10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark one)

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

           OF THE SECURITIES EXCHANGE ACT OF 1934

                         For the year ended December 31, 2007

o        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 o No x

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 x

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 x 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. x

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 o Accelerated filer x 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 o NO x

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, 2007, the aggregate market value of the Company’s common stock held by non-affiliates was $435,500,000.

Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of March 3, 2008, there were 145,418,965 shares of common stock outstanding.

FORM 10-K

INDEX

PART I
	Item 1.	Business.	4
	Item 1A.	Risk Factors.	17
	Item 1B.	Unresolved Staff Comments.	23
	Item 2.	Properties.	24
	Item 3.	Legal Proceedings.	24
	Item 4.	Submission of Matters to a Vote of Security Holders.	24
PART II
	Item 5.	Market for Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.	25
	Item 6.	Selected Financial Data.	26
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	27
	Item 7A.	Quantitative and Qualitative Disclosures about Market Risk.	35
	Item 8.	Financial Statements and Supplementary Data.	35
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	36
	Item 9A.	Controls and Procedures.	36
	Item 9B.	Other Information.	38
PART III
	Item 10.	Directors, Executive Officers and Corporate Governance.	39
	Item 11.	Executive Compensation	41
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.	59
	Item 13.	Certain Relationships and Related Transactions, and Director Independence.	62
	Item 14.	Principal Accountant Fees and Services	63
PART IV
	Item 15.	Exhibits, Financial Statement Schedules.	64

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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.

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PART I

Item 1. Business.

GENERAL

NutraCea (“we,” “us,” “our,” or the “Company”) is a California corporation formerly known as Alliance Consumer International, Inc. As a result of the reorganization transaction discussed below, we conduct the business previously carried on by NutraStar Technologies Incorporated (“NTI”), a Nevada corporation that was formed and started doing business in February 2000 and is a wholly-owned subsidiary. In addition, we conduct business through our wholly-owned subsidiary, The RiceX Company, or RiceX, a Delaware corporation that we acquired on October 4, 2005.

NutraCea is a health science company that has proprietary intellectual property that allows us to process and convert rice bran, one of the world’s most underutilized food resources, into a highly nutritious ingredient 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 products that can be sold through non-related entities with distribution into the market place, both domestically and internationally. These products include food supplements and medical foods, or “nutraceuticals,” which provide health benefits for humans and animals based on stabilized rice bran and stabilized rice bran derivatives. We believe that stabilized rice bran products can deliver beneficial physiological effects. We have conducted and are continuing to pursue ongoing clinical trials and third party analyses in order to further support the uses for and effectiveness of our products.

The RiceX subsidiary is primarily engaged in the manufacturing of stabilized rice bran (“SRB”) at its Sacramento facility for various consumptive uses, and the custom manufacturing of various grain based products for food ingredient companies at its production facility in Dillon, Montana. RiceX Nutrients, Inc. has specialized processing equipment and techniques for the treatment of rice grain products to cook, convert, isolate, dry and package finished food ingredients used in the formulation of health food and consumer food finished products. NutraCea RiSolubles, a highly nutritious, carbohydrate and lipid rich fraction, is produced at the 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.

Through the acquisition of The RiceX Company by NutraCea on October 4, 2005, the combined company, known as NutraCea, has created a vertically integrated company combining the manufacture, product development and marketing of a variety of products based upon the use of stabilized rice bran and rice bran formulations. We generated approximately $22,161,000, $18,090,000, and $5,564,000 in revenue for the years ended December 31, 2007, 2006 and 2005, respectively. We reported a net loss for the year ended December 31, 2007 of $11,911,000, a net income of $1,585,000 for the year ended December 31, 2006, and a net loss of $3,872,000 for the year ended December 31, 2005. 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 Part II — Item 8. FINANCIAL STATEMENTS, Note 13 - Income Taxes.

 RiceXÔ and RiceX Solubles™ are our registered trade names. TheraFoods®, ProCeuticals®, NutraGlo®, NutraBeauticals®, Mirachol®, Max “E” ®, Max “E” Glo®, StaBran®, RiSolubles® and RiceMucil®, are some of our registered trademarks. In total, we have thirty five registered trademarks. In addition to our trade names and our trademarks, we hold patents to the production of Beta Glucan and a micro nutrient enriched rice bran oil process. We also hold patents to a method to treat high cholesterol, to a method to treat diabetes and on a process for producing higher value fractions (“HVF”) from stabilized rice bran. 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. 40^th St., Phoenix, AZ 85018. Our telephone number is (602) 522-3000. Our website is www.nutracea.com. The contents of our website are not incorporated by reference into this Form 10-K. As of December 31, 2007, 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 operating production facilities in Dillon, MT, Mermentau, LA, and Freeport, TX. Our other production facilities are co-located within supplier rice mills in Arbuckle and West Sacramento, CA.

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At the end of December 31, 2007, we had three wholly-owned subsidiaries, NTI, which in turn wholly owns NutraGlo Incorporated, a Nevada corporation, RiceX, which wholly owns RiceX Nutrients, Inc., a Montana corporation and Nutramercials, Inc., a Nevada corporation that owns 100% of Infomaxx, LLC. We also own part of NutraStarSport, Inc., an inactive Nevada corporation. We own 90% of NutraCea/Cura LLC, a joint venture we entered in 2007 to buy and market pharmaceutical grade products. Additionally, we have a 47.5% interest in Grain Enhancements LLC, a joint venture to produce and distribute SRB products in Southeast Asia, which was formed in June 2007. In December, 2007, we formed Rice RX, LLC, and Rice Science, LLC, in which we hold a 50%, and 80% interest, respectively.

In February 2008, we acquired 100% of Irgovel - Industria Riograndens De Oleos Vegetais Ltda., a limited liability company organized under the laws of the Federative Republic of Brazil (“Irgovel”). Irgovel, located in Brazil, owns and operates a rice bran oil processing facility in South America.

