance sheet or financial condition s of September 30, 2008.

(g) Litigation. There are no actions, suits or proceedings pending or, to Company's knowledge, threatened against or affecting Company or any of its Affiliates or the properties of Company or any of its Affiliates before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which, if determined adversely to Company or any of its Affiliates, would result in a final judgment or judgments against Company or any of its Affiliates in an amount in excess of $10,000, apart from those matters specifically disclosed below.

Litigation Matters in Excess of $10,000

NutraCea v. Vital Living

On September 3, 2008, NutraCea filed a complaint in Arizona State Superior Court, County of Maricopa, against Vital Living, Inc. ("Vital Living") seeking to enforce certain notes secured by a Security Agreement pledging all of the assets of Vital Living as collateral for the notes. In its complaint, NutraCea alleges causes of action for breach of contract, common counts, money lent, foreclosure on collateral, specific performance and permanent injunctive relief. The complaint was served upon Vital Living in Palm Beach County, Florida on September 10, 2008. Vital Living has yet to appear in the lawsuit.

D-6

NutraCea v. Dennis Ledesma

NutraCea has filed a lawsuit against former employee Dennis Ledesma for defamation and breach of contract, etc. alleging that Mr. Ledesma made false statements about NutraCea causing damages to NutraCea and its business. Mr. Ledesma failed to respond to the complaint and the Court entered default against him. We are now in the process of moving the Court for a default judgment against Mr. Ledesma based on the harm to NutraCea's business and reputation.

Litigation involving Irgovel

On January 31, 2008, NutraCea entered into a Quotas Purchase and Sale Agreement (the "Irgovel Agreement") with all the owners ("Sellers") of Irgovel -Industria Riograndens De Oleos Vegetais Ltda., a limited liability company organized under the laws of the Federative Republic of Brazil. Pursuant to the agreement, NutraCea deposited into an escrow account approximately $2,000,000 to cover contingent liabilities owed by Irgovel as described on Schedule H and I of the Irgovel Agreement. Some of the contingent liabilities listed on Schedule H and I are for lawsuits filed against Irgovel. The estimated costs and expenses for these lawsuits were included in the amounts set aside in the escrow account to cover these contingencies.

On October 7, 2008, Irgovel was served with notice of a suit filed by David Zigart Resyng against Irgovel and Osmar Brito (a "Seller" in the January 31, 2008 transaction between NutraCea and the Sellers of Irgovel) claiming that (i) Osmar Brito and Irgovel, represented by Osmar Brito, willfully misled David Zigart Resyng into executing a settlement with regard to his ownership of Irgovel with the other Sellers and (ii) that due to this settlement and the subsequent sale of Irgovel to NutraCea, David Zigart Resyng has suffered financial damages. An injunction has been granted to cease any distributions of assets in the escrow account established in connection with the transaction.

(h)           Intellectual Property Rights.

(i)            Owned Intellectual Property. Set forth below is a complete list of all patents, applications for patents, trademarks, applications to register trademarks, service marks, applications to register service marks, mask works, trade dress and copyrights for which Company is the owner of record (the "Owned Intellectual Property"). Except as set forth below, (A) Company owns the Owned Intellectual Property free and clear of all restrictions (including covenants not to sue any Person), court orders, injunctions, decrees, writs or Liens, whether by agreement memorialized in a Record Authenticated by Company or otherwise, (B) no Person other than Company owns or has been granted any right in the Owned Intellectual Property, (C) all Owned Intellectual Property is valid, subsisting and enforceable, and (D) Company has taken all commercially reasonable action necessary to maintain and protect the Owned Intellectual Property.

D-7

(ii)           Agreements with Employees and Contractors. Company has entered into a legally enforceable agreement with each Person that is an employee or subcontractor obligating that Person to assign to Company, without additional compensation, any Intellectual Property Rights created, discovered or invented by that Person in the course of that Person's employment or engagement with Company (except to the extent prohibited by law), and further obligating that Person to cooperate with Company, without additional compensation, to secure and enforce the Intellectual Property Rights on behalf of Company, unless the job description of the Person is such that it is not reasonably foreseeable that the employee or subcontractor will create, discover, or invent Intellectual Property Rights.

(iii)          Intellectual Property Rights Licensed from Others. Set forth below is a complete list of all agreements under which Company has licensed Intellectual Property Rights from another Person ("Licensed Intellectual Property") other than readily available, non- negotiated licenses of computer software and other intellectual property used solely for performing accounting, word processing and similar administrative tasks ("Off-the-shelf Software") and a summary of any ongoing payments Company is obligated to make with respect thereto. Except as set forth below or in any other Record, copies of which have been given to Wells Fargo, Company's licenses to use the Licensed Intellectual Property are free and clear of all restrictions, Liens, court orders, injunctions, decrees, or writs, whether by agreed to in a Record Authenticated by Company or otherwise. Except as disclosed below, Company is not contractually obligated to make royalty payments of a material nature, or pay fees to any owner of, licensor of, or other claimant to, any Intellectual Property Rights.

(iv)          Other Intellectual Property Needed for Business. Except for Off-the-shelf Software and as disclosed below, the Owned Intellectual Property and the Licensed Intellectual Property constitute all Intellectual Property Rights used or necessary to conduct Company's business as it is presently conducted or as Company reasonably foresees conducting it.

(v)           Infringement. Except as disclosed below, Company has no knowledge of, and has not received notice either orally or in a Record alleging, any Infringement of another Person's Intellectual Property Rights (including any claim set forth in a Record that Company must license or refrain from using the Intellectual Property Rights of any Person) nor, to Company's knowledge, is there any threatened claim or any reasonable basis for any such claim.

Intellectual Property Disclosures

See trademark and patent schedules on subsequent pages.

D-8

TRADEMARKS

Title	Type	Application / Registration No.	Issue/Reg. Date	Filing Date	Name of Registrant / Applicant
FIBERICE	Registered Trademark	Assigned by Farmers Rice to NutraCea	12/1/2008
RISOLUBLES	Registered Trademark	2,461,604	6/19/2001	5/10/2000	NutraCea
MISCELLANEOUS DESIGN ("Caduceus")	Registered Trademark	2,461,745	6/19/2001	6/15/2000	NutraCea
CEA 100	Registered Trademark	2,979,145	7/26/2005	8/18/2003	NutraCea, Inc
NUTRACEA	Registered Trademark	2,658,784	12/10/2002	9/17/2001	NutraCea
LIVERBOOST	Registered Trademark	2,512,728	11/27/2001	4/5/2001	NutraCea
RICEMUCIL	Registered Trademark	2,537,997	2/12/2002	11/13/2000	NutraCea
RICE PATTY	Registered Trademark	3,171,168	11/14/2006	11/28/2005	NutraCea, Inc
EQUINE SHINE (& design)	Registered Trademark	2,659,543	12/10/2002	7/24/2001	NutraCea
THE RICEPATTY COLLECTION	Registered Trademark	3,229,286	4/17/2007	12/20/2005	NutraCea, Inc
MAX-E-BRAN SRB	Registered Trademark	3,375,242	1/29/2008	5/22/2007	NutraCea
SERVING MANKIND	Registered Trademark	3,410,639	4/8/2008	1/13/2006	NutraCea, Inc
RICE X	Registered Trademark	3,317,370	10/23/2007	12/8/2005	NutraCea
SATIN FINISH	Registered Trademark	1,803,034	11/9/1993	12/10/1992	NutraCea
NATURAL GLO	Registered Trademark	3,501,738	9/16/2008	2/25/2008	NutraCea
NATURAL GLO (& design)	Registered Trademark	1,927,481	10/17/1995	6/8/1994	NutraCea

D-9

NUTRACEA (& design)	Registered Trademark	3,501,581	tab	9/16/2008	NutraCea
RISPORT	Trademark Application	77/484,373	tba	5/27/2008	NutraCea
RITRAINER	Trademark Application	77/484,375	tba	5/27/2008	NutraCea
RIBUILDER	Trademark Application	77/484.384	tba	5/27/2008	NutraCea
IRGOVEL	Trademark Application	77/555,244	tba	8/25/2008	\NutraCea
PELOTAS	Trademark Application	77/597,273	tba	10/21/2008	NutraCea
GASTROBIOTICS	Trademark Application	78/799,457	tba	1/25/2006	NutraCea
RIBALANCE	Trademark Application	77/383.574	tba	1/29/2008	NutraCea
LIVING VITAMINS	Trademark Application (ITU)	77/155,596	tba	4/12/2007	NutraCea

NutraCea Issued Patents To Date	Issue Date	Patent No	Country
US Patents
1. "Production of Beta-Glucan and Beta-Glucan Product"	05.12.1994	5512287	US
2. "Process for Obtaining Micronutrient Enriched Rice Bran Oil"	11.16.1999	5985344	US
3."Method for Treating Hypercholesterolemia, Hyperlipidemia, and Atherosclerosis"	10.03.2000	6126943	US
4. "Supportive Therapy for Diabetes, Hyperglycemia and Hypoglycemia"	10.16.2001	02.26.2002	US
5. "Method for Controlling Serum Glucose"	6303586	6350473	US
6. "Method for Treating Hypercholesterolemia, Hyperlipidemia, and Atherosclerosis"	05.06.2003	6558714	US
7. "Method for Treating Hypercholesterolemia, Hyperlipidemia, and Atherosclerosis"	05.11.2004	6733799	US
8. "Method for Treating Joint Inflammation, Pain, and Loss of Mobility"	06.07.2005	6902739	US

D-10

International Patents
1. Supportive Therapy for Diabetes, Hyperglycemia and Hypoglycemia	03.28.2002	71377	Singapore
2. Supportive Therapy for Diabetes, Hyperglycemia and Hypoglycemia	12.05.2002	751704	Australia
3. Supportive Therapy for Diabetes, Hyperglycemia and Hypoglycemia	02.03.2003	503648	New Zealand
4. Supportive Therapy for Diabetes, Hyperglycemia and Hypoglycemia	07.16.2003	98810675.2	Canada
5. "Process for Obtaining Micronutrient Enriched Rice Bran Oil"	10.22.2004	15162B1	Argentina
6. Supportive Therapy for Diabetes, Hyperglycemia and Hypoglycemia	12.06.2005	232655	Mexico
7. A Method for Treating Diabetes, Hyperglycemia and Hypoglycemia	05.18.2006	583211	Korea
8. "Method for Treating Joint Inflammation, Pain, and Loss of Mobility"	10.18.2007	2002315558	Australia
9. "Diabetic Food Kit Comprising Enzyme Treated Stabilized Rice Bran Derivative"	06.23.2008	221444	India

(i) Taxes. Company and its Affiliates have paid or caused to be paid to the proper authorities when due all federal, state and local taxes required to be withheld by each of them. Company and its Affiliates have filed all federal, state and local tax returns which to the knowledge of the Officers of Company or any Affiliate, as the case may be, are required to be filed, and Company and its Affiliates have paid or caused to be paid to the respective taxing authorities all taxes as shown on these returns or on any assessment received by any of them to the extent such taxes have become due.

(j) Titles and Liens. Company has good and absolute title to all Collateral free and clear of all Liens other than Permitted Liens. No financing statement naming Company as debtor is on file in any office except to perfect only Permitted Liens.

(k) No Defaults. Company is in compliance with all provisions of all agreements, instruments, decrees and orders to which it is a party or by which it or its property is bound or affected, the breach or default of which could have a Material Adverse Effect on Company's financial condition, properties or operations.

D-11

(l) Submissions to Wells Fargo. All financial and other information provided to Wells Fargo by or on behalf of Company in connection with Company's request for the credit facilities contemplated hereby is (i) true, correct and complete in all material respects, (ii) does not omit any material fact that would cause such information to be misleading, and (iii) as to projections, valuations or proforma financial statements, present a good faith opinion as to such projections, valuations and proforma condition and results.

(m) Financing Statements. Company has previously authorized the filing of financing statements sufficient when filed to perfect the Security Interest and other Liens created by the Security Documents. When such financing statements are filed, Wells Fargo will have a valid and perfected security interest in all Collateral capable of being perfected by the filing of financing statements. None of the Collateral is or will become a fixture on real estate, unless a sufficient fixture filing has been filed with respect to such Collateral.

(n) Rights to Payment. Each right to payment and each instrument, document, chattel paper and other agreement constituting or evidencing Collateral is (or, in the case of all future Collateral, will be when arising or issued) the valid, genuine and legally enforceable obligation, subject to no defense, setoff or counterclaim of the account debtor or other obligor named in that instrument.

(o)  Employee Benefit Plans.

(i)           Maintenance and Contributions to Plans. Except as disclosed below, neither Company nor any ERISA Affiliate (A) maintains or has maintained any Pension Plan, (B) contributes or has contributed to any Multiemployer Plan, or (C) provides or has provided post-retirement medical or insurance benefits to employees or former employees (other than benefits required under Section 601 of ERISA, Section 4980B of the IRC, or applicable state law).

(ii)           Knowledge of Plan Noncompliance with Applicable Law. Except as disclosed below, neither Company nor any ERISA Affiliate has (A) knowledge that Company or the ERISA Affiliate is not in full compliance with the requirements of ERISA, the IRC, or applicable state law with respect to any Plan, (B) knowledge that a Reportable Event occurred or continues to exist in connection with any Pension Plan, or (C) sponsored a Plan that it intends to maintain as qualified under the IRC that is not so qualified, and no fact or circumstance exists which may have an adverse effect on such Plan's tax-qualified status.

(iii)           Funding Deficiencies and Other Liabilities. Neither Company nor any ERISA Affiliate has liability for any (A) accumulated funding deficiency (as defined in Section 302 of ERISA and Section 412 of the IRC) under any Plan, whether or not waived, (B) withdrawal, partial withdrawal, reorganization or other event under any Multiemployer Plan under Section 4201 or 4243 of ERISA, or (C) event or circumstance which could result in financial obligation to the Pension Benefit Guaranty Corporation, the Internal Revenue Service, the Department of Labor or any participant in connection with any Plan (other than routine claims for benefits under the Plan).

D-12

Employee Benefit Plans

See subsequent page.

D-13

Current NutraCea Employee Benefits

BENEFIT	DESCRIPTION	EFF. DATE
Aetna PPO Plan	Employee health insurance - all locations except Montana Basic 80/20 plan with $500/$ 1000 deductible for in network; Out of network is 60/40 with $1000/$2000 deductibles	6/1/2007
Aetna Traditional Choice Plan	Employee health insurance - Montana only Pays 80% for basic services; $500/$ 1000 deductible	6/1/2007
MetLife Dental Plan	Dental plan	6/1/2006
Lincoln National	Life Insurance Plan Class 1 - management - lx base salary up to $150,000 max Class 2 - all other employees - $50,000 Benefits also include $2000 per child benefit to age 19 and $10,000 spouse benefit	6/1/2007
Lincoln National	Long Term Disability Plan Pays 60% of basic monthly income up to $1 Ok/month, after a 90 day waiting period	6/1/2008
Health Reimbursement Plan	For employees with 1+ year of service Co. funds $1500 for single medical coverage/$3000 for family coverage/yr	1/1/2006
401(k) and Profit Sharing Plan	Safe harbor plan - co. contributes 3% of base comp to plan Annual discretionary match or profit sharing at year end	4/1/2006
Product Discounts	30% off cost OR whatever special is running (whichever is lowest price)

D-14

(p)  Environmental Matters.

(i)           Hazardous Substances on Premises. Except as disclosed below, to Company's knowledge, there are not present in, on or under the Premises any Hazardous Substances in such form or quantity as to create any material liability or obligation for either Company or Wells Fargo under the common law of any jurisdiction or under any Environmental Law, and no Hazardous Substances have ever been stored, buried, spilled, leaked, discharged, emitted or released in, on or under the Premises in such a way as to create a material liability.

(ii)           Disposal of Hazardous Substances. Except as disclosed below, Company has not disposed of Hazardous Substances in such a manner as to create any material liability under any Environmental Law.

(iii)           Claims and Proceedings with Respect to Environmental Law Compliance. Except as disclosed below, to Company's knowledge, there have not existed in the past, nor are there any threatened or impending requests, claims, notices, investigations, demands, administrative proceedings, hearings or litigation relating in any way to the Premises or Company, alleging material liability under, violation of, or noncompliance with any Environmental Law or any license, permit or other authorization issued pursuant thereto.

(iv)           Compliance with Environmental Law; Permits and Authorizations. Except as disclosed below, Company (A) conducts its business at all times in compliance with applicable Environmental Law, (B) possesses valid licenses, permits and other authorizations required under applicable Environmental Law for the lawful and efficient operation of its business, none of which are scheduled to expire, or withdrawal, or material limitation within the next 12 months, and (C) has not been denied insurance on grounds related to potential environmental liability.

(v)           Status of Premises. Except as disclosed below, the Premises are not and never have been listed on the National Priorities List, the Comprehensive Environmental Response, Compensation and Liability Information System or any similar federal, state or local list, schedule, log, inventory or database.

(vi)           Environmental Audits, Reports, Permits and Licenses. Company has delivered to Wells Fargo all environmental assessments, audits, reports, permits, licenses and other documents describing or relating in any way to the Premises or Company's businesses.

Environmental Matters

None known.

D-15

Exhibit E to Credit and Security Agreement

COMPLIANCE CERTIFICATE

To: Wells Fargo Bank, National Association

Date: [________, 200_]

Subject: Financial Statements

In accordance with our Credit and Security Agreement dated December __, 2008 (as amended from time to time, the "Credit Agreement"), attached are the financial statements of NutraCea, a California corporation, and NutraPhoenix, LLC, a Delaware limited liability company (collectively, the "Company") dated [________,200_] (the "Reporting Date") and the year-to-date period then ended (the "Current Financials"). All terms used in this certificate have the meanings given in the Credit Agreement.

A.            Preparation and Accuracy of Financial Statements. I certify that the Current Financials have been prepared in accordance with GAAP, subject to year-end audit adjustments, and fairly present Company's financial condition as of the Reporting Date.

B.            Name of Company; Merger and Consolidation. I certify that:

(Check one)

o Company has not, since the date of the Credit Agreement, changed its name or jurisdiction of organization, nor has it consolidated or merged with another Person.

o Company has, since the date of the Credit Agreement, either changed its name or jurisdiction of organization, or both, or has consolidated or merged with another Person, which change, consolidation or merger: owas consented to in advance by Wells Fargo in an Authenticated Record, and/or ois more fully described in the statement of facts attached to this Certificate.

C.           Events of Default. I certify that:

(Check one)

o I have no knowledge of the occurrence of an Event of Default under the Credit Agreement, except as previously reported to Wells Fargo in a Record.

o I have knowledge of an Event of Default under the Credit Agreement not previously reported to Wells Fargo in a Record, as more fully described in the statement of facts attached to this Certificate, and further, I acknowledge that Wells Fargo may under the terms of the Credit Agreement impose the Default Rate at any time during the resulting Default Period.

D. Litigation Matters. I certify that:

(Check one)

E-1

o I have no knowledge of any material adverse change to the litigation exposure of Company or any of its Affiliates or of any Guarantor.

o I have knowledge of material adverse changes to the litigation exposure of Company or any of its Affiliates or of any Guarantor not previously disclosed in Exhibit D, as more fully described in the statement of facts attached to this Certificate.

E. Financial Covenants. I further certify that:

(Check and complete each of the following)

1.           Minimum Quarterly Net Income.   Pursuant to Section 5.2(a) of the Credit Agreement, as of the Reporting Date, Company's Net Income was [_$__________], which o satisfies odoes not satisfy the requirement that such amount be not less than the amount set forth for each such period (numbers appearing between "< >" are negative):

Quarter Ending	Minimum Net Income
December 31, 2008	<$3,000,000.00>

2.           Minimum Cumulative Quarterly Net Income. Pursuant to Section 5.2(b) of the Credit Agreement, as of the Reporting Date, the Company's year-to-date consolidated aggregate Net Income, minus the Company's year-to-date consolidated aggregate Net Income, as of December 31st of the preceding year (as set forth in the Company's audited financial statements) was [_$_________], which osatisfies odoes not satisfy the requirement that such Net Income be not less than the amount set forth in the table below for each such period (numbers appearing between "< >" are negative):

Ouarter Ending	Minimum Quarterly Cumulative
	Net Income Step Up
Each March 31, 2009	<$1,000,000.00>
Each June 30, 2009	<$500,000.00>
Each September 30, 2009	$750,000.00
Each December 31, 2009	$2,000,000.00

3.           Minimum Debt Service Coverage Ratio. Pursuant to Section 5.2(c) of the Credit Agreement, as of the Reporting Date, Company's Debt Service Coverage Ratio was [_______] to 1.00, which osatisfies odoes not satisfy the requirement that such ratio be not less than 1.2 to 1.00 on the Reporting Date for each quarter, beginning the quarter ending March 31, 2009.

4.           Capital Expenditures. Pursuant to Section 5.2(d) of the Credit Agreement, for the year-to-date period ending on the Reporting Date, Company has expended or contracted to expend during the ofour quarter 2008 o2009 fiscal year to date for Capital Expenditures, [_$___________] in the aggregate, which osatisfies odoes not satisfy the requirement that such expenditures not exceed $5,000,000.00 in the aggregate if the reporting period is fourth quarter 2008, or $4,500,000.00 in the aggregate for 2009 plus up to $2,500,000.00 carried over from fourth quarter 2008.