HISTORY

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

On April 27, 2000, NutraStar formed NutraGlo Incorporated, or NutraGlo, a Nevada corporation, which was owned 80% by NTI and 20% by NaturalGlo Investors L.P. During 2001, NutraGlo started marketing, manufacturing and distributing one of our products to the equine market. In 2002, we issued 250,001 shares of our common stock to NaturalGlo Investors L.P. in exchange for the remaining 20% of the common stock of NutraGlo. The value of the shares was $250,001. As a result, NutraGlo is now a wholly-owned subsidiary of NTI.

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

On October 4, 2005, we acquired RiceX in a merger transaction in which our wholly-owned subsidiary, Red Acquisition Corporation, merged with and into RiceX, with RiceX surviving the merger as our wholly-owned subsidiary. 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 warrant to purchase a total of 11,810,507 shares of NutraCea common stock.

PRODUCTS

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

The NutraCea Process has enabled the Company to develop a variety of nutritional food products, including its primary product, NutraCea® Stabilized Rice Bran. NutraCea® Stabilized Rice Bran 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 brans, such as wheat bran. The Company has ongoing research in this area expects to provide industrial proof of concept soon.

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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 stabilized rice bran 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 Stabilized Rice Bran, except that it has been ground to a particle size that will pass through a 20 mesh screen. It is used primarily in baking and pasta applications.
NutraCea Stabilized Rice Bran Extra Fine:	This is the same product as the NutraCea Stabilized Rice Bran, except that it has been ground to a particle size that will pass through a 80 mesh screen. It is used primarily in baking and pasta applications.

Dextrinized Rice Bran:	A modified carbohydrate converted NutraCea Stabilized Rice Bran that is more functional in baking and mixed health drink applications. This product contains all of the nutrient-rich components of NutraCea Stabilized Rice Bran.
NutraCea RiSolubles:	A highly concentrated water dispersible carbohydrate and lipid rich fraction component of NutraCea Stabilized Rice Bran. This product contains only a small amount of fiber and is a concentrated form of the vitamins and nutrients found in NutraCea Stabilized Rice Bran.
NutraCea Fiber Complex:	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 Stabilized Rice Bran is processed to form NutraCea Solubles.

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

NutraCea Rice Bran Oil:	Nutrient-rich oil made from NutraCea Stabilized Rice Bran. 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:	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 Stabilized Rice Bran and Rice Bran Oil that provide specific health benefits. Tocopherols, tocotrienols, and 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 Process stabilized rice bran products and proprietary rice bran formulations in various categories.

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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 stabilized rice bran 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. Stabilized rice bran and its derivatives also contain high levels of B-complex vitamins and beta-carotene, a vitamin A precursor. Stabilized rice bran also contains high levels of carotenoids and phytosterols, both essential fatty acids, 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. According to the United States Department of Agriculture, approximately 65% of the nutritional value of rice is contained in the rice bran, the outer brown layer of the rice kernel which is removed during the milling process. However, raw, unstabilized rice bran deteriorates rapidly. Because of the rapid degradation and short shelf life, rice bran has not been widely accepted as a component of nutrition, health or beauty products, notwithstanding the known benefits. We have developed a method of stabilizing rice bran we believe is superior in providing a shelf life greater than one year, which we believe is longer than any other stabilized rice bran. The longer shelf life allows for economical production of nutrition products which incorporate rice bran ingredients.

As the market becomes more aware of the value of our ingredients and proprietary formulations we believe demand for our products will increase materially. Since stabilized rice bran is a safe food product, we believe that its beneficial effects can be obtained with no known deleterious side effects, such as those that may be present in pharmaceuticals. Many physicians have taken an interest in our nutraceutical products as a means of offering alternative or complementary approaches for treating serious healthcare problems. If further clinical trials support the beneficial effects of our nutraceutical and medical foods products and if the medical community widely endorses such use of our products, we believe that our products in certain situations, may be used as a nutritional therapy either prior to or as a complement to traditional pharmaceutical therapies for the treatment of a variety of ailments including diabetes and coronary heart disease. 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 largest countries. World rice production is expected to be more than 615 million metric tons in the 2006-2007 crop year (according to the United States Department of Agriculture), constituting more than one quarter of all cereal grains produced worldwide. The United States accounts for less than 2% of the world’s rice production. 90% of world rice tonnage is produced in 13 countries with aggregate populations of 3.2 billion people (according to the USA Rice Federation, Rice Notes). Approximately 75% of all rice production occurs in China, India, South East Asia, Africa and South America. Combined, these regions have a population of 2.3 billion people (nearly 50% of the world’s population), and an average per capita gross domestic product of $2,000 (less than one tenth of the U.S. average).

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

Despite the importance of rice as a worldwide food source and the problems associated with nutritional deficiencies in rice-dependent nations, approximately 65% of the nutrients found in rice are destroyed during milling. Most of the rice nutrients are contained in the outer brown layer of the rice kernel known as the bran layer, which, because of poor stability, becomes inedible due to lipase-induced rancidity or microbiological spoilage shortly after the milling process.

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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 and contains over 60% of the nutrients found in each kernel of rice. (See Juliano, B.O., 1985 Rice: Chemistry and Technology, American Association of Cereal Chemists, St. Paul, MN, pp. 37-50.)

Under normal milling conditions, when brown rice is milled into white rice, the oil in the bran and a potent lipase enzyme found on the surface of the bran come into contact with one another. The lipase enzyme causes very rapid hydrolysis of the oil, converting it into glycerol, monoglycerides, diglycerides and free fatty acid, or FFA. As the FFA content increases, the rice bran becomes unsuitable for human or animal consumption 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 enzyme 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 deactivitation 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, typically spoiling in 20 days or less. The parboiling process also destroys much of the nutritional value of the bran because many of the micro nutrients are water-soluble and are leached out during the parboiling process. There have been a number of attempts to develop alternative rice bran stabilization processes that deactivate the lipase enzyme using chemicals, microwave heating and variants on extrusion technology. We believe each of these efforts results in an inferior product that uses chemicals or does not remain stable for a commercially reasonable period, or the nutrients in the bran are lost thereby significantly reducing the nutritional value in the bran.

THE NUTRACEA 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, and produces 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, unstabilized 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.

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.

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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 Stabilized Rice Bran 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 a 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 Stabilized Rice Bran is as follows:

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

Rice bran is unique in the plant kingdom. Its protein is hypoallergenic and contains all of the essential amino acids, the necessary building blocks of protein in the body. Rice bran contains approximately 20% oil, which 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. (See Cheruvanky and Raghuram, 1991 Journal of the American College of Nutrition, Vol. 10, No. 4, pp. 593-691.)

Nutraceuticals are food constituents that have human therapeutic effects. Some of these compounds include a 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. (See Saunders, 1990, Rice Bran Oil, presented at Calorie Control Council Meeting, February 14, 1990, Washington, D.C.)

We have been assigned five U.S. patents relating to the production or use of nutraceutical HVF products. See PATENTS AND TRADEMARKS below.

BUSINESS STRATEGY

Our goal is to become a significant global supplier of Stabilized Rice Bran and rice bran based products in the premium consumer food and animal feed sectors of the marketplace. We produce stabilized rice bran and related products in manufacturing facilities we own or through 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.

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

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DEVELOPED NATIONS

In developed nations, our focus is on producing and selling ingredients to large consumer product marketers as health-enhancing ingredients for existing or newly-developed products, and as stand-alone products to consumers. In addition, we have continuing relationships with U.S., European, North American, South American, and Japanese companies to introduce our products into these regions. Although there can be no assurance that our products will continue to be successfully introduced into these regions, we believe that our current sales and continued interest from these countries validates the potential opportunity. In addition, we believe that the relationship reflects the strategy for our foreign ventures. We intend to seek other opportunities in developed nations to convert stabilized rice bran grown in those countries into finished goods and into HVF's with demonstrated health or nutritional benefits.

DEVELOPING NATIONS

Our strategic development, using the NutraCea model, has been focused on making our nutrient-dense stabilized rice bran products available to developing countries where nutritional deficiencies are a major concern, particularly among school-aged children. We remain on the cutting edge in developing nations by reducing malnutrition and enhancing nutritional growth potential of school-aged children. The school nutritional and diet upgrading programs in developing countries worldwide represent a multi-billion dollar market, which provides us with an opportunity to make significant sales. The Food and Agriculture Organization of the United Nations and the Foreign Agricultural Service of the United States Department of Agriculture have targeted over 800 million nutritionally deficient humans for assistance in the worldwide program titled “American Special Supplemental Food Programs for Women, Infants and Children”.

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

We are broadening our presence in the international markets. Building on our 2001 successful proof-of-concept program in Guatemala, we continue to develop and expand international market development activities in Central and South America. We have initiated discussions with governmental agencies within various Central and South America countries to explore securing contracts for the introduction of our highly nutritious and proprietary food supplements for use in local and national school feeding initiatives and family nutritional support programs. We are pursuing a strategy to introduce our technology to both the public and private sectors simultaneously using the strength of our local partners in foreign markets. In the year ended December 31, 2007, we initiated feeding programs in Malawaii, Afrca, and Indonesia with support and assistance from Feed the Children and Happy Hearts that supplied nutritional supplementation to over 200,000 children.

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

We continue to work with major rescue and relief agencies, congressional supporters and government offices of the USDA and the United States Agency for International Development to bring a multi-year program to provide nutritional drinks to substantial numbers of children each school day from either a U.S. based facility or some future international facilities.

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

We continue to hold discussions regarding the demonstration of our system and the end products for our technology with a number of companies and governments, including countries in Central America, India, China, Brazil, and certain African countries. We currently have signed letters of intent with companies in the food processing business and rice milling business in Central and South America countries as well as the Far East. See Part II - Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - “International Initiatives”, for additional discussions. However, there can be no assurance that these letters of intent and discussions will lead to implementation of the NutraCea Process with these companies or governments.

SALES AND MARKETING

We have targeted three distinct channels of product distribution in which NutraCea Bran and related products may be used as the primary ingredient. Our key marketing strategy is to form strategic alliances with industry leaders in each of our target markets. This strategy will allow us to leverage the research, marketing and distribution strengths of our partners in order to more economically and efficiently introduce and market products. We have formed alliances, or have entered into negotiations to form alliances, in each of our target markets, which are nutraceuticals, functional food ingredients, performance feed and companion pet food supplements.

During fiscal 2007, approximately four percent of our net products sales were to regions outside of the United States. Information on net sales to unaffiliated customers and long-lived assets attributable to our geographic regions is included in Note 22 of Notes to Consolidated Financial Statements.

Our overall marketing plans in each of the target markets are discussed below.

Nutraceuticals

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

Functional Food Ingredients

NutraCea Bran is a low cost, all natural food product that contains a unique combination of oil, protein, carbohydrates, vitamins, minerals, fibers, and antioxidants that can be used to enhance the nutritional value of popular consumer products. Foods that are ideally suited for the addition of NutraCea Bran to their products include cereals, snack foods and breads. We are marketing NutraCea Stabilized Bran to consumer food companies for use in already established products and for development of new products.

The functional food market in the United States is $16 billion and we estimate that this represents more than a $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.

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Performance Feed and Companion Pet Food Supplements

We also market NutraCea Bran as a feed supplement for animals. NutraCea Stabilized Bran is used as an equine feed supplement and has proven to provide greater muscle mass, improved stamina, and hair-coat luster when added to a normal diet. Show and performance horses represent the premium end of the equine market and present more than a $100 million annual market share opportunity for our future revenue growth. During 2003, NutraCea launched its own equine supplement label “Max E Glo”. In 2004, NutraCea entered into a license and distribution agreement with MannaPro, a national feed distributor, for this brand. We continued to hold numerous discussions with several major domestic equine feed manufacturers and distributors.

Rice Bran Oils

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

MARKETING METHODS

As of March 3, 2008, we have a Senior Vice-President of Sales and Marketing and seven domestic sales representatives. In addition, we have several marketing and distribution agreements with distributors in Mexico, South America, Western and Eastern Europe and Africa, for developing and marketing NutraCea Bran products. In addition, we have retained a firm to provide and assist in potential qualified customer introductions. We also have a non-exclusive agreement with a firm granting rights to advertise, promote, market, sell and distribute some of our products world-wide. We continue to work to develop additional significant alliances in efforts to increase our sales volume.