E-2

5.           Salaries. Company has not paid excessive or unreasonable salaries, bonuses, commissions, consultant fees or other compensation, or increased the salary, commissions, consultant fees or other compensation of any Director, Officer or consultant, or any member of their families, by more than twenty percent (20%) as of the Reporting Date over the amount paid in Company's previous fiscal year (other than existing board-approved contracts at the time of the Credit Agreement), either individually or for all such persons in the aggregate, and has not paid any increase from any source other than profits earned in the year of payment, and as a consequence Company ois ois not in compliance with Section 5.8 of the Credit Agreement.

Attached are statements of all relevant facts and computations in reasonable detail sufficient to evidence Company's compliance with the financial covenants referred to above, which computations were made in accordance with GAAP.

NUTRACEA, a California corporation
By:
	Its Chief Financial Officer
NUTRAPHOENIX, LLC, a Delaware limited liability company
By:
	Its Chief Financial Officer

E-3

Exhibit F to Credit and Security Agreement

EXISTING LIENS PURSUANT TO 5.3(a)(ii)

None.

INDEBTEDNESS

None.

GUARANTIES

None.

F-1

EX-10.31

Exhibit 10.31

FORBEARANCE AGREEMENT AND AMENDMENT TO CREDIT AND SECURITY AGREEMENT

DATE: Effective as of July 31, 2009

PARTIES:	Borrowers:	NUTRACEA, a California corporation, and NUTRAPHOENIX, LLC, a Delaware limited liability company
	Lender:	WELLS FARGO BANK, NATIONAL ASSOCIATION, acting through its Wells Fargo Business Credit operating division

I. RECITALS:

A.            Obligations Owing to Lender. Borrowers are obligated to Lender pursuant to the terms and conditions of the Credit and Security Agreement dated as of December 18, 2008 (the "Credit Agreement"), which evidence the Indebtedness. Unless otherwise indicated, capitalized terms used in this Agreement will correspond to the capitalized terms used in the Credit Agreement.

B.            Security for Repayment and Satisfaction of Obligations Owing to Lender. As security for repayment and satisfaction of all Indebtedness owing from Borrower, Lender holds (among other things) valid, perfected, and enforceable first priority liens and a Security Interest in all of the Collateral described in the Credit Agreement and a first lien on a certain real property with a street address of 4502 West Monterosa, Phoenix, Arizona (the "Property").

C.            Loan Documents. The obligations set forth in Paragraph A above, and the Security Interest of Lender in the Collateral described in Paragraph B above are evidenced by (among other things) the following Loan Documents:

1.           The Credit Agreement;

2.           The Revolving Note dated December 18, 2008 in the original principal amount of $2,500,000 (the "Revolving Note");

3.           The Term Note dated December 18, 2008 in the original principal amount of $2,500,000 (the "Term Note");

4.           The Real Estate Note dated December 18, 2008 in the original principal amount of $5,000,000 (the "Real Estate Note and together with the Revolving Note and the Term Note, the "Notes");

5.           The Deed of Trust, Assignment of Rents and Leases, and Fixture Filing dated December 18, 2008, executed by NutraPhoenix, LLC, in favor of Lender and recorded December 22, 2008 as Document No. 2008-1076174 in the Official Records of Maricopa County; and

6.           Various UCC Financing Statements.

D.           Outstanding Indebtedness Under the Loan Documents. Computed as of July 24, 2009, Borrowers are indebted to Lender in the amount of at least $3,309,439.00 in unpaid principal, not including accrued and accruing interest, costs, and expenses (including attorneys' fees), and not including issued and undrawn obligations under the Letters of Credit, for which Borrowers are also indebted to Lender under the Loan Documents.

E.            Existing Defaults Under the Credit Agreement. Borrowers are presently in default of their obligations to Lender under the Credit Agreement and the Loan Documents, for inter alia (collectively, the "Existing Defaults"):

1.           Section 1.4(a) of the Credit Agreement as a result of Borrowers' failure to deposit all Proceeds of Accounts and other Collateral into the Collection Account.

2.           Section 1.4(b) of the Credit Agreement as a result of Borrowers' Letter Agreement dated May 14, 2009 with Fanners Rice Cooperative ("FCR Agreement"), which requires Borrowers to instruct its customers to make certain payments (the "FCR Payments") into a lockbox account jointly established by Farmers Rice Cooperative and NutraCea.

3.           Section 5.1(a) of the Credit Agreement as a result of Borrowers' failure to deliver audited financial statements for 2008 within 90 days of Borrowers' fiscal year end.

4.           Section 5.1(b) of the Credit Agreement as a result of Borrowers' failure to deliver quarterly financial statements for the period ending March 31, 2009 by May 10, 2009.

5.           Section 5.1(c) of the Credit Agreement as a result of Borrowers' failure to deliver their February 2009, March 2009, May 2009, and June 2009 collateral reports within 15 days of the end of the applicable month.

6.           Section 5.2(d) of the Credit Agreement as a result of Borrowers' Capital Expenditures exceeding $5,000,000.00 in the aggregate during the fourth quarter 2008.

7.           Section 5.12 of the Credit Agreement as a result of Borrowers' failure to pay real estate taxes from the Property when due.

8.           Section 5.12 of the Credit Agreement as a result of Borrowers' failure to pay all lawful claims for labor, materials and supplies.

9.           Section 5.13(b) of the Credit Agreement as a result of the filing of Notices and Claims of Mechanic's and Materialman's Liens (collectively, the "Mechanic's Liens") on the Property.

10.           Section 4.4 of the Deed of Trust as a result of the Mechanic's Liens being filed on the Property without prior approval of Lender.

11.           Based upon the draft income statement for the twelve months ending December 31, 2008 delivered by Borrowers to Lender, Borrowers additionally appear to be in default of various financial covenants under the Credit Agreement, including without limitation Borrowers' failure to maintain a cumulative quarterly Debt Service Coverage Ratio of not less than 1.2 to 1.0, for the quarter ending March 31, 2009.

- 2 - -

F.            Acknowledgement of Lender's Rights and Remedies. Based on the Existing Defaults, Borrowers acknowledge and confirm that Lender has (among other things) the unconditional right to exercise all of its remedies under the Loan Documents, including but not limited to, the right to declare the Indebtedness immediately due and payable and to proceed immediately with collection and liquidation of its Collateral and its Security Interest.

G.            Request for Forbearance and Other Modifications of Loan Documents. Borrowers have requested that Lender forbear from exercising its rights and remedies with respect to all Existing Defaults from the date of this Agreement through January 31, 2010 (the "Forbearance Period"). Borrowers also have requested certain modifications to the Loan Documents. Although it is under no obligation to do so, Lender agrees to accommodate Borrowers' request for certain modifications to the Loan Documents, and Lender agrees to forbear from exercising its rights and remedies with respect to the Existing Defaults, so long as Borrowers satisfy all of the conditions set forth in Section II below, and provided that Borrowers comply with all other obligations under the Credit Agreement and Loan Documents (as modified by this Agreement).

II. OPERATIVE PROVISIONS.

For present and fair consideration, the receipt and sufficiency of which are hereby acknowledged, Borrowers and Lender hereby agree as follows:

1.            INCORPORATION OF RECITALS. The foregoing Recitals are incorporated into these Operative Provisions without any difference or distinction between the two (2) segments of this Agreement. Borrowers acknowledge and confirm that each of the foregoing Recitals is true and correct.

2. CONDITIONS.

2.1           Conditions to Forbearance and Loan Modifications. Lender's forbearance with respect to Existing Defaults and the modification of the Loan Documents pursuant to this Agreement are expressly conditioned upon the satisfaction of the following conditions:

(a)         Delivery of this Agreement. Borrowers shall have delivered to Lender a fully-executed original of this Agreement.

(b)         No New Defaults. No new default or Event of Default shall occur under the Loan Documents, as amended by this Agreement. Notwithstanding the foregoing, Lender will not be deemed to have waived any rights or remedies arising as a result of any new default or Event of Default by Borrowers under the Loan Documents.

(c)         Reimbursement of Lender's Costs and Expenses. Borrowers will reimburse Lender for all of its costs and expenses (including attorneys' fees) incurred in relation to this Agreement and the transactions contemplated by this Agreement.

- 3 - -

(d)         Dillon Property Deed of Trust. Borrowers will deliver to Lender a fully-executed Deed of Trust (the "Dillon Deed of Trust") in a form acceptable to Lender in its sole and absolute discretion, granting Lender a first priority lien on certain real property located at 3512 E. BenchDillon, Montana (the "Dillon Property"). In addition, if Lender requires, Borrowers, at Borrowers' expense, will provide a Lender's policy or other title policy in a form acceptable to Lender. Borrowers anticipate negotiating the sale of the Dillon Property prior to the expiration of the Forbearance Period. In the event Borrowers seek to sell the Dillon Property, such sale is subject to Lender's review and approval of the purchase and sale agreement, in Lender's sole and absolute discretion. Subject to Lender's review and approval of the purchase agreement, in the event there are no additional defaults or Events of Default, and provided there is no material adverse change in Borrowers' financial condition, Lender will release the Dillon Deed of Trust in connection with such sale upon Lender's receipt of $1,000,000.00 of the proceeds of such sale.

(e)         Master Agreement for Treasury Management Services. Borrowers shall deliver to Lender a fully-executed Master Agreement for Treasury Management Services, and Lockbox and Collection Account Service Agreement Description and Acceptance of Services.

(f)          Certificate of Officer; Certificates of Good Standing. Borrowers shall deliver to Lender Certificates of Officers (in form and substance acceptable to Lender) certifying as to the authority of an Officer of each Borrower to execute and deliver this Agreement and such other matters as Lender may require, along with a certificate of good standing for each Borrower issued by the governmental authorities in each of the states in which Borrowers conduct their business activities, each dated no earlier than the date that is 30 days prior to the date of this Agreement evidencing Borrowers' good standing in such states.

(g)         Resolutions and Authorizations. Borrowers shall deliver to Lender resolutions and authorizations (in form and substance acceptable to Lender), together with such additional documentation as Lender may require, authorizing Borrowers to enter into this Agreement and to perform their respective duties and obligations hereunder.

(h)         No Material Adverse Change. No material adverse change (to be determined in Lender's sole judgment) shall have occurred relative to or affecting Borrowers, Borrowers' business activities, operations and projections, the Collateral, the Premises, the Security Interest or the liens, security interests, and rights of Lender.

(i)           Miscellaneous. Borrowers shall perform or cause to be performed such additional conditions and shall deliver or cause to be delivered to Lender such additional documentation as Lender may require in Lender's sole and absolute discretion.

2.2           Continued Effect of Loan Documents. Except as otherwise provided herein, the Loan Documents and all other documents and agreements between Lender and Borrowers shall remain in full force and effect.

2.3           No Accommodations Without Satisfaction of All Conditions. Unless all of the conditions set forth above are satisfied, Lender will be free to exercise all of its rights and remedies under the Loan Documents.   So long as all of the conditions set forth above are satisfied, and provided that the Borrowers comply with all of their respective obligations under the Loan Documents as modified by this Agreement, Lender will forbear during the Forbearance Period from exercising its rights and remedies with respect to the Existing Defaults, and Lender will agree to modify the Loan Documents as provided below.

- 4 - -

3.  MODIFICATION OF LOAN DOCUMENTS. The Loan Documents are modified as follows:

3.1           Modification of Borrowing Base. Section 1.2(a) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

"Borrowing Base.   The borrowing base (the "Borrowing Base") is an amount equal to:

(i)            75% or such lesser percentage of Eligible Accounts as Wells Fargo in its sole discretion may deem appropriate, or $1,500,000.00, which ever is less, less

(ii)            the Borrowing Base Reserve, less

(iii)           Indebtedness that Company owes Wells Fargo that has not been advanced on the Revolving Note, less

(iv)           Indebtedness that is not otherwise described in Section 1, including Indebtedness that Wells Fargo in its sole discretion finds on the date of determination to be equal to Wells Fargo's net credit exposure with respect to any swap, derivative, foreign exchange, hedge, deposit, treasury management or similar transaction or arrangement extended to Company by Wells Fargo and any Indebtedness owed by Company to Wells Fargo Merchant Services, L.L.C.

Notwithstanding the foregoing, Borrowers acknowledge that until the expiration of the FCR Agreement and the termination of the lockbox account jointly established between Farmers Rice Cooperative and NutraCea, the FCR Payments shall not be deemed Eligible Accounts.

3.2           Lockbox. Pursuant to Section 1.4 of the Credit Agreement, Borrowers shall immediately direct all of Borrowers' account debtors to make all payments to the Lockbox or to Lender directly by wire transfer or other immediately available funds.

3.3           Interest Rates Applicable to Line of Credit and Real Estate Loan. Section 1.7(a) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

"Except as otherwise provided in this Agreement, the unpaid principal amount of each Line of Credit Advance evidenced by the Revolving Note and the Real Estate Loan Advance evidenced by the Real Estate Term Note, shall accrue interest at an annual interest rate calculated as follows:

- 5 - -

Floating Rate:

Line of Credit Advances = the Prime Rate plus five and one half percent (5.5%);

Real Estate Loan Advance = the Prime Rate plus six percent (6.0%);

which interest rate shall change whenever the Prime Rate changes (the "Floating Rate"). Notwithstanding the foregoing, as an accommodation to Borrowers, Lender will defer three percentage points of each of the Floating Rates set forth above until the earlier of: (i) termination of the Credit Facility; or (ii) January 31, 2010, at which time all such deferred interest shall be due and payable.

3.4           Line of Credit Advances. Notwithstanding the Section 3.1 herein or any other provisions in the Credit Agreement or the Loan Documents, during the Forbearance Period, Lender shall make to Borrowers the following advances under the Line of Credit:

(a)         $250,000.00 for settlement of all claims arising out of or in connection with that certain complaint filed by W.D. Manor Mechanical Contractors, Inc., Maricopa County Superior Court Case No. CV2009-013957 (the "Complaint"), which may be made in increments upon receipt of all requirements set forth in Section 3.12 of this Agreement and further subject to the terms and conditions set forth herein; and

(b)         $85,000.00 for payment of past due taxes, assessments and governmental charges levied or imposed upon the Property;

(c)         Such other and future advances as Lender may agree to in its sole and absolute discretion;

The unpaid principal amount of the Line of Credit Advances shall be due and payable in equal monthly installments of $10,000.00, beginning on October 1, 2009, and on the first day of each month thereafter until the earlier of: (i) termination of the Credit Facility; or (ii) January 31, 2010, when the entire balance of unpaid principal of the Line of Credit Advances shall be due and payable in full;

So long as any amounts funded under the Line of Credit remains outstanding, Borrowers shall deliver to Lender on Wednesday for the prior week, a weekly detailed aging of the Company's accounts receivable and accounts payable, in a form satisfactory to Lender in its sole and absolute discretion.

3.5           Real Estate Loan. Lender has applied the Cash Collateral to reduce the Indebtedness of Borrowers to Lender. Accordingly, the principal balance outstanding under the Real Estate Loan has been reduced $3,249,439. Notwithstanding any other provision of the Loan Documents to the contrary, Lender shall have no obligations to make any further advances to Borrower in connection with the Real Estate Loan. Lender shall reserve an amount equal to one month of principal and interest owed under the Real Estate Term Note.

- 6 - -

3.6           Term Loan Advance. The Term Loan in Section 1.6 of the Credit Agreement is hereby terminated and Lender shall have no obligation to advance the Term Loan to the Borrowers.

3.7           Payments on Loans: Default Interest. Borrowers shall continue to make principal and interest payments on the Line of Credit and Real Estate Loan as provided for in the Credit Agreement. Borrowers hereby confirm that Lender is owed $53,338.88 in default interest (the "Default Interest"), which accrued upon Borrowers' default under the Credit Agreement. As an accommodation to Borrowers, Lender will defer the Default Interest until the earlier of: (i) termination of the Credit Facility; or (ii) January 31, 2010, at which time such amount shall be due and payable.

3.8           Letters of Credit: Amount. Section 1.11(a) of the Credit Agreement is hereby deleted in its entirety and replaced with the following: "Lender shall not issue any Letter of Credit if the face amount of the Letter of Credit would exceed the lesser of: (i) $1,500,000 less the L/C Amount, or (ii) the Borrowing Base, less an amount equal to aggregate unreimbursed Line of Credit Advances plus the L/C Amount. That certain Irrevocable Standby Letter of Credit Dated September 5, 2006, as amended, with an original face amount of $865,000.00, and that certain Irrevocable Standby Letter of Credit dated June 1, 2007, as amended, with an original face amount of $1,358,161.00 (collectively, the "Issued L/C") shall hereafter be deemed to have been issued under the Credit Agreement and shall be subject to the terms and conditions of the Credit Agreement. Notwithstanding anything contained in the Issued L/C or the Credit Agreement to the contrary, Lender shall have no obligation to issue any further Letter of Credit after January 31, 2010.

3.9           Cash Collateral. Borrower agrees that the collateral pledged pursuant to the Commercial Pledge Agreement dated September 1, 2006 by and between Lender and NutraCea and the Commercial Pledge Agreement dated May 14, 2007 by and between Lender and NutraCea (collectively, the "Pledge Agreements") shall be deposited into the Special Account concurrently with the execution and delivery of this Agreement, and shall be subject to the terms and conditions of the Credit Agreement and other Loan Documents.

3.10         Credit Facility Prepayment Fees: Facility Fees. Notwithstanding Section 1.8(e) of the Credit Agreement, Lender shall waive the termination fee for: (i) prepayments made pursuant to this Agreement; and (ii) Borrowers' termination of the Credit Facility or prepayment of the Indebtedness owed to Lender during the Forbearance Period. Subject to the terms and conditions of this Agreement, the Credit Agreement and the Loan Documents, Notwithstanding Section 1.8(c) of the Credit Agreement, Lender shall waive the Facility Fee owed to Lender on December 15, 2009.

3.11         Release of Lake Charles Collateral. Borrowers have represented to Lender that they are engaged in discussions to sell the Stabilized Rice Bran equipment located on the Premises with a street address of 6029 Joe Spears Road, Iowa, LA 70647 (the "Lake Charles Equipment"). Provided Borrowers are not in default of the Credit Agreement or Loan Documents and upon satisfaction of the conditions set forth in Section II of this Agreement, Lender shall release its interest and rights to the Lake Charles Equipment.

- 7 - -

3.12         Brycon Construction Lien. Borrowers have represented to Lender that they are engaged in discussions with Brycon Residential Construction Co., Inc. ("Brycon"), the general contractor retained by Borrowers to perform certain construction work on the Property, pursuant to which Brycon would pay all current subcontractors who have delivered goods or services to the Property in exchange for the dismissal of the Complaint and delivery of lien waivers acceptable to Lender in its sole and absolute discretion. In order to facilitate the payment of the subcontractors, Borrowers have requested that Lender consent to the recordation of a deed of trust in favor of Brycon (the "Brycon Deed of Trust"), subordinate to the Deed of Trust. Lender wishes to evidence its agreement to accommodate Borrowers' request and make the advance set forth in Section 3.3(a) herein, expressly contingent on the following:

(a)         Settlement Agreement. Lenders review and approval of any settlement or other agreement between Borrowers and Brycon and the Brycon Deed of Trust.

(b)         Subordination Agreement. Borrowers shall cause Brycon to execute and deliver to Lender a Subordination Agreement in a form acceptable to Lender in its sole and absolute discretion.

(c)         Lien Releases. No later than 30 days after the full execution and delivery of this Agreement, Lender shall have received lien waivers bearing a then current date in a form satisfactory to the Lender, in its sole and absolute discretion, from Brycon and such subcontractors or materialmen as the Lender may designate.

(d)         Dismissal of Claims. No later than 30 days after the full execution and delivery of this Agreement, Borrowers shall deliver to Lender, evidence satisfactory to Lender in its sole and absolute discretion, that the Complaint and all crossclaims and counterclaims related thereto, have been fully and finally dismissed with prejudice.

(d)         Permits No later than 30 days after the full execution and delivery of this Agreement, Borrowers shall deliver to Lender any and all documents requested by Lender which Lender determines in its sole discretion are necessary to obtain certificates of occupancy for the Property, together with all necessary consents and reliance letters requested by Lender in its sole and absolute discretion.

3.13         Operating Account. The Credit Agreement, as modified herein, constitutes the entire agreement between Borrowers and Lender pertaining to the Operating Account and supersedes all prior agreements, understandings, negotiations and discussions, including the correspondence dated July 9, 2009, and Lender makes no warranty, representation or other agreement with respect to the Operating Account except as specifically set forth herein.

3.14         Defaults Under Agreement. Each of the Loan Documents is modified to provide that it shall be a new default and a new Event of Default thereunder if Borrowers fail to comply with any of their duties or Obligations under this Agreement. Further, it shall be a new default and a new Event of Default under each of the Loan Documents if any representation or warranty made by Borrowers in relation to this Agreement is materially incomplete, incorrect, or misleading.

- 8 - -

3.15         Lender's Rights. In the event of any new default or Event of Default under the Credit Agreement, including any default or breach by Borrowers of their duties or obligations under this Agreement, Lender may immediately enforce its rights and remedies under the Loan Documents in any order or priority that Lender elects in its sole and absolute discretion, without notice and without any cure periods, including without limitation any of Lender's rights to setoff.

4.            RATIFICATION OF LOAN DOCUMENTS AND COLLATERAL. The Loan Documents are ratified and affirmed by Borrowers, and the Loan Documents shall and do remain in full force and effect as modified by this Agreement. The liens and Security Interest granted to Lender in the Collateral also remain in full force and effect.

5.             REPRESENTATIONS AND WARRANTIES OF BORROWERS. Borrowers represent and warrant to Lender as follows:

5.1           No Adverse Claims. Borrowers have no claims, counterclaims, defenses, off sets, or recoupments of any kind against Lender with respect to the Indebtedness owing under the Loan Documents, or the liens and Security Interest of Lender in the Collateral.