Pursuant to the Stabilized Rice Bran Processing Sales and Marketing Agreement between NutraCea and Farmers Rice Cooperative (“FRC”), a cooperative association organized under the California Food and Agriculture Code, dated September 1, 2005, we granted a license to Farmers to use our rice bran processing equipment to produce stabilized rice bran for a limited number of Farmers’ customers. Our Nutrition Supplements are currently marketed domestically through various distribution channels. In addition, we distribute products under the names FlexProtex™, Rice’n Shine™, Flex Protex Cream™, SuperSolubles®, ZymeBoost® and CeaBars™ through ITV Global, Inc. (“ITV”), a direct response marketing company. We and ITV entered into a Private Label Supply Agreement (the “Supply Agreement”) and Strategic Alliance on August 24, 2005. Pursuant to this agreement, ITV markets and sells our products through infomercials. In 2007, we generated $851,000 in sales from these infomercials (net of a $1,551,000 sales return of infomercial products from another customer). The Supply Agreement has an initial term of two years and allows for a subsequent one-year term renewal. We have agreed in the Supply Agreement to fulfill ITV’s requirements for the products specified in the agreement while ITV will use its best efforts to market, distribute and sell such products. The contracts have specific unit and dollar minimums in order for them to maintain limited exclusivity.

Our nutraceutical equine products are distributed under the name “Absorbine Flex+®” by W.F. Young, Inc. We and W.F. Young entered into a distribution agreement on May 1, 2001 which provides for NutraGlo to manufacture, package and ship all W.F. Young’s sales requirements while W.F. Young is granted a license to use and market our equine products. NutraGlo has agreed to sell its equine healthcare products exclusively through W.F. Young at preferred product prices. W.F. Young has agreed to use its best efforts to promote NutraGlo’s current and future equine products and make minimum product purchases. In May of 2003, the purchase requirements for the three-year contract had been met. The distribution agreement was for an initial term of three years ending on August 31, 2004. On September 18, 2003, NutraCea, W.F. Young and Wolcott Farms, Inc. entered into a Technology Agreement which, among other things, extended the initial term of the distribution agreement through September 12, 2006. On April 12, 2005, NutraCea and W.F. Young entered into a Manufacturing Agreement which granted to us the exclusive worldwide rights to manufacture certain equine products for W.F. Young. Additionally, on April 12, 2005, NutraCea and W.F. Young entered into a Distribution Agreement under which we granted W.F. Young (i) the right of first offer and right of first refusal to market our stabilized rice bran food supplements (other than Equine Flex+) for the equine market and (ii) the right of first offer and right of first refusal to market the Flex+ product and Flex+ technology for the non-equine, non-human market.

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

CUSTOMERS

During year ended December 31, 2007 we had revenues of $22,161,000. Excluding revenues of $5,340,000 for license and royalty fees, we had 6 customers that accounted for 59% of the remaining $16,821,000 sales generated during 2007. Of these, three customers, Bi-Coastal, Wellness Watchers Global, LLC, and ITV Global, Inc., accounted for 19%, 18% and 12% of sales, respectively.

During year ended December 31, 2006 we had revenues of $18,090,000. We had one customer that represented more than ten percent of total revenues generated during 2006, that being ITV Global, Inc. with revenues reported approximately $8,057,000, or 45%.

During year ended December 31, 2005 we had revenues of $5,564,000. We had one customer that represented more than ten percent of total revenues generated during 2005, that being ITV Global, Inc. with revenues reported approximately $3,013,000, or 54%.

Loss of any one of these customers could have a material adverse effect on our revenues and results of operations.

SUPPLY AND MANUFACTURING

We purchase unstabilized rice bran from multiple suppliers. These include FRC in Sacramento, CA, ADM Rice (“ADM”) in Arbuckle, CA, and Louisiana Rice Mill in Mermentau, LA. 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 unstabilized bran. At the end of 2007, we had three domestic suppliers of unstabilized rice bran and an additional supply contract with another rice mill in Lake Charles, LA which will be utilized when we complete construction of that SRB plant in the second quarter of 2008.

We have negotiated additional supply agreements with other rice mills within the United States and have begun engineering designs and seeking permits in preparation for additional domestic operations. We have ongoing discussions regarding entering into contracts for the supply of rice bran in Europe, 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.

As required, we ship NutraCea Bran from our warehouse in California to our plant in Dillon, Montana for further processing into NutraCea RiSolubles, Dextrinized Rice Bran and NutraCea Fiber Complex. We ordered and installed additional equipment and have expanded the Dillon Montana facility. This additional equipment has increased our production of NutraCea Solubles and NutraCea Fiber Complex by more than 150% since the end of 2005. We plan to construct and complete an additional value-added product processing facility during 2008, in Phoenix, AZ which will initially add 5,000 tons of capacity, with room to more than quadruple that capacity over the next 18 months..

Every food product that we manufacture is produced under published FDA and USDA regulations for “Good Manufacturing Practices.” Our Chief Operating Officer oversees quality control and quality assurance testing. Product samples for each product code are 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.

RESULTS OF TRIALS AND SCIENTIFIC RESEARCH

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

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

Through several consulting physicians, 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, six domestic and international patents were issued.

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

Our program managed by Christian Children’s Fund, or CCF, of Guatemala in 2001 was highly successful in reducing malnutrition in school age children and enhancing their nutritional growth potential. Our stabilized rice bran product, NutraCea Solubles, was used as a base for a nutritionally enhanced drink for school breakfast and lunch programs to over 67,000 children in rural communities throughout Guatemala. CCF randomly selected 150 children from the group and evaluated their nutritional condition. Thirty-seven percent (37%) of the children were classified as having acute or chronic malnutrition at the start of the test. At the end of six months, no acute malnutrition existed and only 5% chronic malnutrition remained.

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 infect 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 2008.

On January 10, 2008 NutraCea announced the formation of a joint venture with Herbal Science (“HS”) to develop Nutraceutical extracts and pharmaceutical chemistries from NutraCea Stabilized Rice Bran. HS utilizes very 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 NutraCea Stabilized Rice Bran 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 Stabilized Rice Bran extracts for use in the nutraceutical industry as well as specific identified compounds targeting the pharmaceutical industry.

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 Stabilized Rice Bran in Apc^Min mice (British Journal of Cancer (2007) 96, 248-254). These mice have been genetically modified to serve as models for mammary, prostate and intestinal carcinogenesis. They reported that consumption of Stabilized Rice Bran (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 NutraCea Stabilized Rice Bran might be further evaluated as a chemo-preventative intervention in humans. These results lead to the filing for patent protection on “Methods for Treatment of Intestinal Carcinogenesis with Rice Bran” in January 2008. 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.

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In December, 2007 we have begun working with Herbal Science to identify and characterize compounds and extracts contained in rice bran that demonstrate effectiveness in controlling the major imbalances in serum glucose and lipid composition that typify diabetes symptoms.

PATENTS AND TRADEMARKS

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

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

In addition to the previously identified issued patents NutraCea has been assigned several additional US patents. These include patent number 6,558,714-B2 “Method for Treating Hypercholesterolemia, Hyperlipidemia and Atherosclerosis” which issued on May 06, 2003, a Continuation in Part with the same title which issued on May 11, 2004 and patent number 6,902,739 “Methods for Treating Joint Inflammation, Pain and Loss of Mobility” which issued June 07, 2005. Also NutraCea has been issued eight additional International patents covering this subject area. As of December 31, 2007, NutraCea has filed four additional provisional patents. NutraCea currently has a number of additional patents filed and pending formal review and we do 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 Stabilized Rice Bran are patentable.

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

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

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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 products trademarks TheraFoods® and ProCeutical®.

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

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

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

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

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

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

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

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

COMPETITION

Although we believe that we are the only company to use non-chemical methods to stabilize all natural rice bran so that the bran has a shelf life of over one year, we compete with other companies attempting to stabilize rice bran, as well as companies producing other food ingredients and nutritional supplements. We believe that our only significant competitor currently for rice bran products is Producer’s Rice Mill, Stuttgart, AR. We believe that the product it is offering is inferior in many ways to our products. For instance, Producer’s Rice Mill includes certain additives in the stabilization process that markets the finished product more unpalatable for the animal recipients. Regardless, there can be no assurance that we will be able to compete successfully in the rice bran industry. We believe that our major nutritional supplement competitors include producers of wheat bran and oat bran, particularly in the functional food ingredients market segment.

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

REASEARCH AND DEVELOPMENT EXPENDITURES

During fiscal years 2007, 2006, and 2005, we spent $878,000, $377,000, and $191,000, respectively, on product research and development.

EMPLOYEES

As of March 3, 2008, we had a total of 95 full-time domestic employees. Our new subsidiary, Irgovel, in Pelotas, Brazil, acquired in February, 2008, has approximately 185 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.

AVAILABLE INFORMATION

We routinely file reports and other information with the SEC, including Forms 8-K, 10-K and 10-Q. The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy, and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is http://www.sec.gov.

NutraCea does not make its filings available on the Internet (except through the SEC’s Internet site) since all the filings are readily available on that SEC site. Paper copies of NutraCea’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act may be obtained free of charge upon request, by writing to NutraCea at 5090 North 40th Street, Fourth Floor, Phoenix, Arizona 85018.

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

We have a limited operating history and have generated losses in each quarter of 2007, except the second, and in each quarter before 2006.

We began operations in February 2000 and incurred losses in each reporting period until the second fiscal quarter of 2006, and we incurred losses in each quarter of 2007 except the second. 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.

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There are significant market risks associated with our business.

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

We depend on a limited number of customers.

During 2007, we received approximately 59% of product sales revenue from six customers.During 2006, we received approximately 67% of product sales revenue from five customers and approximately 48% of our revenue from one customer. A loss of any of these customers could have a material adverse effect on our revenues and results of operations.

The inability of our significant customers to meet their obligations to us may adversely affect our financial results.

We are subject to credit risk due to concentration of our trade accounts receivables and notes receivables. As of December 31, 2007, 6 customers accounted for 28% of our $2,346,000 trade accounts receivable and 2 debtors accounted for 81% of $7,975,000 notes receivables reflected on our December 31, 2007 balance sheet. In addition, we acquired secured promissory notes of Vital Living, Inc. with aggregate principal amounts of $4,226,000 in connection with our entering into an asset purchase agreement with Vital Living to acquire Vital Living’s assets. While we obtain personal guarantees and security interests backing these obligation when possible, many of these obligations are not guaranteed or secured. The inability of our significant customers and obligors to meet their obligations to us, or, in the case of Vital Living, the deterioration of Vital Living’s financial condition or assets before we are able to consummate our asset purchase, may adversely affect our financial condition and results of operations.

We rely upon a limited number of product offerings.

The majority of the products that we have sold as of December 31, 2007 have been based on stabilized rice bran. Although we will market stabilized rice bran as a dietary supplement, as an active food ingredient for inclusion in our products and in other companies’ products, and in other ways, a decline in the market demand for our 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 unstabilized or raw rice bran, which is a by-product from milling paddy rice to white rice. Our ability to manufacture stabilized rice bran raw is currently limited to the production capability of our production equipment at FRC, ADM, our own plants located next to the Louisiana Rice Mill (“LRM”) in Mermentau, LA, and American Rice, Inc. in Freeport, TX, and our single value-added products plant in Dillon, Montana. Between the Dillon, Montana plant and our co-located facilities at FRC, ADM, and own plants in Mermentau and Freeport, and our new facility in Pelotas, Brazil (acquired in February 2008) we currently are capable of producing enough finished products to meet current demand. With the exception of Pelotas, Brazil, the existing plants do not allow for dramatic expansion of product demand, therefore additional production capacity is needed. Anticipating incremental demand for NutraCea products, we completed the first phase of an expansion of the Dillon, Montana facility in 2006. We also entered into a new raw rice bran supply agreement with Louisiana Rice Mill (“LRM”) in Louisiana that year. The supply agreement led to the construction of a new stabilization plant in Mermentau which became operational in April 2007. Start-up of our latest stabilization facility during the first quarter of 2008 in Lake Charles, LA should meet our production needs for 2008, but we do not anticipate that they will meet our longer term supply needs. Therefore, we anticipate building new facilities to meet the forecasted demand for our products and envision we will be able to execute on this initiative. In the event we are unable to create additional production capacity to produce more stabilized rice bran products to fulfill our current and future requirements this could materially and adversely affect our business, results from operations, and financial condition.