5.2           Valid and Binding Obligations Owing to Lender. The Loan Documents as modified by this Agreement are the legal, valid, and binding Obligations of Borrowers. Any person executing this Agreement for Borrowers in a representative capacity confirms and acknowledges that he or she has full authority to bind Borrowers to the terms and conditions of this Agreement.

5.3           Requisite Power and Authority. Borrowers are each validly existing under the laws of the jurisdiction of their respective formation and organization and in good standing under the laws of any jurisdiction in which Borrowers conduct business activities, and Borrowers have the requisite power and authority to execute and deliver this Agreement to Lender and to perform all obligations under the Loan Documents as modified by this Agreement.

6.             AFFIRMATIVE COVENANTS OF BORROWER.

6.1           No New Defaults. The accommodations provided by Lender are limited to the exercise of Lender's rights and remedies arising as a result of the Existing Defaults, and Lender will not be deemed to have waived or suspended any rights or remedies arising as a result of a new default or Event of Default by Borrower under the Loan Documents (as amended). Borrower will not commit any new default or Event of Default under any of the Loan Documents (as modified).

6.2           Reimbursement of Lender's Costs and Expenses. Borrower will reimburse Lender for all of its costs and expenses (including attorneys' fees) reasonably incurred in relation to the Existing Defaults and in relation to this Agreement.

6.3           Subordination of Debt to Indebtedness Owing to Lender. All existing and future indebtedness (whether direct or indirect, liquidated or contingent) owing from Borrower to any Subsidiary, and any Affiliate, both now existing or arising in the future, is and will remain subordinated to the Indebtedness owing to Lender under the Loan Documents. In addition, any liens, security interests, mortgages, or pledges of assets of Borrower to any Subsidiary, and any Affiliate, both now existing or arising in the future, are expressly subordinate and junior in priority to the liens, Security Interest, mortgages, and pledges of the Collateral held by Lender regardless of the record priority or dates of public filings or other documentary rights assertable by any Subsidiary, and any Affiliate. Without limiting the generality of the foregoing, any Subsidiary, and any Affiliate (individually or collectively) will not receive any payments or transfers of property on account of any existing or future indebtedness or equity interests unless and until all Indebtedness owing to Lender under the Loan Documents are satisfied indefeasibly and in full.

- 9 - -

6.4           Modification Fee. In consideration of Lender's willingness to modify the Credit Agreement as provided in this agreement, Borrowers will pay to Lender a fee in the amount of $325,000.00 (the "Modification Fee"), which Modification Fee is fully-earned as of the date of this Agreement, but which shall be payable on the earlier of: (i) termination of the Credit Facility; or (ii) January 31, 2010.

6.5           Further Assurances. Borrower will perform such acts, and will execute, deliver, and provide Lender with any documents, agreements, or instruments as are reasonably necessary to carry out the terms and conditions of this Agreement.

6.6           Release of Lender. In consideration of the benefits provided by Lender through this Agreement, Borrowers, by signing below (collectively, the "Releasing Parties") hereby fully, finally, and absolutely and forever release and discharge Lender and its present and former directors, shareholders, officers, employees, agents, representatives, attorneys, predecessors (including, without limitation, Wells Fargo Business Credit, Inc.), successors and assigns, and their separate and respective heirs, personal representatives, successors and assigns (the "Released Parties"), from any and all actions, causes of action, claims, debts, damages, demands, liabilities, obligations, and suits, of whatever kind or nature, in law or equity of the Releasing Parties and, whether now known or unknown to the Releasing Parties, and whether contingent or matured: (i) in respect of any of the Loan Documents, or the actions or omissions of Lender occurring prior to the date of this Agreement in respect of the loan to Borrower, or any duties under the Loan Documents; and (ii) arising from events occurring prior to the date of this Agreement. Releasing Parties acknowledge that they have been informed by their attorneys, and are aware of and familiar with the general principle of law which provides that a general release does not extend to claims which a creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with a debtor (the "Unknown Claims"). To the extent applicable, Releasing Parties expressly waive and relinquish all rights and benefits they may have under the principle of law relating to the release of Unknown Claims.

6.7           Term Sheet for Refinancing. On or before December 15, 2009, Borrowers shall have delivered to Lender a signed term sheet from a financial institution, in form and substance acceptable to Lender in its sole and absolute discretion, to refinance the Credit Facility.

6.8           Additional Equity: By not later than October 31, 2009, Borrowers will have obtained a cash infusion for working capital of at least $1,250,000.00 in the form of equity ("Additional Equity") or subordinated debt ("Subordinated Debt") (which shall be subordinated pursuant to a Subordination Agreement in form and substance acceptable to Lender in its sole discretion). The Additional Equity and Subordinated Debt shall be used solely for working capital of Borrowers.

- 10 - -

6.9           Appraisal of Equipment. Borrowers shall have provided to Lender an appraisal of Borrower's equipment located on the Property in form and substance acceptable to Lender within 30 days after Borrower's execution of this Agreement.

6.10         Appraisal of Property. Borrowers shall have provided to Lender an appraisal of the Property in form and substance acceptable to Lender within 30 days after Borrower's execution of this Agreement.

6.11         Minimum Quarterly Net Income. The financial covenants set forth in Sections 5.2(a) - (e) shall not apply during the Forbearance Period. Instead, Borrowers shall achieve, for each period described below, Net Income of not less than the amount set forth for each such period (numbers appearing between "< >" are negative):

Quarter Ending	Minimum Net Income
June 30. 2009	<$6,000,000.00>
September 30. 2009	<$4,500,000.00>

7.             EXECUTION AND DELIVERY OF AGREEMENT BY LENDER. Lender is not bound by this Agreement until: (i) Lender has executed and delivered this Agreement to Borrowers; and (ii) all of the conditions set forth above in Section II are satisfied.

8.             BINDING EFFECT. The Loan Documents, as modified by this Agreement, will be binding upon and will inure to the benefit of Borrowers and Lender and their respective successors and assigns.

9.             CHOICE OF LAW/VENUE. This Agreement will be governed by and will be construed in accordance with the laws of the State of Arizona, without giving effect to any conflicts of law principles. Borrowers agree that the exclusive venue for any voluntary or involuntary bankruptcy of Borrowers will be the United States Bankruptcy Court for the District of Arizona (Phoenix Division), and that the exclusive venue for any litigation or disputes arising under or with respect to the Loan Documents or this Agreement will be in Maricopa County, Arizona.

10.           COUNTERPARTS. This Agreement may be signed in any number of counterparts. Facsimile signatures will be deemed acceptable as original signatures.

11.           NOTICES. Any notice or other communication required or permitted hereunder or under the Loan Agreement will be in writing and personally delivered; sent by telecopier, telefax, or facsimile transmission; or sent by prepaid overnight courier service; and addressed to the relevant party at its address set forth below, or at such other address as such party may, by written notice, designate as its address for purposes of notice hereunder:

- 11 - -

(a)	If to Lender, at:
		Wells Fargo Bank, National Association
		Attn: Shane Luke
		100 West Washington Street, 15th Floor
		MACS4101-158
		Phoenix, Arizona 85003
		Telephone (602) 378-2468
		Fax: (602) 378-6215
		with a copy to:
		Greenberg Traurig, LLP
		Attn: Julie Rystad, Esq.
		2375 East Camelback Road, Suite 700
		Phoenix, Arizona 85016
		Telephone: (602) 445-8234
		Fax: (602) 445-8619
(b)	If to Borrowers, at:
		NutraCea
		NutraPhoenix, LLC
		5090 N. 40th Street, Suite 400
		Phoenix, Arizona 85018
		Attn: W. John Short
		Telephone: (602) 552-3011
		Fax: (602) 552-7575
		with a copy to:
		Weintraub Genshelea Chediak
		Attn: Shawn Kent, Esq.
		400 Capital Mall, 11th Floor
		Sacramento, California 95814
		Telephone: (916) 558-6128
		Fax: (916) 446-1611

Notice will be presumed to have been received upon delivery by overnight mail, by hand-delivery, or upon communication during regular hours of the recipient by facsimile, telecopier, or telefax.

12.           ATTORNEYS' FEES. In the event of any dispute between the parties arising out of or in connection with this Agreement, the party which prevails in such action shall be reimbursed by the other party for reasonable attorneys' fees, costs and expenses incurred by such prevailing party in connection with such dispute.

- 12 - -

13.           CONFLICTS. INCONSISTENCIES. In the event of any conflict or inconsistency between the terms and provisions of this Agreement and the terms and provisions of the Credit Agreement or other Loan Documents, the terms and provisions of this Agreement shall control to the extent necessary to resolve such conflict or inconsistency.

14.           COSTS. Borrowers agree to reimburse Lender for all costs and expenses (including reasonable attorneys' fees) incurred with respect to the modifications to the Loan Documents contemplated by this Agreement, including the preparation and delivery of this Agreement.

15.           JOINT AND SEVERAL LIABILITY. The obligations pursuant to this Agreement, the Credit Agreement and each other Loan Document for each of the persons or entities of which Borrowers are comprised are joint and several.

- 13 - -

Counterpart signature page for the "Forbearance Agreement and Amendment to Credit and Security Agreement " dated to be effective as of July 31, 2009 (the "Agreement"), between: (i) Wells Fargo Bank, National Association, (ii) NutraCea, a California corporation, and (iii) NutraPhoenix, LLC, a Delaware limited liability company.

NUTRACEA, a California corporation
By:	/s/ W. John Short
Name: W. John Short
Its: President
NUTRAPHOENIX, LLC, a Delaware limited liability company
By:	/s/ W. John Short
Name: W. John Short
Its: President

- 14 - -

Counterpart signature page for the "Forbearance Agreement and Amendment to Credit and Security Agreement " dated to be effective as of July 31, 2009 (the "Agreement"), between: (i) Wells Fargo Bank, National Association, (ii) NutraCea, a California corporation, and (iii) NutraPhoenix, LLC, a Delaware limited liability company.

WELLS FARGO BANK, NATIONAL ASSOCIATION, acting through its Wells Fargo Business Credit operating division
By:	/s/ Shane Luke
Name: Shane Luke
Its: Vice President

- 15 - -

CERTIFICATE OF AUTHORITY OF BORROWERS

I, W. John Short, do hereby certify that 1 am the acting President of NutraCea, a California corporation and NutraPhoenix, LLC, a Delaware limited liability company (each a "Borrower," and collectively, the "Borrowers"). I further certify that the following is a true, complete and correct copy of resolutions duly adopted at one or more meetings of the directors of each of the above-referenced corporations held on the 24th day of July, 2009 or by unanimous, written consent; and I further certify that said resolutions are now in full force and effect:

First Resolution

RESOLVED that W. John Short, the President of Borrowers (the "Officer"), is authorized:

(i) To enter into the Forbearance Agreement and Amendment to Credit and Security Agreement, dated effective as of July 31, 2009 (the "Amendment"), with WELLS FARGO BANK, NATIONAL ASSOCIATION, acting through its Wells Fargo Business Credit operating division (herein, with its participants, successors and assigns called the "Lender"), for and on behalf of and in the name of Borrowers;

(ii) To sign, execute and deliver agreements, acceptances or other evidences of indebtedness therefor, or in renewal or amendment thereof, in such amounts and for such time, at such rates of interest and upon such terms as such Officer may approve, such approval to be conclusively evidenced by such Officer's signature thereon;

(iii) To do such other acts and things, make such other agreements and execute and deliver such other contracts or writings as such Officer may deem to be appropriate in connection with any of the foregoing.

Second Resolution

RESOLVED FURTHER that the President of each of the Borrowers shall certify to the Lender the name and signature of the person presently authorized as Officer; the Lender shall be fully protected in relying on such certificates and on the obligation of such Officer (set forth above) immediately to certify to the Lender any change in any facts so certified; and the Lender shall be indemnified and saved harmless by the Borrower for, from and against any claims, demands, expenses, loss or damage resulting from or growing out of honoring or relying on the signature or other authority (whether or not properly used) of the Officer whose name and signature was so certified, or refusing to honor any signature or authority not so certified.

Third Resolution

RESOLVED FURTHER that the foregoing resolutions arc in addition to, and do not limit and shall not be limited by, any resolutions heretofore or hereafter adopted by the Borrower for the conduct of business with the Lender; and the foregoing resolutions shall continue in force until express written notice of their prospective rescission or modification, as to future transactions not then undertaken or committed for, has been received by the Lender.

1

Fourth Resolution

RESOLVED FURTHER that any and all transactions by or on behalf of the Borrower with the Lender prior to the adoption of these resolutions be and the same hereby arc in all respects ratified, approved and confirmed.

I further certify that the directors of the Borrowers have, and at the time of adoption of the foregoing resolutions had, full power and lawful authority to adopt the foregoing resolutions and to confer the powers therein granted to the persons named and that such persons have full power and authority to exercise same.

I further certify that the foregoing resolutions are effective and binding on the Borrowers without approval by their respective shareholders.

I further certify that the Amendment and any other writings identified in the Resolutions set forth above, executed on behalf of the Borrowers by the authorized Officer, have been executed and delivered to the Lender and are the agreements and writings referred to in and approved by the Resolutions set forth above.

I further certify that the articles of incorporation and bylaws of each Borrower previously delivered to the Lender in connection with the Borrower's execution and delivery of the certificates of authority, each dated December 18, 2008 are in full force and effect and have not been altered, modified, terminated, amended or revised.

IN WITNESS WHEREOF, I have hereunto subscribed my name this 31st day of July, 2009.

/s/ W. John Short

W. John Short, President

2

EX-10.42

Exhibit 10.42

EMPLOYMENT SEVERANCE AGREEMENT

This Employment Severance and Release Agreement ("Agreement") is made by and between NutraCea, with a principal business address at 5090 North 40th Street, Phoenix, AZ 85018 ("Employer") and Bradley D. Edson, an individual with a principal address at 4213 N. Jokake Road, Scottsdale, AZ 85251 ("Employee") as follows:

1.            Buyout of Employment Agreement. Employee was employed by Employer pursuant to a written employment agreement dated December 10, 2004 and amended January 8, 2008 (the "Employment Agreement"). Employer and Employee now mutually agree that for the consideration specified in this Agreement, NutraCea shall buyout the Employment Agreement (except for those provisions expressly excepted herein) effective March 9, 2009 (the "Buyout Date") and Employee shall resign on the Buyout Date. The parties acknowledge that Employee has resigned as a member of Employer's Board of Directors.

2.            Severance Payments. NutraCea shall pay to Employee six (6) months of Employee's current annual base salary of $312,100, as described in the Employment Agreement (the "Severance Payment"). The total amount of the Severance Payment shall be $156,050.

2.1.          Payments Schedule; Withholding. NutraCea shall pay Employee the Severance Payment in payments as follows: one half ($78,025) of the Severance Payment on the Buyout Date (the "Initial Severance Payment") and the remaining one-half of the Severance Payment in three (3) equal consecutive monthly payments (the "Installment Severance Payments") with the first installment due to be paid on April 1, 2009. All payments shall be subject to the customary withholding tax and other employment taxes. In the event that NutraCea fails to timely pay the Initial Severance Payment specified in this Section 2.1, or fails to timely pay the accrued salary, wages, bonuses, accrued vacation, commissions and any and all other benefits due to Employee specified in Section 3 of this Agreement then, notwithstanding the provisions of Section 20.3, the parties agree that the unpaid portion shall be treated as wrongfully withheld wages and Employee shall be entitled to treble the amount of the wrongfully withheld wages pursuant to Arizona law (A.R.S. § 23-355). In the event that NutraCea fails to timely pay any of the Installment Severance Payments as specified in this Section 2.1 then NutraCea shall have twenty (20) days following the due date of such payment to cure such nonpayment. In the event that NutraCea fails to cure non-payment of any Installment Severance Payment within twenty days (20) days of the due date for such payment then, notwithstanding the provisions of Section 20.3, the parties agree that the unpaid portion shall be treated as wrongfully withheld wages and Employee shall be entitled to treble the amount of the wrongfully withheld wages pursuant to Arizona law (A.R.S. § 23-355).

1

2.2.          Medical and Health Benefits. Medical and health coverage for Employee and his dependents under NutraCea's health insurance plans will continue through April 30, 2009. Thereafter, NutraCea shall reimburse employee for his COBRA payments to continue medical and health coverage for himself and his dependents for six (6) months beginning May 1, 2010 through October 31, 2010. Employee hereby permanently and irrevocably waives the right to receive premium assistance under the American Recovery and Reinvestment Act of 2009.

2.3           Warrant/Stock Option Grants, NutraCea acknowledges that Employee holds the warrants, stock options and/or other stock acquisition rights identified on Exhibit A.

2.4           Furniture/Office Equipment. NutraCea shall purchase from Employee the furniture and office equipment itemized on Exhibit B for Five Thousand Dollars ($5,000.00) payable within ten (10) days of the Buyout Date.

3.            Payment of Salary. Employee's vacation and sick leave shall cease accruing on the Buyout Date. Aside from the severance payments set forth in Section 2 of this Agreement, NutraCea agrees that it will pay to Employee all salary, wages, bonuses, accrued vacation, commissions and any and all other benefits due to Employee within five (5) calendar days from the Buyout Date of this Agreement.

4.            Business Expenses. NutraCea shall reimburse Employee for all business expenses he has incurred, in accordance with NutraCea's reimbursement policy within five (5) calendar days from the Buyout Date of this Agreement.

5.            Employee's Continued Right To Indemnification. The provisions of Section 11 ("Indemnification") of the Employment Agreement shall survive and remain in full force and effect for Employee's benefit.

6.            Non-Disparagement. The parties will not knowingly make any statement, oral or written, or cause or allow to be published in its/his name, any statement, interview, article, editorial or commentary (oral or written) that is critical, disparaging or derogatory of the other party or their respective businesses or personnel and former personnel (including current or former employees, directors and officers). Nothing in this Agreement, however, prohibits or restricts the parties from responding truthfully and factually to any inquiry by the Securities and Exchange Commission, any other regulatory or governmental agency, any self-regulatory organization, in response to any civil process or when otherwise required by law.   Nor shall anything in this agreement be construed as prohibiting or restricting the parties from making truthful factual statements in response to inquiries from investors, shareholders and/or creditors or any potential investor, creditor or shareholder. The parties further acknowledge and agree that prior to the execution of this Agreement, the law firm of Osborn Maledon, P.A. had been retained by NutraCea to conduct an independent review. The parties acknowledge and agree that statements by Osborn Maledon P.A. relating to its review, oral or written, are not statements of the Company and shall not be construed as such.

2

7.            Confidential Information. Employee acknowledges that during the course of his duties with NutraCea, he handled confidential information of NutraCea and its affiliates. Employee agrees he will retain in the strictest confidence all confidential matters which relate to NutraCea or its affiliates, including, without limitation, pricing lists, business plans, financial projections and reports, business strategies, internal operating procedures and other confidential business information from which NutraCea derives an economic or competitive advantage or from which NutraCea might derive such advantage in its business, whether or not labeled "secret" or "confidential," and not to disclose directly or indirectly or use by him in any way, at any time, except as permitted by law.

8.            Trade Secrets. Employee shall not disclose to any others or take or use for Employee's own purposes or purposes of any others at any time, any of NutraCea's trade secrets, including without limitation, confidential information; customer lists; information concerning current or any future and proposed work, services or products; or the fact that any such work, services or products are planned, under consideration, or in production, as well as any description thereof. Employee agrees that these restrictions shall also apply to (i) trade secrets belonging to third parties in NutraCea's possession and (ii) trade secrets conceived, originated, discovered or developed by Employee during the term of his employment.

9.            Inventions; Ownership Rights. Employee agrees that all ideas, techniques, inventions, systems, formulas, discoveries, technical information, programs, prototypes and similar developments ("Developments") developed, created, discovered, made, written or obtained by him or her in the course of or as a result, directly or indirectly, of performance of his duties to NutraCea, and all related industrial property, copyrights, patent rights, trade secrets and other forms of protection thereof, shall be and remain the property of NutraCea. Employee agrees to execute or cause to be executed such assignments and applications, registrations and other documents and to take such other action as may be requested by NutraCea to enable NutraCea to protect its rights to any such Developments.

10.          Non-interference; No Solicitation.   Employee agrees not to unlawfully interfere with any of NutraCea's contractual obligations with others. Furthermore, Employee agrees during a period of two (2) years after the date of this Agreement, not to, without NutraCea's express written consent, on his behalf or on behalf of another: (i) contact with the intent to solicit or solicit the business of any client, customer, creditor or licensee of NutraCea, or (ii) contact with the intent to solicit or solicit employees of NutraCea to leave their employment, other than clerical employees. Employee acknowledges that this Section 10 is a reasonable and necessary measure designed to protect the proprietary, confidential and trade secret information of NutraCea. The Parties agree that the provisions of this Section 10 do not apply to or prohibit Employee from contacting and communicating with banks and investment bankers that also have done or may have done business with NutraCea.

3

11.          Return NutraCea Property. Employee agrees that he will promptly, within two (2) business days, return to NutraCea, all NutraCea's or its affiliates' memoranda, notes, records, reports, manuals, drawings, designs, computer files in any media and other documents (including extracts and copies thereof) relating to NutraCea or its affiliates, and all other property of NutraCea, except that NutraCea agrees that Employee may keep his laptop computer.

12.          Actions Contrary to Law. Nothing contained in this Agreement shall be construed to require the commission of any act contrary to law, and whenever there is any conflict between any provision of this Agreement and any statute, law, ordinance, or regulation, contrary to which the parties have no legal right to contract, then the latter shall prevail; but in such event, the provisions of this Agreement so affected shall be curtailed and limited only to the extent necessary to bring it within legal requirements.