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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 requirements to produce stabilized rice bran products. Since rice bran has a limited shelf life, the supply of rice bran is affected by the amount of rice planted and harvested each year. If economic or weather conditions adversely affect the amount of rice planted or harvested, the cost of rice bran products that we use may increase. We are not generally able to immediately pass cost increases to our customers and any increase in the cost of stabilized rice bran products would have an adverse effect on our results of operations.

We face risks in our wheat bran stabilization efforts.

In January 2008, through a newly formed wholly owned subsidiary, we entered 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 intend to pursue significant foreign operations and there are inherent risks in operating abroad.

An important component of our business strategy is to build rice bran stabilization facilities in foreign countries and to market and sell our products internationally. For example, we recently entered into a joint venture with an Indonesian company produce and market our SRB products in Southeast Asia 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, power 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.

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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.

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

We have one patent entitled Methods for Treating Joint Inflammation, Pain and Loss of Mobility, which covers both humans and mammals. In addition, our subsidiary RiceX has five United States patents and may decide to file corresponding international applications. RiceX holds patents to the production of Beta Glucan and to a micro nutrient enriched rice bran oil process. RiceX also holds patents to a method to treat high cholesterol, to a method to treat diabetes and to a process for producing Higher Value Fractions from stabilized rice bran. We also have filed a number of provisional patents for our technology. The process of seeking patent protection may be long and expensive, and there can be no assurance that patents will be issued, that we will be able to protect our technology adequately, or that competition will not be able to develop similar technology.

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

We have identified material weaknesses in our internal control over financial reporting, which could impact negatively our ability to report our results of operations and financial condition accurately and in a timely manner.

As required by Section 404 of the Sarbanes-Oxley Act of 2002, management has conducted an evaluation of the effectiveness of our internal control over financial reporting at December 31, 2007. We identified two material weaknesses in our internal control over financial reporting and concluded that, as of December 31, 2007, we did not maintain effective control over financial reporting based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. For a detailed description of these material weaknesses, see Item 9A, “Controls and Procedures.” Each of our material weaknesses results in more than a remote likelihood that a material misstatement of the annual or interim financial statements that we prepare will not be prevented or detected. As a result, we must perform additional work to obtain reasonable assurance regarding the reliability of our financial statements.

If we are unsuccessful in implementing or following our remediation plan, or fail to update our internal control over financial reporting as our business evolves or to integrate acquired businesses into our controls system, we may not be able to timely or accurately report our financial condition, results of operations or cash flows or to maintain effective disclosure controls and procedures. If we are unable to report financial information in a timely and accurate manner or to maintain effective disclosure controls and procedures, we could be subject to, among other things, regulatory or enforcement actions by the SEC, securities litigation and a general loss of investor confidence, any one of which could adversely affect our business prospects and the market value of our common stock.

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We are dependent on key employees and consultants.

Our success depends upon the efforts of our top management team, including the efforts of Bradley D. Edson, our President and Chief Executive Officer, Todd C. Crow, our Chief Financial Officer, Leo Gingras, our Chief Operating Officer, Margie D. Adelman, our Secretary and Senior Vice President and Kody K. Newland, our Senior Vice President of Sales and Marketing. Although we have written employment agreements with each of the foregoing individuals, except for Ms. Adelman, 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.

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 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, and paid off all short and long term debt obligations. While we believe that we have adequate cash reserves and working capital to fund current operations, our ability to meet long term business objectives may 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 and demand on future cash flow. Our inability to obtain sufficient financing may require us to delay, scale back or eliminate some or all of our product development and marketing programs.

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

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

Risks Related to Our Stock

Our Stock Price is Volatile.

The market price of a share of our common stock has fluctuated significantly in the past and may continue to fluctuate significantly in the future. The high and low closing sales prices of a share of our common stock for the following periods were:

	High		Low
Twelve months ended December 31, 2007	$	5.00	$	0.75
Twelve months ended December 31, 2006	$	2.74	$	0.60
Twelve months ended December 31, 2005	$	1.81	$	0.30

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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; and

· general economic and market conditions.

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

As of March 3, 2008, NutraCea had 145,418,965 shares of common stock outstanding. Additionally, as of March 3, 2008, options and warrants to purchase approximately 41,981,000 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 March 3, 2008, approximately 25,319,000 shares of our common stock remained eligible for resale pursuant to outstanding registration statements filed for these investors. In addition, we have filed a 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. 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 March 3, 2008, there were outstanding options and warrants to purchase approximately 41,981,000 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 may need to raise funds through debt or equity financings in the future, which would dilute the ownership of our existing shareholders and possibly subordinate certain of their rights to the rights of new investors.

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

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

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

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

As part of our strategy, we expect to review opportunities to buy other businesses or technologies that would complement 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 purchase in the future.

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

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

Our officers and directors have limited liability and have indemnification rights

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

Item 1B. Unresolved Staff Comments.

Not applicable.

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Item 2. Description of Property.

We currently lease approximately 50,000 square feet of office space in our corporate headquarters in Phoenix, AZ under a lease which expires in 2016, and 28,000 of office, laboratory and warehouse space in West Sacramento, CA, under a lease which expires in 2011. We also lease a 2,000 square foot office facility in Burly, Idaho, a 1,264 square foot office in Scottsdale, Arizona. We own a 15,000 square foot manufacturing plant in Mermentau, LA, and are constructing a 50,000 square foot manufacturing plant in Lake Charles, LA. We are planning a second rice bran derivative manufacturing facility in Phoenix that will be over 100,000 square feet and have signed a letter of intent for the purchase of a building for that plant. Our subsidiary RiceX Nutrients, Inc., owns a 15,700 square foot production facility in Dillon, Montana. Our newly acquired rice bran oil facility in Pelotas, Brazil encompasses several operations and buildings on approximately 20 acres.

We believe that our facilities are adequate for our anticipated needs through 2008 but we anticipate the Company will need to add additional manufacturing capacity for 2009. We plan to build another production facility in 2008 to meet anticipated needs in 2009. The properties are adequately covered by insurance.

Item 3. Legal Proceedings.

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

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

Not applicable.

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PART II

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

PRICE RANGE OF COMMON STOCK

Our common stock currently trades on the OTC Bulletin Board (“OTCBB”) exchange under the symbol “NTRZ.OB”. 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, 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	$	1.30	$	2.74
Third Quarter	$	0.80	$	1.38
Second Quarter	$	0.60	$	1.45
First Quarter	$	0.65	$	1.42

HOLDERS

As of March 3, 2008, 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.

RECENT SALES OF UNREGISTERED SECURITIES

During the three months ended December 31, 2007, we issued the following securities without registration under the Securities Act of 1933.

Common Stock:

We issued to three investors a total of 2,296,157 shares of our common stock for the exercise of warrants for cash in the aggregate amount of $274,500, and upon the surrender of 615,199 shares our common stock.

Options and Warrants:

We issued to four employees options to purchase an aggregate of 123,000 shares of our common stock. The options vest quarterly over periods ranging from three to four years, have per exercise prices between $1.02 and $1.50, and expire in ten years.

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

Sales of unregistered securities during the first three quarters of 2007 have previously been reported in quarterly reports on Form 10-Q or current reports on Form 8-K that we have filed with the Securities and Exchange Commission.

SHARE REPURCHASES

We did not repurchase any of our securities in 2007.

Item 6. Selected Financial Data

The following unaudited selected historical information has been derived from the audited consolidated financial statements of NutraCea. The consolidated financial information as of December 31, 2007 and 2006 and for each of the three years in the period ended December 31, 2007 are derived from our audited consolidated financial statements included elsewhere in this Form 10-K. The information set forth below should be read in conjunction with the financial statements, related Notes thereto, and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Form 10-K.

Annual Summary

Selected financial information represents annual results. Due to the acquisition of The RiceX Company on October 4, 2005, the following represents annual results for NutraCea and three months of operations for RiceX for 2005 information.

Statements of Operations Data: (In thousands, except per share data)

	Years Ended December 31,
	2007			2006		2005			2004			2003
Revenues	$	22,161		$	18,090	$	5,564		$	1,225		$	1,536
Costs and expenses		37,291			17,038		8,556			24,776			9,763
(Loss) income from operations		(15,130	)		1,052		(2,992	)		(23,551	)		(8,227	)
Other income (expense)		3,239			538		(878	)		(24	)		(4,309	)
Net (loss) income	$	(11,911	)	$	1,585	$	(3,872	)	$	(23,575	)	$	(12,536	)
Basic (loss) net income per common share	$	(0.09	)	$	0.02	$	(0.10	)	$	(1.18	)	$	(2.05	)
Diluted (loss) net income per common share	$	(0.09	)	$	0.02	$	(0.10	)		(1.18	)		(2.05	)
Weighted average number of shares outstanding		125,938			76,692		38,615			19,906			6,107

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Balance Sheet data: (In thousands)

	As of December 31,
	2007			2006			2005			2004			2003
Cash, cash equivalents, restricted cash and investments	$	43,847		$	15,235		$	3,636		$	2,112		$	100
Total assets		124,293			73,255			47,464			3,338			541
Current liabilities		7,619			2,881			1,261			441			1,028
Long-term debt		77			-			9			1,635			—
Accumulated deficit		(61,216	)		(49,305	)		(50,890	)(1)		(44,928	)		(21,345	)
Total shareholders’ equity (deficit)	$	116,597		$	70,374		$	38,893		$	1,167		$	(487	)

(1) 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. See Note 3 to the consolidated financial statements.

Item 7. Management’s Discussion and Analysis or Plan of Operation

Executive Summary

The year ended December 31, 2007 was a busy and exciting year for NutraCea and an important phase in our growth. During 2007, we built out our infrastructure to allow us to meet an anticipated increase in our business in the years ahead. We entered new distribution agreements that underscored the substantial demand for our core product, stabilized rice bran (“SRB”); and marked a number of operating achievements that positioned NutraCea for success in 2008 and beyond. We completed multiple expansions of our Dillon, MT facility, initiated rice stabilization processing at a new facility in ADM’s plant in Arbuckle, CA, and our new facility next to the Louisiana Rice Mill in Mermentau, LA, continued the new plant build out of our facility in Lake Charles, LA, and announced a definitive joint venture in Indonesia that will lay the groundwork to build several SRB facilities in Southeast Asia.

We are proud that we were able to reach these benchmarks, which position the company for future growth and success and allow us to increase our production to sell our products to current and future customers.

In addition, during 2007 we expanded our humanitarian efforts, teaming with Feed the Children and the Happy Hearts Fund. These programs will feed thousands of children and the health progress will be monitored and documented to track the benefits of this nutritional supplement for children.

Results of Operations

The following is a detailed discussion of our consolidated financial condition as of December 31, 2007 and 2006 and the results of operations for fiscal years ended December 31, 2007, 2006 and 2005, 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, 2007 AND DECEMBER 31, 2006

For the year ended December 31, 2007, our net loss was $11,911,000, or ($0.09) per share, compared to net income of $1,585,000, or $0.02 per share, in 2006, showing a decrease of $13,496,000. The decrease for the year ended December 31, 2007 was primarily due to a net increase in revenue of $4,071,000, with a corresponding increase in cost of goods sold of $768,000, resulting in an increase in gross margins of $3,303,000 for 2007 compared to 2006, which was offset by a $10,244,000 increase in Selling, General, and Administrative (“SG&A”) costs, a $3,224,000 increase in allowance for bad debt, a $1,000,000 charge for a separation sgreement with our former Chief Executive Officer, an increase of $3,216,000 in professional fees, and an increase in Research and Development (“R&D) costs of $501,000. Other income (net of expenses) for the twelve month period increased $2,701,000 consisting of a $2,264,000 increase in interest income and a $1,250,000 gain on the settlement of a lawsuit, offset by a $347,000 loss on the retirement of assets, a $309,000 loss on an equity investment, and a $163,000 loss on the sale of marketable equity securities.