13.          Consulting Agreement. NutraCea will retain Employee as an Independent Consultant to perform consulting services for NutraCea from March 9, 2009 through May 9, 2009 for a fee of $15,000.00 per month, plus expenses, the terms of which engagement are more particularly set forth in the Consulting Agreement between the parties, a copy of which is attached hereto as Exhibit C, the terms and conditions of which are incorporated herein by this reference.

14.          Confidentiality of Agreement. It is the intent of the parties that the existence and terms of this Agreement be confidential. Therefore, NutraCea and Employee agree to maintain in strictest confidentiality the terms and existence of this Agreement as well as the discussions and negotiations that led to its creation and execution, provided, however, that: (a) Employee may disclose this Agreement to his spouse; (b) the parties may disclose this Agreement in confidence to their respective attorneys, accountants, auditors, tax preparers, and financial advisors; (c) NutraCea may disclose this Agreement as necessary to fulfill standard or legally required corporate reporting or disclosure requirements; (d) NutraCea and Edson may disclose this Agreement insofar as such disclosure may be necessary to enforce its terms or as otherwise required by law; and (e) NutraCea and Edson may disclose this Agreement to the Securities and Exchange Commission, any other regulatory or governmental agency, or any self-regulatory organization or in response to any civil process.

4

15.          No Admission of Wrongdoing, NutraCea expressly agrees and acknowledges that neither the parties' mutual agreement to terminate the Employment Agreement nor anything in this Agreement shall be construed as an admission or evidence of wrongdoing by Employee.

16.          Reimbursement of Employee's Attorneys' Fees. NutraCea agrees that within five (5) calendar days of the Buyout Date, it will reimburse Employee for his attorneys' fees incurred in negotiating and entering into this Agreement in the sum of $20,000.00.

17.          Representation of NutraCea. NutraCea has taken all corporate action necessary to duly authorize the transactions contemplated by this Agreement and has all requisite power and authority to enter into this Agreement and to perform all of its obligations under this Agreement.

18.          Payment of Obligations Absolute. NutraCea's obligation to pay the Severance Payment, reimburse employee for COBRA premiums and attorneys' fees and to satisfy all of its obligations provided in this Agreement shall be absolute and unconditional and shall not be affected by any circumstances, including any offset, counterclaim, recoupment, defense or other right that NutraCea may have or claim to have against Employee.

19.          Successors To NutraCea. This Agreement shall inure to the benefit of NutraCea and its subsidiaries and shall be binding upon and enforceable by NutraCea and any successor thereto, including, without limitation, any corporation or corporations or other entities acquiring directly or indirectly all or substantially all of the business or assets of NutraCea, whether by merger, consolidation, sale or otherwise, but shall not otherwise be assignable by NutraCea. Without limitation of the foregoing sentence, NutraCea shall require any successor (whether direct or indirect, by merger, consolidation, sale or otherwise) to all or substantially all of the business or assets of NutraCea, by agreement in a form satisfactory to the employee, expressly, absolutely and unconditionally to assume and agree to perform this Agreement in the same manner and to the same extent as NutraCea would have been required to perform it if no such succession had taken place.

20.          Miscellaneous.

20.1         Notices. All notices to be given by either party to the other shall be in writing and may be transmitted by personal delivery, facsimile transmission, overnight courier or mail, registered or certified, postage prepaid with return receipt requested; provided, however, that notices of change of address or facsimile number shall be effective only upon actual receipt by the other party. Notices shall be delivered at the addresses set forth in the Preamble of this Agreement, unless changed as provided for herein.

5

20.2         Entire Agreement. This Agreement and any agreements incorporated herein by reference to the extent that they are consistent with this Agreement, supersede any all agreements, either oral or written, between the parties hereto with respect to its subject matter. Each party to this Agreement acknowledges that no representation, inducements, promises, or agreements, orally or otherwise, have been made by any party or anyone acting on behalf of any parties, which are not embodied herein, and that no other agreement, statement, or promise not contained in this Agreement shall be valid or binding. Any modification of this Agreement will be effective only if it is in writing and signed by both parties.

20.3         Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California.

20.4         Jurisdiction and Venue. Any claim brought to interpret or enforce any provisions of this Agreement, the transactions contemplated by this Agreement, or otherwise relating to or arising from this Agreement, shall be exclusively commenced and maintained in the state or federal courts sitting in Arizona in the venue of Maricopa County and each of the Parties consents to jurisdiction and venue in such Court for such purposes, provided such claim is not required to be arbitrated pursuant to Section 20.5. The parties further agree that personal jurisdiction over them may be effected by notice as provided in Section 20.1, and that when so made shall be as if served upon them personally within the State of Arizona.

20.5         Arbitration. Any controversy, dispute or claim arising out of or relating to this Agreement, performance hereunder or breach thereof, which cannot be amicably settled, shall be settled by arbitration conducted in Phoenix, Arizona or such other mutually agreed upon location. Said arbitration shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association ("AAA") at a time and place within the above-referenced location as selected by the arbitrator(s).

a.           Initiation of Arbitration. After seven (7) days prior written notice to the other, either party hereto may formally initiate arbitration under this Agreement by filing a written request therefore. NutraCea shall pay the appropriate filing fees.

b.           Selection of Arbitrator(s). The selection of a neutral arbitrator or arbitrators shall be in accordance with the AAA Commercial Arbitration Rules.

6

c.           Discovery. The arbitrator(s) shall permit adequate discovery.

d.           Hearing and Determination Dates. The hearing before the arbitrator(s) shall occur within thirty (30) days from the date the matter is submitted to arbitration. Further, a determination by the arbitrator(s) shall be made within forty-five (45) days from the date the matter is submitted to arbitration. Thereafter, the arbitrator(s) shall have fifteen (15) days to provide the parties with his or their decision in writing. However, any failure to meet the deadlines in this paragraph will not affect the validity of any decision or award.

e.           Damages. The arbitrator(s) shall have the authority to award appropriate damages, including injunctive relief, if requested.

f.           Binding Nature of Decision. The decision of the arbitrator(s) shall be binding on the parties. Judgment thereon shall be entered in a court of competent jurisdiction.

g.           Injunctive Actions. Nothing herein contained shall bar the right of either party to seek from the arbitrator(s) injunctive relief or other provisional remedies against threatened or actual conduct that will cause loss or damages under the usual equity rules including the applicable rules for obtaining preliminary injunctions and other provisional remedies.

h.           Fees and Costs. The cost of arbitration, including the fees of the arbitrator(s), shall initially be borne by NutraCea; provided, the prevailing party (as determined by the arbitrator) shall be entitled to recover all such costs allowed by law, in addition to attorneys' fees and other costs, in accordance with Section 14.6 of this Agreement.

20.6         Attorneys' Fees. In the event of any litigation, arbitration, or other proceeding arising out of this Agreement, or the parties' performance as outlined herein, the prevailing party shall be entitled to an award of costs, including an award of reasonable attorneys' fees. Any judgment, order, or award entered in any such proceeding shall designate a specific sum as such an award of attorneys' fees and costs incurred. This attorneys' fee provision is intended to be severable from the other provisions of this Agreement, shall survive any judgment or order entered in any proceeding and shall not be deemed merged into any such judgment or order, so that such further fees and costs as may be incurred in the enforcement of an award or judgment or in defending it on appeal shall likewise be recoverable by further order of a court or panel or in a separate action as may be appropriate.

20.7         Amendment, Waiver. No amendment or variation of the terms of this Agreement shall be valid unless made in writing and signed by Employee and NutraCea. A waiver of any term or condition of this Agreement shall not be construed as a general waiver by NutraCea. Failure of either Employee or NutraCea to enforce any provision or provisions of this Agreement shall not waive any enforcement of any continuing breach of the same provision or provisions or any breach of any provision or provisions of this Agreement.

7

20.8         Ambiguities. This Agreement shall not be subject to the rule that any ambiguities in the contract are to be interpreted against the drafter of the Agreement.

20.9         Counterparts. This Agreement may be signed in one or more counterparts (by facsimile or otherwise), all of which shall be treated as one and the same instrument.

20.10      Warranty. Employee warrants that he is executing this Agreement of his own free will, and knowingly and voluntarily without any promises or representations other than those contained in this Agreement.

20.11      Captions. The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any section of this Agreement.

20.12      Further Documents. The Parties agree that they will execute any and all additional document necessary to effectuate this Agreement.

[signature page to follow]

8

The undersigned have executed this Agreement as of March 9, 2009.

EMPLOYEE

/s/ Brad Edson

Brad Edson

NUTRACEA

/s/ Olga Hernandez-Longan

Its: Chief Financial Officer

9

EXHIBIT A

WARRANTS AND STOCK OPTION GRANTS

Warrant to purchase 6,000,000 shares of NutraCea's common stock that was issued on or about December 17, 2004.

Option to purchase 500,000 shares of NutraCea's common stock that was granted on or about January 8, 2008.

10

EXHIBIT B

ITEMIZATION OF FURNITURE/OFFICE EQUIPMENT

Furniture - Phoenix Plant
Paoli Furniture
2	Executive Desk
1	Executive Desk with side Extension
2	Executive Credenza
2	Executive Chairs (blue leather)
2	Executive Side Chairs (blue leather)
1	Herman Miller Aeron Chair
1	Bookcase
Walnut Furniture
1	Executive Desk
1	Executive Credenza with Hutch
4	Reception Chairs
Corporate Office
1	Copier

11

EXHIBIT C

CONSULTING AGREEMENT

12

EX-10.47

EXHIBIT 10.47

EMPLOYMENT SEVERANCE AGREEMENT

This Employment Severance and Release Agreement ("Agreement") is made by and between NutraCea, with a principal business address at 5090 North 40th Street, Phoenix, AZ 85018 and Todd C. Crow, an individual with principal address at 8335 Walden Woods Way, Granite Bay, CA 95746 ("Employee") as follows:

1.            Separation from Employment. Employee's employment with NutraCea terminated pursuant to the Employment Agreement originally entered into on October 20, 2003, and amended pursuant to the First Amendment to Employment Agreement dated October 5, 2005, and the Second Amendment to Employment Agreement dated July 19, 2008 (collectively "Employment Agreement"). Such date of termination is referred to herein as the "Termination Date". This Agreement shall be effective as of such Termination Date unless otherwise provided in the Employment Agreement.

2.            Severance Payments. NutraCea does not have a policy or obligation to pay severance pay, but nevertheless, agrees to make severance payments to Employee as set forth in this Section 2. Subject to and conditioned upon Employee's compliance with each and every obligation of Employee set forth herein, specifically including, without limitation, Employee's obligations of no disparagement, no solicitation, non-interference, and confidentiality as set forth in Sections 9, 10 and 11 of this Agreement, NutraCea agrees to pay to Employee one lump sum severance payment equal to Employee's current annual salary, which is equal to the annual salary amount payable to Employee pursuant to the Employment Agreement as in effect immediately prior to the Termination Date. (the "Severance Payment"). In addition to the Severance Payment, NutraCea agrees to pay in full on or prior to the Termination Date, the car lease referenced on Exhibit A attached hereto, and to assign to Employee the computer items referenced on Exhibit A attached hereto.

2.1.            Payments Schedule; Withholding.  NutraCea shall pay Employee the Severance Payment on or before, ______________, in accordance with NutraCea's standard payroll practices. The severance payment shall be subject to the customary withholding tax and other employment taxes as required with respect to compensation paid to its employees.

2.2.            Medical and Health Benefits.  Employee will also be offered the opportunity for continued coverage under NutraCea's health insurance plans until March 31, 2009. Thereafter, NutraCea shall reimburse employee for his subsequent COBRA payments made after March 31, 2009 and continuing for eighteen (18) months thereafter, unless during such time, Employee becomes eligible to obtain coverage under Medicare Plans A and B, in which case. NutraCea shall be under no further obligation to reimburse Employee for such COBRA payments. NutraCea's insurance agent willsend Employee information regarding this coverage.

2.3             Stock Option Grants.  The options, warrants and any other rights identified on Exhibit B, as acknowledged and approved by the Company's CEO will remain vested, or shall become vested and capable of exercise pursuant to their terms, as provided in the stock option agreements delivered pursuant to NutraCea's equity incentive plans. All options assumed by NutraCea from RiceX identified on Exhibit B are (1) approved to be exercisable using a cashless exercise (net exercise) provision, provided this method of exercise is chosen by optionee as the method of exercise; and (2) amended in the event the optionee dies or becomes disabled, the expiration period shall be one year from the date of death or disability. Additionally, the options which are scheduled to expire on October 4, 2008 shall be amended to extend the expiration period three years from termination date. The Company shall also waive all performance requirements for the option issued to Employee on January 8, 2008.

1

2.4             Director and Officer Insurance Indemnity.  NutraCea shall maintain current levels of officer's insurance for the benefit of Employee on the terms provided in the Indemnification Agreement between NutraCea and Employee as in effect on the Termination Date.

3.            Payment of Salary. Employee's vacation and sick leave shall cease accruing on the Termination Date. Aside from the severance payments set forth in Section 2 of this Agreement, Employee acknowledges and represents that NutraCea has paid all salary, wages, bonuses, accrued vacation, commissions and any and all other benefits due to Employee.

4.            Business Expenses. Employee acknowledges and warrants to NutraCea that Employees has been reimbursed for all business expenses, in accordance with NutraCea's reimbursement policy.

5.             Release of Liability. Employee acknowledges that he enters this Agreement freely and voluntarily, and agrees as follows:

5.1            ADEA Waiver. Employee acknowledges that he is knowingly and voluntarily waiving and releasing any rights Employee may have under the Age Discrimination in Employment Act of 1967, as amended ("ADEA"). Employee also acknowledges that the consideration given for the waiver and release pursuant to this Agreement is in addition to anything of value to which Employee was already entitled. Employee further acknowledges that he has been advised by this Agreement in writing, as required by the ADEA, that:

(a) his waiver and release does not apply to any rights or claims that may arise after the execution date of this Agreement;

(b) he has the right to consult with an attorney prior to executing this Agreement;

(c) he has twenty-one (21) days to consider this Agreement (although Employee may choose to waive this provision by voluntarily executing this Agreement earlier);

(d) he has seven (7) days following the execution of this Agreement to revoke the Agreement; and

(e) this Agreement will not be effective until the date upon which the revocation period has expired, which will be the eighth day after this Agreement is executed by both parties ("Effective Date").

5.2             Statutory Claims. Employee acknowledges that Title VII of the Civil Rights Act of 1964, as amended, the Civil Rights Act of 1991, the Americans With Disabilities Act, the Age Discrimination in Employment Act of 1967, the Rehabilitation Act of 1973, the Vietnam Era Veterans Readjustments Assistance Act of 1974, the Federal Family and Medical Leave Act of 1993, the California Family Rights Act of 1991, the Federal Family and Medical Leave Act of 1993. and the California Fair Employment and Housing Act, as amended, and applicable provisions of California's Labor Code provide the right to an employee to bring charges, claims or complaints against an employer if Employee believes he has been discriminated against on a number of bases, including race, ancestry, color, religion, sex, marital status, national origin, age, status as a veteran of the Vietnam era, request or need for family or medical leave, physical or mental disability, medical condition or sexual preference. Employee, with full understanding of the rights afforded to him or her under these federal and state laws, agrees that he will not file, or cause to be filed against NutraCea, any charges, complaints, or actions based on any alleged violation of these federal and state laws, or any successor or replacement federal or state laws. Employee hereby waives any right to assert a claim for relief available under these federal and state laws including, but not limited to, back pay, front pay, attorneys' fees, damages, consequential damages, punitive damages, reinstatement, or injunctive relief, which Employee may otherwise recover based on any alleged violation of these federal and state laws, or any successor or replacement federal or state laws.

2

5.3.           Common Law Claims. Employee acknowledges thathe may have certain common law rights to file a lawsuit claiming wrongful discharge in violation of an express and/or implied contract or in violation of a public policy. Employee expressly waives any and all tort and/or contract claims that he may have against NutraCea for wrongful discharge, misrepresentation, fraud, defamation, interference with prospective business advantage, interference with contractual relationships, intentional and/or negligent infliction of emotional distress, negligence, promissory estoppel, and/or breach of the covenant of good faith and fair dealing.

5.4            General Release. Employee hereby irrevocably and unconditionally releases and forever discharges NutraCea and all of its officers, agents, directors, supervisors, employees, representatives, affiliates, related companies, and their successors and assigns and all persons acting by, through, under or in concert with any of them from any and allcharges, complaints, grievances, claims, actions, and liabilities of any kind (including attorneys' fees, interest, expenses and costs actually incurred) of any nature whatsoever, known or unknown, suspected or unsuspected (hereinafter referred to as "Claims"), which Employee has or may have in the future, arising out of Employee's employment with NutraCea. All such Claims are forever barred by this Agreement and without regard to whether these Claims are based on any alleged breach of duty arising in contract or tort, any alleged employment discrimination or other unlawful discriminatory act, or any claim or cause of action regardless of the forum in which it may be brought, including without limitation, claims under the National Labor Relations Act (to the extent permitted by law), Title VII of the Civil Rights Act of 1964, as amended, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1964, as amended, the Americans With Disability Act the Federal Family and Medical Leave Act of 1993, the Rehabilitation Act of 1973, the Vietnam Era Veterans Readjustment Assistance Act of 1974, the California Family Rights Act of 1991, the Federal Family and Medical Leave Act of 1993, and the California Fair Employment and Housing Act, as amended, and applicable provisions of California's Labor Code.

6.            Confidential Information. Employee acknowledges that during the course of his duties with NutraCea, he handled confidential information of NutraCea and its affiliates. Employee agrees he will retain in the strictest confidence all confidential matters which relate to NutraCea or its affiliates. including, without limitation, pricing lists, business plans, financial projections and reports, business strategies, internal operating procedures and other confidential business information from which NutraCea derives an economic or competitive advantage or from which NutraCea might derive such advantage in its business, whether or not labeled "secret" or "confidential," and not to disclose directly or indirectly or use by him in any way, at any time, except as permitted by law.

7.            Trade Secrets. Employee shall not disclose to any others or take or use for Employee's own purposes or purposes of any others at any time, any of NutraCea's trade secrets, including without limitation, confidential information; customer lists; information concerning current or any future and proposed work, services or products; or the fact that any such work, services or products are planned, under consideration, or in production, as well as any description thereof. Employee agrees that these restrictions shall also apply to (i) trade secrets belonging to third parties in NutraCea's possession and (ii) trade secrets conceived, originated, discovered or developed by Employee during the term of his employment.

8.            Inventions; Ownership Rights. Employee agrees that all ideas, techniques, inventions, systems, formulas, discoveries, technical information, programs, prototypes and similar developments ("Developments") developed, created, discovered, made, written or obtained by him or her in the course of or as a result, directly or indirectly, of performance of his duties to NutraCea, and all related industrial property, copyrights, patent rights, trade secrets and other forms of protection thereof, shall be and remain the property of NutraCea. Employee agrees to execute or cause to be executed such assignments and applications, registrations and other documents and to take such other action as may be requested by NutraCea to enable NutraCea to protect its rights to any such Developments.

3

9.             No Disparagement. The parties agree to treat each other respectfully and professionally and not disparage the other party, or the other party's officers, directors, employees, shareholders and agents, in any manner likely to be harmful to them or their business, business reputation or personal reputation; provided that both Employee and NutraCea will respond accurately and fully to any question, inquiry or request for information when required by the legal process.

10.           Non-Interference; No Solicitation. Employee agrees not to unlawfully interfere with any of NutraCea's contractual obligations with others. Furthermore, Employee agrees during a period of two (2) years after the date of this Agreement, not to, without NutraCea's express written consent, on his behalf or on behalf of another: (i) contact with the intent to solicit or solicit the business of any client, customer, creditor or licensee of NutraCea, or (ii) contact with the intent to solicit or solicit employees of NutraCea to leave their employment, other than clerical employees, Employee acknowledges that this Section 10 is a reasonable and necessary measure deigned to protect the proprietary, confidential and trade secret information of NutraCea.

11.           Confidentiality. Employee agrees that the terms of this Agreement including the payment hereunder are confidential and he will not disclose the terms of the Agreement to anyone except to a person who must know its terms for tax, financial or legal reasons. The parties agree that violations of this Section, Section 9 "No Disparagement" or Section 10 "Non-interference; No Solicitation'1 are material breaches of this Agreement.

12.           Return NutraCea Property. Employee agrees that he will promptly, within two (2) business days, return to NutraCea, all NutraCea's or its affiliates' memoranda, notes, records, reports, manuals, drawings, designs, computer files in any media and other documents (including extracts and copies thereof) relating to NutraCea or its affiliates, and all other property of NutraCea.

13.           Actions Contrary to Law. Nothing contained in this Agreement shall be construed to require the commission of any act contrary to law, and whenever there is any conflict between any provision of this Agreement and any statute, law, ordinance, or regulation, contrary to which the parties have no legal right to contract, then the latter shall prevail; but in such event, the provisions of this Agreement so affected shall be curtailed and limited only to the extent necessary to bring it within legal requirements.

14.           Miscellaneous.

14.1           Notices. Allnotices to be given by either party to the other shall be in writing and may be transmitted by personal delivery, facsimile transmission, overnight courier or mail, registered or certified, postage prepaid with return receipt requested; provided, however, that notices of change of address or facsimile number shall be effective only upon actual receipt by the other party. Notices shall be delivered at the addresses set forth in the Preamble of this Agreement, unless changed as provided for herein.

14.2           Entire Agreement. This Agreement and any agreements incorporated herein by reference to the extent that they are consistent with this Agreement, supersede any allagreements, either oral or written, between the parties hereto with respect to its subject matter. Each party to this Agreement acknowledges that no representation, inducements, promises, or agreements, orally or otherwise, have been made by any party or anyone acting on behalf of any parties, which are not embodied herein, and that no other agreement, statement, or promise not contained in this Agreement shall be valid or binding. Any modification of this Agreement will be effective only if it is in writing and signed by both parties.

14.3           Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California.

4

14.4           Jurisdiction and Venue. The parties hereby consent to the exclusive jurisdiction of the state and federal courts sitting in California in the venue of Sacramento County in any action on a claim arising out of, under or in connection with this Agreement or the transactions contemplated by this Agreement, provided such claim is not required to be arbitrated pursuant to Section 14.5. The parties further agree that persona! jurisdiction over them may be effected by notice as provided in Section 14.1, and that when so made shall be as if served upon them personally within the State of California.

14.5           Arbitration. Any controversy, dispute or claim arising out of or relating to this Agreement, performance hereunder or breach thereof, which cannot be amicably settled, shall be settled by arbitration conducted in Sacramento, California or such other mutually agreed upon location. Said arbitration shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association ("AAA") at a time and place within the above-referenced location as selected by the arbitrator(s).

   a.          Initiation of Arbitration. After seven (7) days prior written notice to the other, either party hereto may formally initiate arbitration under this Agreement by filing a written request therefore. NutraCea shall pay the appropriate filing fees.

   b.          Selection of Arbitrator. The selection of a neutral arbitrator shall be in accordance with the AAA Commercial Arbitration Rules.

   c.          Discovery. The arbitrator shall permit adequate discovery.

   d.          Hearing and Determination Dates. The hearing before the arbitrator shall occur within thirty (30) days from the date the matter is submitted to arbitration. Further, a determination by the arbitrator shall be made within forty-five (45) days from the date the matter is submitted to arbitration. Thereafter, the arbitrator shall have fifteen (15) days to provide the parties with his decision in writing. However, any failure to meet the deadlines in this paragraph will not affect the validity of any decision or award.

   e.          Damages. The arbitrator shall have the authority to award appropriate damages, including injunctive relief, if requested.

   f.           Binding Nature of Decision. The decision of the arbitrator shall be binding on the parties. Judgment thereon shall be entered in a court of competent jurisdiction.

   g.          Injunctive Actions. Nothing herein contained shall bar the right of either party to seek from the arbitrator injunctive relief or other provisional remedies against threatened or actual conduct that will cause loss or damages under the usual equity rules including the applicable rules for obtaining preliminary injunctions and other provisional remedies.

   h.          Fees and Costs. The cost of arbitration, including the fees of the arbitrator, shall initially be borne by NutraCea; provided, the prevailing party (as determined by the arbitrator) shall be entitled to recover all such costs allowed by law, in addition to attorneys' fees and other costs, in accordance with Section 14.6 of this Agreement.

14.6           Attorneys' Fees. In the event of any litigation, arbitration, or other proceeding arising out of this Agreement, or the parties' performance as outlined herein, the prevailing party shall be entitled to an award of costs, including an award of reasonable attorneys' fees. Any judgment, order, or award entered in any such proceeding shall designate a specific sum as such an award of attorneys' fees and costs incurred. This attorneys* fee provision is intended to be severable from the other provisions of this Agreement, shall survive any judgment or order entered in any proceeding and shall not be deemed merged into any such judgment or order, so that such further fees and costs as may be incurred in the enforcement of an award or judgment or in defending it on appeal shall likewise be recoverable by further order of a court or panel or in a separate action as may be appropriate.

5

14.7           Amendment, Waiver. No amendment or variation of the terms of this Agreement shall be valid unless made in writing and signed by Employee and NutraCea. A waiver of any term or condition of this Agreement shall not be construed as a general waiver by NutraCea. Failure of either Employee or NutraCea to enforce any provision or provisions of this Agreement shall not waive any enforcement of any continuing breach of the same provision or provisions or any breach of any provision or provisions of this Agreement.

14.8           Ambiguities.  This Agreement shall not be subject to the rule that any ambiguities in the contract are to be interpreted against the drafter of the Agreement.

14.9           Counterparts. This Agreement may be signed in one or more counterparts (by facsimile or otherwise), all of which shall be treated as one and the same instrument.

14.10         Warranty. Employee warrants that he is executing this Agreement of his own free will, and knowingly and voluntarily without any promises or representations other than those contained in this Agreement.

[signature page to follow]

6

The undersigned have executed this Agreement as of the date first written above.

EMPLOYEE

/s/ Todd C. Crow

Todd C. Crow

NUTRACEA

/s/ Brad Edson

Brad Edson, CEO

7 

EXHIBIT A

Car Lease

Computer Equipment

8 

EXHIBIT B

Assumed Options

Qualified

Date of

Expiration

Original

in RiceX

Number of

Board Date

Exercise

17-Jul-06

Cashless

Name

Non-Qualified

Warrant/Option

Date

Issuance

Merger

Shares

Approval

Price

Registration

Option

Vesting

Crow, Todd

Option

04-May-96

04-Oct-08

60,000

(13,920.60)

46.079

19-Jun-07

$0.30

333-135814

Yes

Fully Vested

(a)

Crow, Todd

Option

03-Jun-96

04-Oct-08

50,000

(11,600.50)

38,399

19-Jun-07

S0.30

333-135814

Yes

Fully Vested

(a)

Crow, Todd

Option

0l-Nov-99

0l-Nov-09

900,000

(208,809.00)

691,191

l9-Jun-07

$0.30

333-135814

Yes

Fully Vested

(a)

Crow, Todd

Option

22-Feb-01

22-Feb-ll

50,000

(11.600.50)

38,399

19-Jun-07

$0.30

333-135814

Yes

Fully Vested

(a)

Crow. Todd

Option

22-Feb-0l

22-Feb-ll

100.000

(23,201.00)

76,799

19-Jun-07

S0.30

333-135814

Yes

Fully Vested

(a)

Crow, Todd

Option

29-Jan-02

29-Jan-12

50.000

(11,600.50)

38,399

19-Jun-07

$0.30

333-135814

Yes

Fully Vested

(a)

Crow. Todd

SOP02002

02-Jan-02

02-Jan-12

125,000

(29,001.25)

95.998

19-Jun-07

$0.30

333-135814

Yes

Fully Vested

(a)

Crow, Todd

SOP05002

31-Mar-05

31-Mar-15

700,111

(162,432.75)

537,678

19-Jun-07

$0.30

333-135814

Yes

Fully Vested

(a)

Total Assumed Options

2,035,111

(472,166.1)

1,562.942

NutraCea Issued Options

Crow, Todd

SOP08003A

08-Jan-08

08-Jan-13

100,000

100,000

8-Jan-08

$1.49

No

Yes

(b)

(c)

Total Options issued and held

1,662,942

	(a) The Cornpany's Board of Directors acknowledges, and resolves to approve the cashless exercise provision of said options in the event Employee retirement, dies or becomes disabled before the expiration period, which has an extension date of 6/l9/07 for the Assumed Options
Notes:
	(b) NutraCea issued option shares which vest over one year as follows: 50% shall vest depending on revenue 50% shall vest depending on net income of the Company.
	(c) In the event that the Employee retires, dies or becomes disabled, the expiration period extension shall apply and the Company shall use its best efforts to amend performance criteria, adjust the vesting period and include underlying shares in its next registration

EACH OF THE ABOVE OPTIONS ARE APPROVED TO BE EXERCISED USING A "CASHLESS EXERCISE" (IF EMPLOYEE ELECTS THAT METHOD OF PAYMENT)

Approved By:

/s/ Bradley D. Edson

Bradley D. Edson; Chief Executive Officer

9

EX-10.48

EXHIBIT 10.48

INDEPENDENT CONTRACTOR AGREEMENT

This Agreement is entered into between NutraCea, a California corporation with principal offices at 5090 40th North Street, Suite 400, Phoenix, Arizona 85018 ("NutraCea" or "Company") and Crow & Associates, LLC with principal address at 8335 Walden Woods Way, Granite Bay, CA 95746 ("Contractor"). The parties agree as follows:

1.           Engagement; Duties. Subject to the terms and conditions of this Agreement, the Company hereby engages the Contractor as an independent contractor to advise the Company and its personnel on accounting systems, practices, and policies; review and advise the Company and its personnel on the appropriate accounting for transactions, and the preparation and filing of all financial statements as required by the Company's internal requirements and reporting obligations pursuant to the Securities and Exchange Commission rules and regulations governing public companies; and report to the Chief Executive Officer on accounting systems, finance, and reports filed by the Company (collectively "Services"), and the Contractor hereby accepts such engagement. For purposes of intellectual property protection under this Agreement, the Company is the commissioning party. Contractor shall report to the Company's Chief Executive Officer with respect to performance of Services.

2.           Term; Compensation, This Agreement shall commence as and when provided in the Employment Agreement between the Company and Tocld O. Crow, the principal of Contractor, originally entered into on October 20, 2003, and amended pursuant to the First Amendment to Employment Agreement dated October 5. 2005. and the Second Amendment to Employment Agreement dated July 19, 2008, which date is referred to herein as the "Effective Date'1. This Agreement shall govern the parlies' relationship and shall terminate by its terms upon the first to occur of (i) the eighteenth (18) month following the Effective Date, or (ii) a Change of Control (as defined below), unless (iii) earlier terminated as provided in this Agreement ("Termination Date"). For Services performed, NutraCea shall pay Contractor a gross amount of $15,000 per month, due the first day of the month for the first twelve (12) months following the Effective Date. NutraCea shall pay Contractor a gross amount of $7,500 for the remaining six (6) months of the term of this Agreement, provided that Todd C. Crow, directly and/or through Contractor or any other successor in interest, has not exercised (from the options granted by NutraCea to Contractor or to Todd C. Crow) options to acquire more than one hundred and ten thousand (110,000) shares of stock in NutraCea. If Todd C. Crow and/or Contractor (directly and/or through any successor) has exercised options to acquire more than one hundred and ten thousand (110,000) shares of stock in NutraCea, this Agreement shall terminate the earlier of (i) twelve (12) months following the Effective Date or (ii) at the time of exercise. Upon a termination of this Agreement due to a Change of Control, NutraCea shall pay to Contractor all amounts payable hereunder for the balance of the full eighteen (18) month term. Such unpaid balance shall be payable in a one lump sum within 30 days of the Change of Control event. This Agreement also shall terminate prior to its Termination Date immediately upon and by reason of Todd C. Crow's death or Permanent Disability, in which event the Company shall pay to the Contractor the unpaid balance of any compensation owed to the Contractor pursuant to the terms hereof Such unpaid balance shall be payable in a one lump sum within 30 days of death or disability event. All payments to Contractor under this Agreement will be by bank check and in United States dollars.

1

For purposes of this Agreement, '"Change of Control" of NutraCea is defined as the date of (i) the consummation of a merger or consolidation of NutraCea with any other corporation or the acquisition of shares of stock in NutraCea by a third party, either of which results in the voting securities of NutraCea outstanding immediately prior thereto failing to represent (either by remaining outstanding or by being convened into voting securities of the surviving entity) more than fifty percent (50%) of the total voting power represented by the voting securities of NutraCea or such surviving entity outstanding immediately after such merger or consolidation or acquisition, or (ii) the consummation of the sale or disposition by NutraCea of all or substantially all of NutraCea's assets.

For purposes of this Agreement, "Permanent Disability" means any physical or mental impairment that (i) is diagnosed by a duly licensed physician as provided for in the following sentence and (ii) renders Todd C. Crow unable to perform the essential functions of the Services under the terms of this Agreement for a period of two consecutive months or an aggregate of 60 days in any period of 365 consecutive days, either with or without reasonable accommodation. At the Company's request, the Contractor shall cause Todd C. Crow to submit to an examination by a duly licensed physician who is mutually acceptable to the Company and the Contractor for the purpose of ascertaining the existence of a Permanent Disability, and to authorize the physician to release the results of the examination to the Company.

3.           Expenses. Company shall reimburse Contractor for all business costs and expenses incurred by Contractor and requested by Company in performance of Contractor's obligations set forth in this Agreement in accordance with Company's standard reimbursement and approval policies. Reasonable expenses will be billed to the Company and the Company will reimburse such approved out-of-pocket expenses. Notwithstanding the foregoing, expenses for the time spent by the Contractor in traveling to and from Company facilities will not be reimbursable.

4.           Confidentiality. The Contractor acknowledges that during the engagement Contractor will have access to and become acquainted with various trade secrets, inventions, intellectual property, innovations, source code, processes, information, records and specifications owned or licensed by the Company and/or used by the Company in connection with the operation of its business including, without limitation. the Company's business and product processes, methods, customer lists, Company login identifications, passwords, accounts and procedures. The Contractor (on behalf of itself and its principal) agrees that Contractor will not disclose any of the aforesaid, directly or indirectly, or use any of them in any manner, either during the term of this Agreement or at any lime thereafter, except as required in the course of this engagement with the Company. All files, records, documents, blueprints, specifications, computer files, information, letters, notes, media lists, original artwork/creations, notebooks, and similar items relating to the business of the Company, whether prepared by the Contractor or otherwise coming into Contractor's possession, will remain the exclusive property of the Company. The Contractor will not retain any copies of the foregoing without the Company's prior written permission. Upon the expiration or earlier termination of Contractor's engagement pursuant to this Agreement, or whenever requested by the Company, the Contractor will immediately deliver to the Company all such files, records. documents, specifications, information, and other items in Contractor's possession or under Contractor's control.

2

5.           Intellectual Property Rights in Works of Authorship. Contractor acknowledges and agrees that any inventions and intellectual property rights arising from the Services that qualify as works of authorship belong to the Company and are "works made for hire" as defined in section 101 et seq. of the United States Copyright Act, Title 17, United States Code ("Copyright Act"). In the event that the inventions arid intellectual property rights arising from the Services (or any portion thereof) which qualify as works of authorship are not "works made for hire" as defined in the Copyright Act, Contractor hereby assigns all right, title and interest in and to the inventions and intellectual property rights arising from the Services (or any portion thereof) to the Company and Contractor will execute and deliver any and all documents, including but not limited to short form assignments, determined by the Company to be necessary to perfect its right, title and interest in and to the inventions and intellectual property rights arising from the Services (or any portion thereof), as well as all intellectual property rights embodied in or pertaining in any way to the inventions and intellectual property rights arising from the Services (or any portion thereof). If during the term of this Agreement. Contractor incorporates into Services an invention or other work of authorship previously owned by Contractor, or in which Contractor has an interest, ("Prior Invention"), the Company is hereby granted and will have a non-exclusive, royalty-free, irrevocable, perpetual, worldwide and assignable license to use, modify, display, reproduce and distribute such Prior Invention as part of the Company's products, related documentation or service offerings. The Company will be the sole author and owner of any and all inventions and works of authorship created pursuant to this Agreement and the parties do not intend to be joint authors in any works of authorship or inventions created pursuant to this Agreement. In addition, during the term of this Agreement, Contractor has no and shall not assert any ownership interest to the business names and/or trademarks of the Company.

6.           Conilicts of Interest; Non-hire Provision. The Contractor represents that Contractor is free to enter into this Agreement and that this engagement does not violate the terms of any agreement between the Contractor and any third party. Further, the Contractor, in rendering Contractor's duties will not utilize any invention, discovery, development, improvement, innovation, or trade secret in which Contractor does not have a proprietary interest. During the term of this Agreement, the Contractor will devote as much of Contractor's productive time, energy and abilities to the performance of Contractor's duties hereunder as is necessary to perform the required duties in a timely and productive manner. The Contractor is expressly free to perform services for other parties during the term of this Agreement, subject to Contractor's duty of confidentiality under this Agreement. During the term of this Agreement and for a period of one (1) year following any termination, the Contractor (directly or indirectly through any affiliate or principal) will not, directly or indirectly solicit, divert, take away or encourage to leave the Company, any employee, consultant, contractor or customer of the Company, notwithstanding that such employee, consultant, contractor or customer may have been originally obtained or recruited through the efforts of Contractor.

3

7.           Independent Contractor. This Agreement will not render the Contractor an employee, partner, agent of, or joint venturer with the Company for any purpose and Contractor does not have the authority to bind the Company in any manner. The Contractor is and will remain an independent contractor in Contractor's relationship to the Company. The Contractor will have no claim against the Company hereunder or otherwise for vacation pay, sick leave, retirement benefits, social security, worker's compensation, health or disability benefits, unemployment insurance benefits, or employee benefits of any kind.

8.           Taxes. Contractor will be responsible for payment of all taxes and insurance applicable under existing laws, including, but not limited to, social security (axes, and federal and stale and city income taxes (but excluding any taxes on the net income of Company). Contractor warrants that he will make all necessary payments due appropriate governmental agencies to comply with the foregoing and defend, indemnify and hold harmless Company and the officers, directors, employees, agents, Affiliates and representatives oi' Company against any and all claims, demands, causes of action, damages, losses, liabilities, costs or expenses that may arise out of breach of the foregoing. In the event of any such claim, demand or cause of action, Contractor will immediately reimburse Company for the ongoing costs of any defense, settlement or judgment incurred by Company.

9.           Workers Compensation and Other Insurance. Contractor agrees to provide workers compensation insurance, if and as may be required by law, for Contractor and for Contractor's employees and agents and agrees to hold harmless and indemnify the Company for any and all claims arising out of any injury, disability or death of Contractor or any of Contractor's employees or agents. The Company will not carry liability insurance for the Contractor relative to any service that Contractor performs for the Company.

10.         Successors and Assigns. All of the provisions of this Agreement will be binding upon and inure to the benefit of the parties hereto and their respective heirs, if any, successors, and assigns.

11.         Choice of Law. The laws of the Stale of Arizona, without reference to conflict of law provisions, will govern the validity of (his Agreement, the construction of its terms and the interpretation of the rights and duties of the parties hereto.

12.         Headings. Section headings are not to be considered a part of this Agreement and are not intended to be a full and accurate description of the contents hereof.

4

13.         Waiver. Waiver by one party hereto or breach of any provision of this Agreement by the other will not operate or be construed as a continuing waiver.

14.         Assignment. The Contractor shall not assign any of Contractor's rights under this Agreement, or delegate the performance of any of Contractor's duties hereunder, without the prior written consent of the Company.

15.         Notices. Any and all notices, demands, or other communications required or desired to be given hereunder by any party will be in writing and will be validly given or made to another party if personally served, or if deposited in the United Slates mail, certified or registered, postage prepaid, return receipt requested. If such notice or demand is served personally, notice will be deemed constructively made at the time of such personal service. If such notice, demand or other communication is given by mail. such notice will be conclusively deemed given five days after deposit thereof in the United States mail addressed to the party to whom such notice, demand or other communication is to be given at the above address. Any party hereto may change its address for purposes of this paragraph by written notice given in the manner provided above.

16.         Modification or Amendment. No amendment, change or modification of this Agreement will be valid unless in writing signed by the parties hereto.

17.         Entire Understanding. This document and any exhibit attached constitute the entire understanding and agreement of the parties, and any and all prior agreements, understandings, and representations are hereby terminated and canceled in their entirety and are of no further force and effect.

18.         Unenforceability of Provisions. If any provision of this Agreement, or any portion thereof, is held to be invalid and unenforceable, then the remainder of this Agreement will nevertheless remain in full force and effect.

19.         Attorneys' fees. If the services of an attorney are required by any party to secure the performance of this Agreement or otherwise upon the breach or default of another party to this Agreement, or if any judicial remedy or arbitration is necessary to enforce or interpret any provision of this Agreement or the rights and duties of any person in relation thereto, the prevailing party will be entitled to attorneys' fees, costs and other expenses, in addition to any other relief to which such party may be entitled. Any award of damages following judicial remedy or arbitration as a result of the breach of this Agreement or any of its provisions will include an award of prejudgment interest from the date of the breach at the maximum amount of interest allowed by law.

5

NUTRACEA Crow & Associates, LLC

/s/ Brad Edson	/s/ Todd C. Crow
By: Brad Edson, CEO	by: Todd C. Crow

6

EX-10.50

Exhibit 10.5

SEVERANCE AND RELEASE AGREEMENT

Margie Adelman ("Adelman") and NutraCea ("NutraCea") hereby enter into this Severance Agreement and Release of Claims ("Agreement") dated November 11, 2008 on the following terms and conditions. Adelman and NutraCea are each sometimes referred to herein individually as a "Party" or collectively as the "Parties".

1.             Recitals - Background and Purpose.

1.1           Prior Employment. Adelman was previously employed by NutraCea pursuant to a written employment agreement dated January 25, 2005. That agreement and all rights thereunder, including without limitation all unvested warrants or options, expired January 25, 2008 and was not renewed or extended. Since that agreement expired, Adelman has been employed on an "at will" basis. Adelman's employment with NutraCea shall terminate as of November 11, 2008 ("Separation Date"). Adelman shall receive her salary and all other benefits from NutraCea until her Separation Date on the next payroll cycle.

1.2           Prior Payment. Adelman acknowledges that she has been paid all wages and other benefits due and owing by NutraCea, except as expressly set forth herein.

1.3           Sever Employment. Adelman, for her part, and NutraCea, for its part, desire to mutually sever their employment relationship and settle all claims between them effective as of the Effective Date on the terms and conditions set forth below.

2.Consideration.

2.1           Consideration to Adelman. In consideration of the releases and agreements set forth herein NutraCea agrees to provide Adelman with the following severance benefits:

(a)            A consulting arrangement with NutraCea providing, for a consulting fee in the amount of $15,827.73 per month for a term of one year. This Retainer shall commence on November 11, 2008 and continue until November 10, 2009. The terms and conditions of such consulting arrangement shall be as set forth as attached hereto as Exhibit A ("Consulting Agreement").

(b)           NutraCea shall issue an advance of $20,000, upon the signing of this agreement as reasonable and actual moving expenses. Adelman agrees to provide receipts to NutraCea for all such expenses within 30 days of the date the expense is incurred. If the total amount of the receipts do not exceed $20,000, Adelman agrees to refund the difference between the amount actually incurred and $20,000 within 30 days from the time she submits the expense report.

(c)            Upon the due execution of this Agreement, NutraCea will pay to Adelman promptly, for all accrued vacation and personal days not used by Adelman, a single payment of $20, 273.90, less customary withholding amounts.

-1-

2.2           Consideration to NutraCea. Adelman agrees to:

(a)            Surrender, on her last day of employment, all NutraCea property, documentation, or information, in her possession or under her control, other than the Blackberry, laptop computer, and other personal business items that Adelman will use during the period of her consulting arrangement pursuant to the Consulting Agreement. Adelman agrees that she will not copy or download any tiles or programs from NutraCea's computer systems, networks or equipment or take any other NutraCea property with her on her last day of employment, other than that which NutraCea expressly approves for Adelman's use during the consulting arrangement. NutraCea agrees that Adelman will continue to have access to certain NutraCea computer systems and other confidential and proprietary information of NutraCea as and to the extent provided in the Consulting Agreement. Adelman shall not disclose or use any of such systems or information for any purpose other than as expressly permitted by NutraCea pursuant to the Consulting Agreement, and expressly agrees to preserve and protect the confidentiality of all NutraCea's proprietary or confidential information.

(b)            Release NutraCea pursuant to this Agreement and enter into the Consulting Agreement.

2.3.          ERISA 401(k) Plan. Adelman is entitled to the plan benefits in her account under an ERISA plan, which vested benefits will be paid pursuant to the terms of such ERISA plan. NutraCea specifically agrees that she shall be entitled to employer matching contributions through the last date of her employment in the amounts specified in such ERISA plan.

2.4.          Options and Warrants. All warrants and all options to acquire NutraCea shares of stock previously granted to Adelman pursuant to her employment agreements with NutraCea that are not fully vested and exercisable as of the date of this Agreement shall immediately expire and be of no further force or effect, including without limitation the Stock Option Agreement dated January 8, 2008, No. SOP08005A ("Warrant'') and any other performance vesting warrant or option. The parties acknowledge that Adelman's vested Warrant for the Purchase of Common Stock dated January 25, 2005, No. "WC-" for 1,000,000 shares of NutraCea Common Stock that provides for a time based vesting period shall remain in effect for the balance of the exercise period thereunder (through January 15, 2015) notwithstanding this termination of her employment ("Warrant Agreement"). A copy of Adelman's Warrant Agreement is attached hereto as Exhibit B.

3.Release of Claims.

3.1           General Release. In accordance with applicable law, Adelman, on behalf of herself, and her successors, representatives, attorneys and assigns, hereby releases, acquits, and discharges NutraCea, and its employees, agents, independent contractors, officers, directors, members, executors, partners, joint venturers, and attorneys and all persons acting by, under, through or in concert with any of them, from any and all claims, demands, causes of action, liabilities, judgments, liens, rights, debts, obligations, promises, acts, costs or expenses (including, but not limited to, attorneys' fees), and charges of whatever nature ("Claims") which Adelman  has  or may  have against NutraCea,  whether known or unknown,  foreseen  or unforeseen, economic or non-economic, fixed or contingent, which relate in any way to Adelman's employment with NutraCea or any agent, representative or Adelman (past or present) of NutraCea.

-2-

3.2           Specific Release of Statutory Rights Claims. Title VT1 of the Civil Rights Act of 1964 as amended, the Civil Rights Act of 1991, the Americans With Disabilities Act, the Vietnam Era Veterans Readjustments Assistance Act of 1974, the California Family Rights Act of 1991, the Federal Family and Medical Leave Act of 1993, and the California Fair Employment and Housing Act, as amended, and applicable provisions of California's Labor Code provide certain rights to Adelman's in connection with discrimination on a number of bases, including race, ancestry, color, religion, sex, marital status, national origin, age, status as a veteran of the Vietnam era, request or need for family or medical leave, physical or mental disability, medical condition, or sexual preference. The rights afforded under these federal and state laws are being waived, and no complaint or suit shall be filed based on any alleged violation of these federal and state laws, or any successor or replacement federal or state laws. All rights are hereby waived to assert a claim for relief available under these federal and state laws including, but not limited to, back pay, attorneys' fees, damages, reinstatement, or injunctive relief, which may otherwise be recovered based on any alleged violation of these federal and state laws, or any successor or replacement federal or state laws.

3.3           Older Workers Benefit Protection Act. Pursuant to the terms of the Older Workers' Benefit Protection Act (OWBPA), Adelman is waiving any claims she may have under the Age Discrimination in Employment Act arising prior to the date she executes this agreement. Adelman acknowledges that she has had twenty-one (21) days in which to consider the terms of this waiver. Adelman acknowledges that, by the terms of this Agreement, he/she has been advised in writing that the she should consult with an attorney regarding the terms and conditions of this Agreement. Adelman further acknowledges that, by the terms of this Agreement, she has been advised that following execution of this Agreement, he/she has seven (7) days in which she may revoke her waiver pursuant to the OWBPA and that this Agreement does not become effective until the seventh day following execution of the Agreement. The date, seven (7) days following the execution of the Agreement, shall be the Effective Date of this Agreement. Adelman further acknowledges that he/she has consulted with an attorney and is fully aware of the rights and claims being released by his/her execution of this Agreement.

3.4          Waiver. Adelman acknowledges that there is a risk that, subsequent to the execution of this Agreement, she may discover, incur or suffer from claims which are currently unknown or unanticipated and which, if known, would have materially affected his/her decision to execute this Agreement. Adelman acknowledges that he/she is assuming the risk of such unknown and unanticipated claims and expressly waives the benefits of Section 1542 of the California Civil Code, which provides as follows:

"A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor."

-3-

4.             Confidentiality of NutraCea's Proprietary Information. Adelman acknowledges that by reason of his/her position with NutraCea, he/she has been given access to confidential or proprietary information or materials respecting NutraCea’s business affairs. Such confidential information includes, but is not limited to, NutraCea's business strategies, financial results, contractual agreements between NutraCea and other individuals or entities, strategies and ideas, compilation of information and records which are owned by NutraCea and are regularly used in operation of NutraCea’s business, procedures, written descriptions, processes, research projects, protocols or other tangible items and documentation, including computer programs, reports and marketing information. Adelman represents that she has held all such information confidential and will continue to do so. To the fullest extent permitted by applicable law, such confidential information also includes any such items conceived, originated, discovered or developed by Adelman during the term of her employment or consulting arrangement with NutraCea. Adelman represents and agrees that she shall not disclose any such confidential information. Adelman further represents that all files, records, documents, fists, equipment, inventions, computer programs, research projects, protocols, processes and similar items relating to the business of NutraCea, whether prepared by Adelman or otherwise coming into Adelman's possession, shall remain the exclusive property of NutraCea and shall not be removed from the premises of NutraCea, except as expressly approved by NutraCea for the purpose of performing her consulting agreement. Adelman further represents that he/she does not have in his/her possession any of the confidential information described in this paragraph and has returned all such confidential information to NutraCea, except as expressly approved by NutraCea for the purpose of performing her consulting agreement. Confidential Information does not include any information that is in the public domain or readily ascertainable from publicly-available information, or disclosed to Adelman outside the course and scope of the performance of Adelman's duties on behalf of NutraCea by a person or entity who has the legal right to disclose such information.

5.             Resolution of Disputes. Any disputes regarding the rights or obligations of the parties under this Agreement shall be conclusively determined by binding arbitration. The arbitration shall be conducted as follows:

5.1           Binding Arbitration. Any dispute between the parties shall be submitted to, and conclusively determined by, binding arbitration in accordance with this paragraph. The provisions of this paragraph shall not preclude any party from seeking injunctive or other provisional or equitable relief in order to preserve the status quo of the parties pending resolution of the dispute, and the filing of an action seeking injunctive or other provisional relief shall not be construed as a waiver of that party's arbitration rights. The arbitration of any dispute between the parties to this Agreement shall be governed by the provisions of Arizona law.

5.2           Initiation of Arbitration. In the case of any dispute between the parties to this Agreement, either party shall have the right to initiate the binding arbitration process provided for in this paragraph by serving upon the other party a demand for arbitration. Notwithstanding any other provision of law, in order to be enforceable a demand for arbitration must be served within sixty (60) days of the date on which a party discovers, or reasonably should have discovered, facts giving rise to a dispute as defined above.

-4-

5.3           Selection of Arbitrators. Within thirty (30) days of service of a demand for arbitration by either party to this Agreement, the parties shall endeavor in good faith to select a single arbitrator. If they fail to do so within that time period, each party shall have an additional period of fifteen (15) days in which to appoint an arbitrator and those arbitrators within fifteen (15) days shall select an additional arbitrator. If any party fails to appoint an arbitrator or if the arbitrators initially selected by the parties fail to appoint an additional arbitrator within the time specified herein, any party may apply to have an arbitrator appointed for the party who has failed to appoint, or to have the additional arbitrator appointed, by a judge in Phoenix, Arizona. If the presiding judge, acting in his or her personal capacity, is unable or unwilling to appoint the additional arbitrator, that arbitrator shall be selected in accordance with the rules of the Judicial Arbitration and Mediation Service ("JAMS").

5.5            Applicable Law. The law applicable to the arbitration of any dispute shall be the law of the State of Arizona.

5.6           Arbitration Procedures. Except as otherwise provided in this paragraph, the arbitration shall be governed by the JAMS employment arbitration rules. In addition, either party may choose, at that party's discretion, to request that the arbitrators resolve any dispositive motions prior to the taking of evidence on the merits of the dispute. By way of example, such dispositive motions would include, but not be limited to, those which would entitle a party to summary judgment or summary adjudication of issues, or resolution of a special defense. In the event a party to the arbitration requests that the arbitrators resolve a dispositive motion, the arbitrators shall receive and consider any written or oral arguments regarding the dispositive motion, and shall receive and consider any evidence specifically relating thereto, and shall render a decision thereon, before hearing any evidence on the merits of the dispute.

5.7           Limitation on Scope of Arbitrators' Award or Decision. NutraCea and Adelman agree that if the arbitrators find any disputed claim to be meritorious, the arbitrators shall have the authority to order legal and/or equitable relief appropriate to the claim, but that in no event shall the arbitrators have authority to award punitive or exemplary damages.

5.8           Costs of Arbitration: Attorneys' Fees. Each party shall bear equally the costs of the arbitration and shall bear its own attorneys' fees. However, NutraCea and Adelman agree that the arbitrators, in their discretion, may award to the prevailing party the costs, including the costs of the arbitration, and attorneys'   fees incurred by that party in participating in the arbitration process.

6.Adelman Affirmations.    Adelman affirms that he/she reported all hours worked as of the date of this Agreement and has been paid, to the extent applicable, all compensation, including regular wages, overtime, bonuses, commissions, vacation pay, shares, stock options, and/or other benefits to which Adelman may have been entitled to. Adelman also affirms that she received or will receive payment(s) pursuant to this Agreement, all leave (paid or unpaid) for which she was entitled, and/or that she was not denied requested leave (paid or unpaid) for which he/she was entitled to under the Family Medical Leave Act (FMLA), Americans With Disabilities Act (ADA) any leave entitlement provided by either California or Arizona law, or local leave statute or law. Adelman further affirms that he/she has no known workplace injuries or occupational diseases for which he/she has not filed a claim for workers' compensation benefits.

-5-

7.             Non-Disparagement. The Parties agree that they shall not disparage nor defame the other Party, or their respective agents, members, officers, directors, employees, agents, or affiliates, so as to harm their business or personal reputation. This provision does not restrict the Parties from responding fully and truthfully in the context of a legal or governmental proceeding in which they are compelled to testify under oath or to respond to a subpoena or otherwise is required by law to cooperate with a legal or governmental entity.

8.             Entire Agreement. This Agreement, the Consulting Agreement and the Warrant Agreement referred to herein constitute the entire agreement between the parties, all oral agreements being merged herein, and supersede all prior representations and agreements except as specifically referred to herein. There are no representations, agreements, arrangements, or understandings, oral or written, between or among the parties relating to the subject matter of this Agreement that are not fully expressed herein, in the Consulting Agreement, or in the Warrant Agreement.

9.             Waiver. Any of the terms or conditions of this Agreement may be waived at any time by the party entitled to the benefit thereof, but no such waiver shall affect or impair the right of the waiving party to require observance, performance or satisfaction either of that term or condition as it applies on a subsequent occasion or of any other term or condition hereof.

10.           Amendment. The provisions of this Agreement may be modified or amended at any time by agreement of the parties. Any such amendment or modification as hereinafter may be made, shall be ineffective to modify this Agreement in any respect unless in writing and signed by the party or parties against whom enforcement of the modification or amendment is sought.

11.           Representation by Counsel. This Agreement has been carefully read by the parties and the contents hereof arc known and understood by all parties. The parties have each had the opportunity to receive independent legal advice from attorneys of their choice with respect to the preparation, review and advisability of executing this Agreement. Prior to the execution of this Agreement by each party, the parties' attorneys had the opportunity to review the Agreement, and the parties acknowledge that they have executed this Agreement after independent investigation and without fraud, duress or undue influence.

12.           No Admissions. Nothing contained in this Agreement shall be deemed as an admission of any kind by or to any other party to this Agreement.

13.           Severability. If any provision of this Agreement is adjudicated by a court of competent jurisdiction to be invalid or unenforceable, the remainder of the Agreement which can be given full force and effect without the invalid provision shall continue in full force and effect and shall in no way be impaired or invalidated.

14.           Succession. Subject to the provisions otherwise contained in this Agreement, this Agreement shall inure to the benefit of, and be binding upon, the successors and assigns of each of the respective parties hereto. The parties expressly agree and intend that this Agreement shall be binding on any successor entity to NutraCea in the event of any merger transaction or an acquisition of all or substantially all of the assets of NutraCea.

-6-

15.           Notices. Any notice under this Agreement shall be in writing, and any written notice or other document shall be deemed to have been duly given (i) on the date of personal service on the parties, (ii) on the third business day after mailing, if the document is mailed by registered or certified mail, (iii) one day after being sent by professional or overnight courier or messenger service guaranteeing one-day delivery, with receipt confirmed by the courier, or (iv on the date of transmission if sent by telegram, telex, telecopy or other means of electronic transmission resulting in written copies, with receipt confirmed. Failure to give notice in accordance with any of the foregoing methods shall not defeat the effectiveness of notice actually received by the addressee.

16.           Captions. All paragraph captions are for reference only and should not be considered in construing this Agreement.

17.           Nonassignability. This Agreement shall not be assigned by any party without the prior written consent of the other parties. Any assignment contrary to the provisions of this Agreement shall be deemed a default under the Agreement, allowing the non-defaulting parties to exercise all remedies available under law.

18.           Counterparts. The Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one-in-the-same document.

NutraCea and Margie Adelman have executed this Severance and Release Agreement on the date first set forth above:

/s/ Margie Adelman

(Margie Adelman)

NutraCea, a California corporation

By:	/s/ Brad Edson
(Brad Edson, Chief Executive Officer)

-7-

Exhibit A

Consulting Agreement

-8-

Exhibit "A"

CONSULTING AGREEMENT

This Consulting Agreement ("Agreement") is made and entered into as of the 11 th day of November, 2008 by and between NutraCea, a California corporation (the "Company"), and Margie Adelman ("Consultant"). The Company desires to retain Consultant as an independent Consultant to perform consulting services for the Company and Consultant is willing to perform such services, on terms set forth more fully below. Adelman and NutraCea are each sometimes referred to herein individually as a ''Party" or collectively as the "Parties". In consideration of the mutual promises contained herein, the parties agree as follows:

1               BACKGROUND

Consultant is a former Employee of the Company, whose employment with the Company ended November 11, 2008. At the time that her Employment with the Company terminated, Consultant executed a Severance and Release Agreement ("Severance Agreement"). In partial consideration of Consultant's execution of the Severance Agreement, the Parties have agreed to enter into a consulting agreement. This Agreement is the consulting agreement called for, and incorporated into, the Severance Agreement.

2.             SERVICES AND COMPENSATION

2.1.          Services. Consultant agrees to perform for the Company the services ("Services") to consult and provide assistance and advice to the Company as called for the by Company in the areas of: (a) new business development; (b) investor relations; and (c) public relations and subject to Consultant's Express Duties as defined in Section   8 of this Agreement and other services as mutually acceptable to the Parties.

2.2.           Fee. The Company agrees to pay Consultant $15,827.73 per month for the Term of this Agreement. Company shall make payment to Consultant on the 1st and 15th days of each month, commencing on November 15, 2008.

2.3.           Discretionary Bonus. Consultant shall be eligible for the award of a discretionary bonus at such times and in such amounts as may be determined by the Company's Compensation Committee and the CEO in their absolute discretion.

2.4.          Expenses. The Company will reimburse Consultant within thirty (30) days following presentation of receipts and evidence of the expenditures (in accordance with NutraCea’s standard reimbursement policies for reasonable travel, administrative, equipment and out-of-pocket expenses incurred in conjunction with the Services. Any single expense in excess of $500.00 must be pre-approved by the Company in writing. The Company will advance funds to Consultant for the payment of pre-approved expenses for a single project that totals in excess of $2,500.00, and Consultant must submit all associated receipts promptly thereafter.

Page 1 of 11

2.5.           Term. Unless earlier terminated for Cause (as defined below) the term of this Consulting Agreement shall commence on November 11, 2008 and shall end on November 10, 2009 (the "Term").

3            CONFIDENTIALITY

3.1.          Confidential Information.    "Confidential Information" means any Company proprietary information, technical data, trade secrets or know-how, including, but not limited to, research, product plans, products, services, customers, customer lists, markets, journals, notebooks, notes, renderings, samples, data, software, developments, inventions, processes, formulas, technology, designs, drawings, engineering, hardware configuration information, marketing, finances or other business information disclosed by the Company prior to or after the execution of this Agreement, either directly or indirectly in writing, orally or by drawings or inspection of parts or equipment.

3.2.          Limitations on Use and Disclosure. Consultant will not, during or subsequent to the term of this Agreement, use the Company's Confidential Information for any purpose whatsoever other than the performance of the Services on behalf of the Company or disclose the Company's Confidential Information to any third party. It is understood that said Confidential Information shall remain the sole property of the Company. Consultant further agrees to take all reasonable precautions to prevent any unauthorized disclosure of such Confidential Information including, but not limited to, having each employee of Consultant, if any, with access to any Confidential Information, execute a nondisclosure agreement containing provisions in the Company's favor identical to Sections 2, 3 and 7 of this Agreement. Confidential Information does not include information which (i) is known to Consultant at the time of disclosure to Consultant by the Company as evidenced by written records of Consultant, (ii) has become publicly known and made generally available through no wrongful act of Consultant, or (iii) has been rightfully received by Consultant from a third party who is authorized to make such disclosure. Without the Company's prior written approval, Consultant will not directly or indirectly disclose to anyone the contents of this Agreement. Confidential Information does not include any information that is in the public domain or readily ascertainable from publicly-available information, or disclosed to Consultant outside the course and scope of the performance of Consultant's duties on behalf of Company by a person or entity who has the legal right to disclose such information.

3.3           Other Confidential Information. Consultant agrees that Consultant will not, during the term of this Agreement, improperly use or disclose any proprietary information or trade secrets of any former employer, or Company or other person or entity with which Consultant has an agreement or duty to keep in confidence information acquired by Consultant, if any, and that Consultant will not bring onto the premises of the Company any unpublished document or proprietary information belonging to such employer, person or entity unless consented to in writing by such employer, person or entity. Consultant will indemnify the Company and hold it harmless from and against all claims, liabilities, damages and expenses, including reasonable attorneys fees and costs of suit, arising out of or in connection with any violation or claimed violation of a third party's rights resulting in whole or in part from the Company's use of the work product of Consultant under this Agreement

Page 2 of 11

3.4.          Third Party Confidential Information. Consultant recognizes that the Company has received and in the future will receive from third parties their confidential or proprietary information subject to a duty on the Company's part to maintain the confidentiality of such information and to use it only for certain limited purposes. Consultant agrees that Consultant owes the Company and such third parties, during the term of this Agreement and thereafter, a duty to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm or corporation or to use it except as necessary in carrying out the Services for the Company consistent with the Company's agreement with such third party, to the extent that Consultant is aware of such agreement.

3.5.          Legal Compulsion. In the event that Consultant becomes legally compelled to disclose any Confidential Information, Consultant shall give sufficient notice to the Company to enable the Company party to prevent or minimize such disclosure to the extent possible.

3.6.          Records. Consultant agrees that she shall only make such notes, copies, photocopies, backups, or other written, photographic or computer generated records relating to the Confidential Information as are absolutely necessary. Upon termination of this Agreement, Consultant shall return all copies of Confidential Information the Company as arc being held, at Company's reasonable expense

3.7.          Return. Consultant agrees that upon the termination of this Agreement Consultant will deliver to the Company all of the Company's property or Confidential Information that Consultant may have in Consultant's possession or control, including, without limitation, all devices, records, data, disks, computer files, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, materials, equipment, other documents or property, or reproductions of any aforementioned items developed by Consultant pursuant to her consulting arrangement (or her prior employment) with the Company or otherwise belonging to the Company, its successors or assigns, at Company's reasonable expense.

4.             OWNERSHIP; ASSIGNMENT

4.1.           Inventions. Consultant agrees that all material, notes, records, drawings, designs, inventions, improvements, developments, creations, manuals, findings, evaluations, forms, reviews, information, materials, trademarks, written materials, discoveries and trade secrets conceived, whether or not subject to patent or copyright protection, and whether or not originated, conceived, developed or prepared during regular business hours, made or discovered by Consultant, solely or in collaboration with others, prior to and during the period of this Agreement (or during the prior period of her employment) which relate in any manner to the business of the Company or that Consultant may be directed to undertake, investigate or experiment with, or which Consultant may become associated with in work, investigation or experimentation in the line of business of Company in performing services for the Company (collectively, "Inventions"), are the sole property of the Company. In addition, any Inventions which constitute copyrightable subject matter shall be considered "works made for hire" as that term is defined in the United States Copyright Act. Consultant further agrees to assign (or cause to be assigned) and does hereby assign fully to the Company all Inventions and any copyrights, patents, mask work rights or other intellectual propertyrights relating thereto. Consultant agrees to keep and maintain adequate and current written records of all Inventions of Consultant during the term of this Agreement. Such records shall he in the form of notes, sketches, drawings, and any other format that may be specified by the Company, and shall be available to and remain the sole property of the Company at all times. Consultant agrees to promptly disclose all Inventions in writing to the Company. Further, Consultant shall not disclose any Inventions other than in the course of her Services to the Company and with the Company's prior written consent; provided, that any such disclosure must be (i) in the good faith best interests of the Company, and (ii) Consultant shall obtain an agreement from any recipient of the Confidential information to preserve its confidentiality and not use the Confidential Information other than as expressly approved by the Company.

Page 3 of 11

4.2.          Protection. Consultant agrees to assist Company, or its designee, at the Company's expense, in every proper way to secure the Company's rights in the Inventions and any copyrights, patents, mask work rights or other intellectual property rights relating thereto in any and all countries, including the disclosure to the Company of all pertinent information and data with respect thereto, the execution of ail applications, specifications, oaths, assignments and all other instruments which the Company shall deem necessary in order to apply for and obtain such rights and in order to assign and convey to the Company, its successors, assigns and nominees the sole and exclusive right, title and interest in and to such Inventions, and any copyrights, patents, mask work rights or other intellectual property rights relating thereto. Consultant further agrees that Consultant's obligation to execute or cause to be executed, when it is in Consultant's power to do so, any such instrument or papers shall continue after the termination of this Agreement.

4.3.          License. Consultant agrees that if in the course of performing the Services, Consultant incorporates into any Invention developed hereunder any invention, improvement, development, concept, discovery or other proprietary information owned by Consultant or in which Consultant has an interest, the Company is hereby granted and shall have a nonexclusive, royalty-free, perpetual, irrevocable, worldwide license to make, have made, modify, use and sell such item as part of or in connection with such Invention.

4.4.          Agents. Consultant agrees that if the Company is unable because of Consultant's unavailability, dissolution, mental or physical incapacity, or for any other reason, to secure Consultant's signature to apply for or to pursue any application for any United States or foreign patents or mask work or copyright registrations covering the Inventions assigned to the Company above, then Consultant hereby irrevocably designates and appoints the Company and its duly authorized officers and agents as Consultant's agent and attorney in fact, to act for and in Consultant's behalf and stead to execute and file any such applications and to do all other lawfully permitted acts to further the prosecution and issuance of patents, copyright and mask work registrations thereon with the same legal force and effect as if executed by Consultant.

4.5.           Notification of Future Employer. The Company shall have the right to notify any future employers of Consultant of Consultant's obligations under this Agreement.

4.6.          Other Agreements. Consultant represents that the performance of all the terms of this Agreement will not breach any agreement to keep in confidence proprietary information acquired byConsultant in confidence or in trust prior to the term hereof. Consultant has not and shall not enter into any oral or written agreement in conflict with this Agreement.

Page 4 of 11

5.TIME AND EFFORT

During the term of this Agreement, the Consultant shall, devote that portion of Consultant's working time, attention, abilities, skill, labor and efforts necessary for the performance of Consultant's obligations hereunder. Notwithstanding the foregoing, the parties recognize and agree that the Consultant may engage in personal investments and other business, civic or charitable activities that do not conflict with the business and affairs of the Company or interfere any material respect with Consultant's performance of his duties hereunder. The Consultant will at all times perform all of the duties and obligations required of the Consultant by the terms of the Consulting Agreement in a loyal and conscientious manner and to the best of the Consultant's ability and experience.

6.             REPORTS

Unless set forth specifically on Exhibit A attached hereto, Consultant agrees that it will from time to time during the term of this Agreement or any extension thereof keep the Company advised as to Consultant's progress in performing the Services hereunder and that Consultant will, as requested by the Company, prepare written reports with respect thereto. It is understood that the time required in the preparation of such written reports shall be considered time devoted to the performance of Consultant's Services.

7.              CONFLICTING OBLIGATIONS

Consultant certifies that Consultant has no outstanding agreement or obligation that is in conflict with any of the provisions of this Agreement, or that would preclude Consultant from complying with the provisions hereof, and further certifies that Consultant will not enter into any such conflicting Agreement during the term of this Agreement.

Page 5 of 11

8.EXPRESS DUTIES

8.1.          Duty of Loyalty. Consultant shall, during the Term owe Company a duty of loyalty including but not limited to the duty and obligation to work in the Company's interest; to follow lawful direction; to put the Company's interest before her own in the matters and business the Company is interested in, does pursue, or may pursue.

8.2.          No Undertaking or Enterprise with Patty McPeak. Consultant shall not, during the Term of this agreement, discuss, enter into, or otherwise pursue any current or prospective business activity with Patty McPeak.

8.3.          Investor/Shareholder Contact. Without advance written consent of the Company, during the Term of this agreement, Consultant shall not:

(a)            Discuss, enter into, or otherwise pursue any current or prospective business activity relating to the stabilized rice bran industrywith any of the Company's current, former or prospective shareholders including, but not limited to, Moishe Manna or Baruch Halpern; provided, that with the Company's express prior consent Consultant may contact Baruch Halpern regarding specific matters authorized by the Company's Chief Executive Officer; or

(b)            Contact or communicate with any of the Company's past or current investment bankers or institutional investors.

8.4.          Non-Disparagement. The Parties agree that they shall not disparage nor defame the other Parties, or their respective agents, members, officers, directors, employees, agents, vendors, or affiliates, so as to harm their business or personal reputation. This provision does not restrict the Parties from responding fully and truthfully in the context of a legal or governmental proceeding in which they are compelled to testify under oath or to respond to a subpoena or otherwise is required by law to cooperate with a legal or governmental entity.

8.5.          Definition of Express Duties. As used herein, the "Express Duties" means the duties of Consultant pursuant to Sections 8.1, 8.2, 8.3, and 8.4 above.

9.             NON-SOL1CITA HON/NON-COMPETE

9.1.          Non-Solicitation. To the fullest extent permissible under applicable law, Consultant agrees that both during the term of this Agreement and for a period of one (1) year following termination of this Agreement, Consultant shall not take any action to induce employees or independent contractors of Company to sever their relationship with Company and accept an employment or an independent contractor relationship with any other business.

9.2.          Non-Compete. In order to protect the Company in the object of this Agreement, to the fullest extent permissible under Arizona law, Consultant agrees to refrain from, unless first obtaining Company's prior written consent, directly or indirectly, engaging in, being employed by. Being associated with, being under contract with, owning, managing, operating, joining, controlling, or participating in the ownership, management, operation, or control of, being connected in any manner with, or having any interest in, (i) any past or then-current customer or vendor of the Company, or (ii) any business, firm, sole proprietorship, partnership or corporation that sells, offers for sale, markets, or otherwise commercializes any products that are competitive with any of products of the Company that are attributable for fivepercent (5%) or more of the Company's gross sales. The foregoing provisions of this Section 9.2 shall apply in Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, and Wyoming for a period of one (1) year after termination of this Agreement.

Page 6 of 11

9.3.          Reasonableness. Consultant acknowledges that the nature and periods of restrictions imposed by the covenants contained herein are fair, reasonable, and that the Company would sustain great and irreparable loss and damage if Consultant in any manner were to breach any of such covenants. Accordingly, in the event of an actual or threatened breach of the covenants by Consultant, in addition to all other remedies which Company may have, Company shall be entitled to enforce the specific performance of this Agreement and to seek both immediate, temporary and permanent injunctive relief (to the extent permitted by law) restraining such actual or threatened breach. Consultant waives any requirement that Company post any bond or other security in order to obtain such injunctive relief.

9.4.           Separate Covenants. It is understood by and between the parties hereto that the covenants contained in this Agreement shall be deemed to be a series of separate covenants, one for each line of business engaged in by Company. Each separate covenant shall hereinafter be referred to as "separate covenant." If any court or tribunal of competent jurisdiction shall refuse to enforce one or more of the separate covenants because the time limit applicable thereto is deemed unreasonable, it is expressly understood and agreed that such separate covenant or separate covenants shall not be void but that for the purpose of such proceedings and such time limitation shall be deemed to be reduced to the extent necessary to permit the enforcement of such separate covenant or separate covenants. If any court or tribunal of competent jurisdiction shall refuse to enforce any or all of the separate covenants because, taken together, they are more extensive (whether as to geographic area, scope of business or otherwise) than is deemed to be reasonable, it is expressly understood and agreed between the parties hereto that such separate covenant or separate covenants shall not be void but that for the purposes of such proceedings, the restrictions contained therein (whether as to geographic area, scope of business or otherwise) shall be deemed to be reduced to the extent necessary to permit the enforcement of such separate covenant or separate covenants,

10.           TERMINATION

This Agreement will commence on the date first written above and will continue for twelve (12) months from the date of this Agreement first set forth above or until termination as provided below. In addition, the Agreement shall terminate immediately upon a revocation by Consultant of her waiver of claims under the Age Discrimination in Employment Act during the seven (7) day period provided in Section 3.3 of the Severance Agreement. The Company may terminate this Agreement for Cause, immediately upon notice. For purposes of this Agreement, "Cause" shall mean the Consultant shall have committed a material breach by the Consultant of any of the Express Duties (as defined in Section 8 herein. Upon such termination all rights and duties of the parties toward each other shall cease except:

Page 7 of 11

(a)      that the Company shall be obliged to pay, within thirty (30) days of the effective date of termination, all undisputed amounts owing to Consultant for Services completed and accepted by the Company prior to the termination date and related expenses, if any, in accordance with the provisions of Section 1 (Services and Compensation) hereof; and

(b)        Sections 2 (Confidentiality), and 3 (Ownership) shall survive termination of this Agreement, and Section 9 (Non-Solicitation/Non-Compete) shall survive for a period of twenty-four (24) months from the date of this Agreement first set forth above.

11.           ASSIGNMENT

Neither this Agreement, any right hereunder, or interest herein may be assigned, delegated or transferred by Consultant without the express written consent of the Company. The parties expressly agree and intend that this Agreement shall be binding on any successor entity to NutraCea in the event of any merger transaction or an acquisition of all or substantially all of the assets of NutraCea

12.          INDEPENDENT CONTRACTOR

Nothing in this Agreement shall in any way be construed to constitute Consultant as an agent, employee or representative of the Company, but Consultant shall perform the services hereunder as an independent contractor. Company agrees to furnish (or reimburse the Consultant for) all tools and materials necessary to accomplish this contract, and Company shall incur all expenses associated with performance, except as expressly provided in this Agreement. Consultant acknowledges and agrees that Consultant is obligated to report as income all compensation received by Consultant pursuant to the Consulting Agreement (including, if any, pursuant to Section 409A of the Internal Revenue Code of 1986, as amended), and Consultant agrees to and acknowledges the obligation to pay all self-employment and other taxes thereon. Consultant further agrees to indemnify the Company and hold it harmless to the extent of any obligation imposed on the Company (i) to pay in withholding taxes or similar items or (ii) resulting from Consultant's being determined not to be an independent contractor.

13.           SUBCONTRACT

The Consultant shall not subcontract the work under this Agreement without the prior written permission of the Company.

14.           EQUITABLE RELIEF

Page 8 of 11

Consultant agrees that it would be impossible or inadequate to measure and calculate the Company's damages from any breach of the covenants set forth in Sections 2 or 3 herein. Accordingly, Consultant agrees that if Consultant breaches Sections 2 or 3, the Company will have available, in addition to any other right or remedy available, the right to obtain from any court of competent jurisdiction an injunction restraining such breach or threatened breach and specific performance of any such provision. Consultant further agrees that no bond or other security shall be required in obtaining such equitable relief and Consultant hereby consents to the issuances of such injunction and to the ordering of such specific performance.

15.           INTENTIONALLY OMITTED.

16.GOVERNING LAW AND JURISDICTION

This Agreement shall be governed and construed and enforced in accordance with the internal, substantive laws of the State of Arizona without giving effect to the conflict of law rules thereof, and shall be deemed to be executed in Arizona. Any legal action or proceeding relating to this Agreement shall be instituted in a slate or federal court in Phoenix, Arizona. The parties agree to submit to the jurisdiction of, and agree that venue is proper in, these courts in any such legal action or proceeding.

17.           NOTICE

Any notice under this Agreement shall be in writing, and any written notice or other document shall be deemed to have been duly given (i) on the date of personal service on the parties, (ii) on the third business day after mailing, if the document is mailed by registered or certified mail, (iii) one day after being sent by professional or overnight courier or messenger service guaranteeing one-day delivery, with receipt confirmed by the courier, or (iv on the date of transmission if sent by telegram, telex, telecopy or other means of electronic transmission resulting in written copies, with receipt confirmed. Failure to give notice in accordance with any of the foregoing methods shall not defeat the effectiveness of notice actually received by the addressee.

18.           ENTIRE AGREEMENT AND AMENDMENTS

This Agreement, and the Severance Agreement between the parties dated this same date and the Warrant Agreement constitute the entire agreement of the parties and supersede any prior or contemporaneous agreements whether oral or written between them with respect to the subject matter hereof or thereof. This Agreement may be changed only if agreed to in writing by both parties.

19.           COUNTERPARTS

This Agreement may be executed in one or more counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument.

20.           SEVERABILITY

Page 9 of 11

If any provision of this Agreement is held to be unenforceable for any reason, such provision shall be adjusted rather than voided, if possible, in order to achieve the intent of the parties to the maximum extent possible. In any event, all other provisions of this Agreement shall be deemed valid and enforceable to the full extent possible.

21.           WAIVER

The waiver of any term or condition contained in this Agreement by any party to this Agreement shall not be construed as a waiver of a subsequent breach or failure of the same term or condition or a waiver of any other term or condition contained in this Agreement.

22.           SUCCESSION

Subject to the provisions otherwise contained in this Agreement, this Agreement shall inure to the benefit of, and be binding upon, the successors and assigns of each of the respective parties hereto. The parties expressly agree and intend that this Agreement shall be binding on any successor entity to the Company in the event of any merger transaction or an acquisition of all or substantially all of the assets of the Company.

[SIGNATURE PAGE TO FOLLOW]

Page 10 of 11

The parties hereto have executed this Consulting Agreement as of the day and year first above written.

COMPANY:
NUTRACEA
By:	/s/ Bradley D. Edson
Name:	Bradley D. Edson
Address:	Sogo N. 40th Street, suite 400 Phoenix AZ 85018
CONSULTANT:
By:	/s/ Margie Adelman
	Margie Adelman
Address:	Delray Beach, FL 33484

Page 11 of 11

Exhibit B

Warrant

-9-

EXHIBIT A-l

THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED EXCEPT UPON DELIVERY TO THE CORPORATION OF AN OPINION OF COUNSEL SATISFACTORY IN FORM AND SUBSTANCE TO IT THAT SUCH TRANSFER WILL NOT VIOLATE THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.

THE TRANSFER OF THIS WARRANT IS RESTRICTED AS DESCRIBED HEREIN.

NutraCea, a California corporation

Warrant for the Purchase of Shares of Common Stock, par value $0,001 per Share

No. WC-[___] 1,000,000 Shares

Issuance Date: January 25, 2005

THIS CERTIFIES that, for value received, Margie Adelman (the "Holder"), is entitled to subscribe for and purchase from NutraCea, a California corporation (the ''Company"), upon the terms and conditions set forth herein, 1,000,000 shares of the Company's Common Stock, par value $0,001 per share ("Common Stock"), at a price of $0.30 per share (the "Exercise Price"). As used herein the term "this Warrant" shall mean and include this Warrant and any Common Stock or Warrants hereafter issued as a consequence of the exercise or transfer of this Warrant in whole or in part and Warrant Shares shall mean the shares of the Company's Common Stock issued to Holder upon exercise of all or part of the Warrant. The number of Warrant Shares may be adjusted from time to time as hereinafter set forth.

1.             Exercise Period. This Warrant may be exercised as follows: (i) 500,000 upon the execution of this agreement; and (ii) the remaining 500,000 may be exercised after January 25, 2006 and ending at 5:00 P.M. Pacific time on January 25, 2015, unless earlier terminated pursuant to this Warrant (the "Exercise Period"). Notwithstanding the foregoing, in the event that Holder terminates her employment with the Company or is terminated for Cause (as defined in the Employment Agreement by and between the Holder and the Company of even date herewith ("Employment Agreement")) prior to January 25, 2006, all Warrants shall expire. In me event that Holder terminates her employment With the Company or is terminated for Cause (as defined in the Employment Agreement) at any time between January 25, 2005 and January 25, 2006 500,000 Warrants shall expire.

1

2.              Procedure for Exercise: Effect of Exercise.

(a)           Cash Exercise, This Warrant may be exercised, in whole or in part, by the Holder during normal business hours on any business day during the Exercise Period by (i) the presentation and surrender of this Warrant to the Company at its principal office along with a duly executed Notice of Exercise (in the form attached to this Warrant) specifying the number of Warrant Shares to be purchased, and (ii) delivery of payment to the Company of the Exercise Price for the number of Warrant Shares specified in the Notice of Exercise by cash, wire transfer of immediately available funds to a bank account specified by the Company, or by certified or bank cashier's check.

(b)           Cashless Exercise. This Warrant may also be exercised by the Holder through a cashless exercise, as described in this Section 2(b). This Warrant may be exercised, in whole or in part, by the Holder during normal business hours on any business day during the Exercise Period by the presentation and surrender of this Warrant to the Company at its principal office along with a duly executed Notice of Exercise specifying the number of Warrant Shares to be applied to such exercise. The number of Warrant Shares to be delivered upon exercise of this Warrant pursuant to this Section 2(b) shall equal the value of this Warrant (or the portion thereof being canceled) computed as of the date of delivery of this Warrant to the Company using the following formula:

X = Y (A-B)

A

Where:

X = the number of shares of Common Stock to be issued to Holder under this Section 2(b);

Y = the number of Warrant Shares identified in the Notice of Exercise as being applied to the subject exercise;

A = the Current Market Price on such date; and

B = the Exercise Price

For purposes of this Section 2(b) and Section 6, the "Current Market Price" per share of Common Stock on any date shall mean the average closing price of the last three trading days with respect to securities listed on the principal national securities exchange on which such security is listed or admitted to trading or, if such security is not listed or admitted to trading on any national securities exchange, the average closing price of such security on the three (3) consecutive trading days immediately preceding such date in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotations System or such other system then in use or, if such security is not quoted by any such organization, the three day average closing price of such security as of the three (3) consecutive trading days immediately preceding such date furnished by a New York Stock Exchange member firm selected by the Company, or if such security is not quoted by any such organization and no such New York Stock Exchange member firm is able to provide such prices, such price as is determined by the Board of Directors in good faith.

2

The Company acknowledges and agrees that this Warrant was issued on the issuance Date. Consequently, the Company acknowledges and agrees that, if the Holder conducts a cashless exercise pursuant to this Section 2(b), the period during which the Holder held this Warrant may, for purposes of Rule 144 promulgated under the Securities Act of 1933, as amended (the "Securities Act"), be "tacked" to the period during which the Holder holds the Warrant Shares received upon such cashless exercise.

Notwithstanding the foregoing, except in connection with a transaction described in the proviso in the first sentence of this Section 2(b), the Holder may conduct a cashless exercise pursuant to this Section 2(b) only after the first anniversary of the Issuance Date.

(c)            Effect of Exercise, Upon receipt by the Company of this Warrant and a Notice of Exercise, together with proper payment of the Exercise Price, as provided in this Section 2, the Company agrees that such Warrant Shares shall be deemed to be issued to the Holder as the record holder of such Warrant Shares as of the close of business on the date on which this Warrant has been surrendered and payment has been made for such Warrant Shares in accordance with this Warrant and the Holder shall be deemed to be the holder of record of the Warrant Shares, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such Warrant Shares shall not then be actually delivered to the Holder. A stock certificate or certificates for the Warrant Shares specified in the Notice of Exercise shall be delivered to the Holder as promptly as practicable, and in any event within seven (7) business days, thereafter. The stock certificate(s) so delivered shall be in any such denominations as may be reasonably specified by the Holder in the Notice of Exercise. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver within seven (7) business days a new Warrant evidencing the right of the Holder to purchase the balance of the Warrant Shares subject to purchase hereunder.

3.             Registration of Warrants.

3.1 Warrant Register, Any Warrants issued upon the transfer or exercise in part of this Warrant shall be numbered and shall be registered in a Warrant Register as they are issued. The Company shall be entitled to treat the registered holder of any Warrant on the Warrant Register as the owner in fact thereof for all purposes and shall not be bound to recognize any equitable or other claim to or interest in such Warrant on the part of any other person, and shall not be liable for any registration or transfer of Warrants which are registered or to be registered in the name of a fiduciary or the nominee of a fiduciary unless made with the actual knowledge that a fiduciary or nominee is committing a breach of trust in requesting such registration or transfer, or with the knowledge of such facts that its participation therein amounts to bad faith. This Warrant shall be transferable only on the books of the Company upon delivery thereof duly endorsed by the Holder or by its duly authorized attorney or representative, or accompanied by proper evidence of succession, assignment, or authority to transfer. In all cases of transfer by an attorney, executor, administrator, guardian, or other legal representative, duly authenticated evidence of his or its authority shall be produced. Upon any registration of transfer, the Company shall deliver a new Warrant or Warrants to the person entitled thereto. This Warrant may be exchanged, at the option of the Holder thereof, for another Warrant or other Warrants of different denominations, of like tenor and representing in the aggregate the right to purchase a like number of Warrant Shares, upon surrender to the Company or its duly authorized agent.

3

3.2           Piggyback Registration Rights. Subject to the cutback restrictions set forth below, if at any time after the Issuance Date, the Company shall seek to register any shares of its Common Stock under the Securities Act for sale to the public for its own account or on the account of others (except with respect to registration statements on Form S-4, S-8 or another form not available for registering the Warrant Shares for sale to the public) the Company will promptly give written notice thereof to the Holder. If within ten (10) days after Holder's receipt of such notice the Holder requests the inclusion of Holder's Warrant Shares, subject to the limitations set forth below, in such registration, the Company will use its best efforts to effect the registration under the Securities Act of such Warrant Shares. The number of Holder's Warrant Shares that may be included on any such registration statement shall be subject to the following: (1) in tine event the Company seeks to register any shares of its Common Stock at any time after the second anniversary of the Issuance Date, Holder may be entitled to include all or part, as determined by Holder and subject to cutbacks required by underwriters as stated below, of Holder's Warrant Shares; and (2) in the event the Company seeks to register any shares of its Common Stock at any time after the Issuance Date and the Company's senior officers and directors participate in such registration, Holder may be entitled to include the number of vested Warrant Shares which shall be apportioned pro rata among the Holder and senior officers and directors according to the total amount of securities entitled to be included therein owned by Holder and senior officers and directors of the Company taken as a single group. In the case of the registration of shares of capital stock by the Company in connection with any underwritten public offering, if the underwriters) determines that marketing factors require a limitation on the number of Warrant Shares to be offered, subject to the following sentence, the Company shall not be required to register Warrant Shares in excess of the amount, if any, of shares of the capital stock which the principal underwriter of such underwritten offering shall reasonably and in good faith agree to include in such offering in addition to any amount to be registered for the account of the Company. If any limitation of the number of shares to be registered by holders of the Company's Common Stock or shares of Warrant Shares to be registered by the Holder is required pursuant to this Section 3.2, the number of shares to be excluded shall be determined by the principal underwriter of such underwritten offering.

4.             Restrictions on Transfer, (a) The Holder, as of the date of issuance hereof, represents to the Company that such Holder is acquiring the Warrants for its own account for investment purposes and not with a view to the distribution thereof or of the Warrant Shares. Notwithstanding any provisions contained in this Warrant to the contrary, Holder agrees that it shall not, directly or indirectly, make any offering, sale, assignment, transfer, pledge, encumbrance, contract to sell, grant an option to purchase or make any other disposition of this Warrant or the Warrant Shares issued upon exercise of the Warrant or enter into any swap or other derivative transaction that transfer to another, in whole or in part, any of the economic benefit or risk of ownership of such Warrant or Warrant Shares, whether any such transaction described above is to be settled by delivery of the Warrant Shares or other securities, in cash or otherwise for the period of Thirty-Six (36) months after January 26, 2005 or while Holder is employed by Company, unless prior written consent is obtained by Holder from the Company. In addition to the foregoing, any potential transfer by Holder shall be subject to the delivery to the Company of an opinion of the Holder's counsel or a registration of such Warrant Shares under the Securities Act has become effective or after a sale of such Warrant or Warrant Shares has been consummated pursuant to Rule 144 or Rule 144 A under the Securities Act. The Company may place restrictive legends on the certificates representing the Warrant Shares issued upon exercise of the Warrants and impose stop transfer instructions with respect to the Warrant Shares beneficially held by Holder until the end of such period.

4

(b)           Each stock certificate representing Warrant Shares issued upon exercise or exchange of this Warrant shall bear the following legend, and any other legend deemed appropriate and in accordance with this Warrant, unless the opinion of counsel referred to in Section 4(b) states such legend is not required:

'THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED EXCEPT UPON DELIVERY TO THE CORPORATION OF AN OPINION OF COUNSEL SATISFACTORY IN FORM AND SUBSTANCE TO IT THAT SUCH TRANSFER WILL NOT VIOLATE THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS."

5.             Reservation of Shares, The Company shall at all times during the Exercise Period reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of providing for the exercise of the rights to purchase all Warrant Shares granted pursuant to the Warrants, such number of shares of Common Stock as shall, from time to time, be sufficient therefore. The Company covenants that all shares of Common Stock issuable upon exercise of this Warrant, upon receipt by the Company of the full Exercise Price therefore, and all shares of Common Stock issuable upon conversion of this Warrant, shall be validly issued, fully paid, non-assessable, and free of preemptive rights.

6.             Adjustments. The number of shares of Common Stock issuable upon exercise of the Warrants shall be adjusted from time to time as follows:

(a)            (i) In the event that the Company shall (A) pay a dividend or make a distribution, in shares of Common Stocks on any class of capital stock of the Company or any subsidiary which is not directly or indirectly wholly owned by the Company, (B) split or subdivide its outstanding Common Stock into a greater number of shares, (C) combine its outstanding Common Stock into a smaller number of shares, then in each such case the number of shares issuable upon exercise of this Warrant shall be adjusted so that the Holder of a Warrant thereafter surrendered for exercise shall be entitled to receive the number of shares of Common Stock that such Holder would have owned or have been entitled to receive after the occurrence of any of the events described above had such Warrant been exercised immediately prior to the occurrence of such event- An adjustment made pursuant to this Section 6(a)(1) shall become effective immediately after the close of business on the record date in the case of a dividend or distribution (except as provided in Section 6(e) below) and shall become effective immediately after the close of business on the effective date in the case of such subdivision, split or combination, as the case may be.

5

(ii)             Mo adjustment in the Exercise Price shall be required unless the adjustment would require an increase or decrease of at least 1% in the Exercise Price then in effect; provided, however, that any adjustments that by reason of this Section 6(a) are not required to be made shall be carried forward and taken into account in any subsequent adjustment.  All calculations under this Section 6(a) shall be made to the nearest cent or nearest 1/100th of a share.

(iii)            In the event that, at any time as a result of an adjustment made pursuant to Sections 6(a)(1) and 6(a)(ii) above, the Holder of any Warrant thereafter surrendered for exercise shall become entitled to receive any shares of the Company other than shares of the Common Stock, thereafter the number of such other shares so receivable upon exercise of any such Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in Sections 6(a)(1) and 6(a)(ii) above, and the other provisions of this Section 6(a) with respect to the Common Stock shall apply on like terms to any such other shares.

(b)           In case of any reclassification of the Common Stock (other than in a transaction to which Section 6(a)(1) applies), any consolidation of the Company with, or merger of the Company into, any other entity, any merger of another entity into the Company (other than a merger that does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock of the Company), any sale or transfer of all or substantially all of the assets of the Company or any compulsory share exchange which does not result in the cashless exercise or cancellation of this Warrant pursuant to Section 2(b), pursuant to which share exchange the Common Stock is converted into other securities, cash or other property, then lawful provision shall be made as part of the terms of such transaction whereby the Holder of a Warrant then outstanding shall have the right thereafter, during the period such Warrant shall be exercisable, to exercise such Warrant only for the kind and amount of securities, cash and other property receivable upon the reclassification, consolidation, merger, sale, transfer or share exchange by a holder of the number of shares of Common Stock of the Company into which a Warrant might have been able to exercise forimmediately prior to the reclassification, consolidation, merger, sale, transfer or share exchange assuming that such holder of Common Stock failed to exercise rights of election, if any. as to the kind or amount of securities, cash or other property receivable upon consummation of such transaction subject to adjustment as provided in Section 6{a) above following the date of consummation of such transaction. The Company shall not effect any such reclassification, consolidation, merger, sale, transfer, share exchange or other disposition unless prior to or simultaneously with the consummation thereof the successor corporation (if other than the Company) resulting from such consolidation or merger, or the corporation purchasing or otherwise acquiring such assets or other appropriate corporation or entity shall assume, by written instrument executed and delivered to the Holder, the obligation to deliver to the Holder upon its exercise of the Warrant such shares of stock, securities or assets as, in accordance with the foregoing provisions, the Holder may be entitled to purchase and the other obligations under this Warrant. The provisions of this Section 6(b) shall similarly apply to successive reclassifications, consolidations, mergers, sales, transfers or share exchanges.

6

(c)            If:

(i) the Company shall take any action which would require an adjustment pursuant to Section 6(a); or

(ii) the Company shall authorize the granting to the holders of its Common Stock generally of rights, warrants or options to subscribe for or purchase any shares of any class or any other rights, warrants or options; or

(iii) there shall be any reclassification or change of the Common Stock (other than a subdivision or combination of its outstanding Common Stock or a change in par value) or any consolidation, merger or statutory share exchange to which the Company is a party and for which approval of any stockholders of the Company is required, or the sale or transfer of all or substantially all of the assets of the Company; or

(iv) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company;

then, the Company shall cause to be filed with the transfer agent for the Warrants and shall cause to be mailed to each Holder at such Holder's address as shown on the books of the transfer agent for the Warrants, as promptly as possible, but at least 30 days prior to the applicable date hereinafter specified, a notice stating (A) the date on which a record is to be taken for the purpose of such dividend, distribution or granting of rights, warrants or options, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution or rights, warrants or options are to be determined, or (B) the date on which such reclassification, change, consolidation, merger, statutory share exchange, sale, transfer, dissolution, liquidation or winding-up is expected to become effective or occur, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reclassification, change, consolidation, merger, statutory share exchange, sale, transfer, dissolution, liquidation or winding up. Failure to give such notice or any defect therein shall not affect the legality or validity of the proceedings described in this Section 6(c).

7

(d)           Whenever an adjustment is made as herein provided, the Company shall promptly file with the transfer agent for the Warrants a certificate of an officer of the Company setting forth the adjustment and setting forth a brief statement of the facts requiring such adjustment and a computation thereof. The Company shall promptly cause a notice of such adjustment to be mailed to each Holder.

(e)           In any case in which Section 6(a) provides that an adjustment shall become effective immediately after a record date for an event and the date fixed for such adjustment pursuant to Section 6(a) occurs after such record date but before the occurrence of such event the Company may defer until the actual occurrence of such event (i) issuing to the Holder of any Warrants exercised after such record date and before the occurrence of such event the additional shares of Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above the Common Stock issuable upon such exercise before giving effect to such adjustment, and (ii) paying to such holder any amount in cash in lieu of any fraction pursuant to Section 6(g),

(f)            Upon each adjustment of the Exercise Price, this Warrant shall thereafter evidence the right to purchase, at the adjusted Exercise Price, that number of shares (calculated to the nearest thousandth) obtained by dividing (i) the product obtained by multiplying the number of shares purchasable upon exercise of this Warrant prior to adjustment of the number of shares by the Exercise Price in effect prior to adjustment of the Exercise Price, by (ii) the Exercise Price in effect after such adjustment of the Exercise Price,

(g)           The Company shall not be required to issue fractions of shares of Common Stock or other capital stock of the Company upon the exercise of this Warrant. If any fraction of a share would be issuable on the exercise of this Warrant (or specified portions thereof), the Company shall purchase such fraction for an amount in cash equal to the same fraction of the Current Market Price of such share of Common Stock on the date of exercise of this Warrant.

(h)           In case the Company shall take any action affecting the Common Stock, other than actions described in this Section 6, which in the opinion of the Board of Directors would materially adversely affect the exercise right of the Holder, the Exercise Price may be adjusted, to the extent permitted by law, in such manner, if any, and at such time, as the Boardof Directors may determine to be equitable in the circumstances; provided, however, that in no event shall the Board of Directors he required to take any such action.

8

7.Transfer Taxes. The issuance of any shares or other securities upon the exercise of this Warrant, and the delivery of certificates or other instruments representing such, shares or other securities, shall be made without charge to the Holder for any tax or other charge in respect of such issuance. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of any certificate in a name other than that of the Holder and the Company shall not be required to issue or deliver any such certificate unless and until the person or persons requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.

8.             Loss or Mutilation of Warrant Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction, or mutilation of any Warrant (and upon surrender of any Warrant if mutilated), and upon reimbursement of the Company's reasonable incidental expenses, the Company shall execute and deliver to the Holder thereof a new Warrant of like date, tenor, and denomination.

9.             No Rights as a Stockholder. The Holder of any Warrant shall not have, solely on account of such status, any rights of a stockholder of the Company, either at law or in equity, or to any notice of meetings of stockholders or of any other proceedings of the Company, except as provided in this Warrant.

10.           Governing Law. This Warrant shall be construed in accordance with the laws of the State of California applicable to contracts made and performed within such State, without regard to principles of conflicts of law.

11.           Beneficial Ownership. The Company shall not effect the exercise of this Warrant by any Holder, and no person who is a holder of this Warrant shall have the right to exercise this Warrant, to the extent that after giving effect to such exercise, such person (together with such person's affiliates) would beneficially own in excess of 10% of the shares of the Common Stock outstanding immediately after giving effect to such exercise. For purposes of the foregoing sentence, the aggregate number of shares of Common Stock beneficially owned by such person and its affiliates shall include, without limitation, the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which the determination of such sentence is being made, but shall exclude shares of Common Stock which would be issuable upon (a) exercise of the remaining, unexercised portion of this Warrant beneficially owned by such person and its affiliates, and (b) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company beneficially owned by such person and its affiliates (including, without limitation, any debentures, convertible notes or convertible preferred stock or warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein. Except as set forth inthe preceding sentence, for purposes of this Section 11, beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. For purposes of this Warrant, in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (i) the Company's most recent Form 10-Q, Form 10-K or other public filing with the Securities and Exchange Commission, as the case may be, (ii) a more recent public announcement by the Company, or (iii) any other notice by the Company or its transfer agent setting forth the number of shares of Common Stock outstanding. For any reason at any time, upon the written or oral request of the Holder of this Warrant, the Company shall within two business days confirm orally and in writing to the Holder of this Warrant the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company by the Holder of this Warrant and its affiliates since thedate as of which such number of outstanding shares of Common Stock was reported. In effecting the exercise of this Warrant, the Company shall be entitled to rely on a representation by the Holder of this Warrant as to the number of shares that it beneficially owns for purposes of the above 10% limitation calculation.

9

Dated: January 25, 2005

NUTRACEA.
a California corporation,
By:	/s/ Patricia McPeak
	Patricia McPeak
	Chief Executive Officer

[Signature Page to Warrant]

10

FORM OF ASSIGNMENT

(To be executed by the registered holder if such holder desires to transfer the attached Warrant.)

FOR VALUE RECEIVED._______________________________ hereby sells, assigns, and transfers unto_________________ a Warrant to purchase ______________ shares of Common Stock, par value $[0,001] per share, of NUTRACEA. (the "Company"), together with all right, title, and interest therein, and does hereby irrevocably constitute and appoint __________________________ attorney to transfer such Warrant on the books of the Company, with full power of substitution.

Dated:
By:
	Signature

The signature on the foregoing Assignment must correspond to the name as written upon the face of this Warrant in every particular, without alteration or enlargement or any change whatsoever.

11

To: NutraCea

261 Hawks' Flight Court

El Dorado Hills. CA 95762

Attention: Chief Executive Officer

NOTICE OF EXERCISE

The undersigned hereby exercises his or its rights to purchase ______ Warrant Shares covered by the within Warrant and tenders payment herewith in the amount of $_________by [tendering cash or delivering a certified check or bank cashier's check, payable to the order of the Company] [surrendering ______ shares of Common Stock received upon exercise of the attached Warrant, which shares have a Current Market Price equal to such payment] in accordance with the terms thereof, and requests that certificates for such securities be issued in the name of, and delivered to:

(Print Name, Address and Social Security or Tax Identification Number)

and, if such number of Warrant Shares shall not be all the Warrant Shares covered by the within Warrant, that a new Warrant for the balance of the Warrant Shares covered by the within Warrant be registered in the name of, and delivered to, the undersigned at the address stated below.

Dated:
By:
	Print Name
Signature

Address:

NTRZ.OB: Historical Prices for NUTRACEA - Yahoo! Finance Page 1 of 2

Yahoo!   My Yahoo!   Mail

Search the Web Search

Sign In New User? Sign Up Finance Home – Help

Friday, January 28, 2005, 11:55AM ET - U.S. Markets close in 4 hours and 4 minutes.

To track stocks & more, Register

Quotes & Info Enter Symbol(s): e.g. YHOO, ^ DJI GO Symbol Lookup | Finance Search

NutraCea (NTRZ.OB) At 10:47AM ET: 0.43 ò 0.01 (2,27%)

Get Free Streamer	Free Trades	No inactivity Fees!	$8 Trades

Historical Prices	Get Historical Prices for:		GO
		ADVERTISEMENT

SET DATE RANGE

					●	Daily
Start Date:	Jan	25	2005	Eg. Jan 0, 2003	m	Weekly
End Date:	Jan	25	2005		m	Monthly
					m	Dividends Only

GET PRICES

first | Prev | Next| Last

Date	Open	High	Low	Close	Volume	Adj Close*
25-Jan-05	0.43	0.43	0.43	0.43	900	0.43

* Close price adjusted for dividends and splits.

First | Prev | Next | Last

ò Download To Spreadsheet

1 Add to Portfolio % Set Alert * Email to Friend

EX-21.01

NUTRACEA 21.01

Subsidiaries (100% owned unless noted)

Subsidiaries of the Registrant	State or Other Jurisdiction of Incorporation
Global Nutra, Inc.	a Nevada corporation
Global Nutra Solutions LLC	a Delaware limited liability company
Grainnovations, Inc.	a Delaware limited liability company
Grainnovations, Inc.	a Tennessee corporation
Grain Enhancements LLC    (47.5% interest)	a Delaware limited liability company
Irgovel - Industria Riograndens De Oleos Vegetais Ltda	a limited liability company organized under the laws of the Federative Republic of Brazil
Medan LLC	a Delaware limited liability company
PT Panganmas Inti Nusantara   (51% interest)	an Indonesian company
Nutra S.A. LLC	a Delaware limited liability company
NutraCea Brazil Ltda	a limited liability company organized under the laws of the Federative Republic of Brazil
NutraCea/Cura LLC    (90% interest)	a Delaware limited liability company
NutraCea Offshore LTD	a company organized under the laws of the Cayman Islands
Nutramercials, Inc.	a Nevada corporation
Infomaxx, LLC,	a Delaware limited liability company
NutraPhoenix, LLC	a Delaware limited liability company
Nutrastar Technologies Incorporated	a Nevada corporation
NutraGlo® Incorporated	a Nevada corporation
NutraStarSport, Inc.	a Nevada corporation
Rice Rx, LLC      (50% interest)	a Delaware limited liability company
Rice Science LLC    (80% interest)	a Delaware limited liability company
The RiceX Company	a Delaware corporation
RiceX Nutrients, Inc.	a Montana corporation

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statements (333-110585 and 333-135814) on Form S-8 of NutraCea of our reports dated October 20, 2009, relating to our audits of the consolidated financial statements and internal control over financial reporting, which appear in this Annual Report on Form 10-K of NutraCea for the year ended December 31, 2008.

Our report dated October 20, 2009, on the effectiveness of internal control over financial reporting as of December 31, 2008, expressed an opinion that NutraCea had not maintained effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

/s/ Perry Smith LLP

Sacramento, California

October 20, 2009

EX-31.1

 Exhibit 31.1

CERTIFICATION

I, James C. Lintzenich, Interim Chief Executive Officer, Interim Principal Financial Officer and Interim Chief Accounting Officer of NutraCea, certify that:

1. I have reviewed this annual report on Form 10-K of NutraCea, a California corporation;

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; and

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:  October 18, 2009

/s/ James C. Lintzenich

Name: James C. Lintzenich

Title:   Interim Chief Executive Officer

Interim Principal Financial Officer

Interim Chief Accounting Officer

NutraCea

EX-32.1

Exhibit 32.1

CERTIFICATION

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(SUBSECTIONS (a) AND (b) OF SECTION 1350, CHAPTER 63 OF

TITLE 18, UNITED STATES CODE)

I, Jim Lintzenich, Interim Chief Executive Officer, NutraCea, hereby certifies, for the purposes of section 1350 of chapter 63 of title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in his capacity as an officer of NutraCea that, to my knowledge, the Annual Report of NutraCea on Form 10-K for the period ended December 31, 2008, fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of Intel. This written statement is being furnished to the Securities and Exchange Commission as an exhibit to such Form 10-K. A signed original of this statement has been provided to NutraCea and will be retained by NutraCea and furnished to the Securities and Exchange Commission or its staff upon request.

Dated:  October 18, 2009

NUTRACEA

By:  /s/ Jame C. Lintzenich

James C. Lintzenich

Interim Chief Executive Officer

Interim Principal Financial Officer

Interim Chief Accounting Officer