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Revenues, cost of goods sold and gross margin:

Consolidated revenues for the year ended December 31, 2007 were $22,161,000, an increase of $4,071,000, or 23%, from consolidated revenues of $18,090,000 in 2006. The increased revenue was a result of a $7,386,000 increase in our core SRB and related products categories and an increase of $4,355,000 in royalty and licensing fees, offset by a $7,670,000 decease in infomercial sales (net of a $1,551,000 sales return).

During the second quarter of 2007 we granted to Pacific Holdings Advisors Limited (“PAHL”) an exclusive, perpetual, royalty-free right and license to use and distribute SRB and SRB derivative products in certain Southeast Asian countries. PAHL paid a one-time fee of $5,000,000 for these rights. PAHL paid the license fee by issuing to NutraCea an interest bearing promissory note payable over five years. In January 2008, in conjunction with another agreement (see Note 20 of the Consolidated Financial Statements) we amended this note to provide that PAHL will pay us the $5,000,000 license fee by March 31, 2008 in full satisfaction of its obligations under the Note. In consideration for this accelerated payment, NutraCea agrees to waive all accrued interest owed by PAHL ($118,000 at December 31, 2007).

Cost of goods sold increased $768,000 from $9,130,000 in 2006 to $9,898,000 in 2007 due primarily to the corresponding increase in product sales in the twelve months ended December 31, 2007. 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 margins increased $3,303,000 to $12,263,000 in 2007, from $8,960,000 in 2006 due to a $4,355,000 increase in licensing and royalty revenues, which has no associated cost of goods, offset by a $768,000, or 2%, increase in cost of goods sold from $9,130,000 (53% of sales) to $9,898,000 (55% of sales) in the twelve months ended December 31, 2007 and 2006, respectively. The following table summarizes the changes in revenue, cost of goods sold, and our gross margin.

	2007			2006		Increase / Decrease
Product, net of discounts	$	15,970,000		$	8,584,000	$	7,386,000
Infomercial		2,402,000			8,521,000		(6,119,000	)
Less infomercial sales return		(1,551,000	)		-		(1,551,000	)
Net infomercial sales		851,000			8,521,000		(7,670,000	)
Royalty and licensing fees		5,340,000			985,000		4,355,000
Total revenues		22,161,000			18,090,000		4,071,000
Cost of goods sold		10,166,000			9,130,000		1,036,000
Cost of goods sold, returns		(268,000	)		-		(268,000	)
Net cost of goods sold		9,898,000			9,130,000		768,000
Gross margin	$	12,263,000		$	8,960,000	$	3,303,000

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Operating expenses:

Research and Development (R&D) expenses increased $501,000 in 2007 to $878,000 from $377,000 in 2006, due to on-going product development activities.

Sales, General and Administrative (SG&A) expenses increased $10,244,000 from $6,018,000 in 2006 to $16,262,000 in 2007. The increase was mostly due to expanded investment in personnel, infrastructure, and sales and marketing activities to meet anticipated future demands (with certain exceptions as noted below). Specific changes in SG&A expense is detailed in the following schedule:

	Twelve Months Ended December 31, 2007		Twelve Months Ended December 31, 2006		Increase / Decrease
Payroll	$	5,159,000	$	1,814,000	$	3,345,000
Employee benefits, payroll taxes,
and hiring costs		1,216,000		520,000		696,000
Sales and marketing		2,661,000		624,000		2,037,000
Operations		1,341,000		394,000		947,000
Travel and entertainment		829,000		505,000		324,000
Rent and facility costs		1,104,000		124,000		980,000
Stock based compensation		1,679,000		704,000		975,000
Depreciation and amortization, net of
allocation to cost of goods sold		1,114,000		608,000		506,000
Administration, insurance, and other		1,159,000		725,000		434,000
Total selling, general and administrative expenses	$	16,262,000	$	6,018,000	$	10,244,000

Included in our total increase in selling, general and administrative costs were $448,000 for payroll, $169,000 for marketing, and $267,000 for other administrative costs (total $884,000) due to the inclusion in our results of operations the results of Vital Living, Inc. (“VLI”) operations for the period of April 20, 2007 through December 31, 2007 which are consolidated under Variable Interest Entity (“VIE”) rules (see Note 10 of the Consolidated Financial Statements).

In the twelve months ended December 31, 2007 our provision for the allowance for bad debt expense was $3,233,000 compared to $9,000 in the same period of the prior year. This increase is the result of additional provisions for doubtful accounts receivable of $1,601,000 and $1,378,000 and doubtful notes receivable of $250,000 for two customers and one note maker, respectively. Additionally, we wrote off $4,000 of accounts receivable deemed to be un-collectible.

Total goodwill recorded on our financial statements as of result of our purchase of certain debt securities and preferred stock securities of Vital Living, Inc. (see Note 10 to the Consolidated Financial Statements) amounted to $7,579,000. We evaluated the value of this goodwill and determined that it is $6,279,000. Accordingly we have recorded an intangible impairment of $1,300,000.

In November 2007, we reached an accord with our former Chief Executive Officer, Ms. McPeak, under which we agreed to pay her $1,000,000 in a separation agreement under which she surrendered all prior claims to patents and other rights relating to products developed for RiceX and NutraCea during her employment, and grants us a right of first refusal for ten years to any patent, process, or product she might develop that are derived from stabilized rice bran ingredients.

Professional fees increased $3,216,000 from $1,504,000 in 2006 to $4,720,000 in 2007. In 2007, professional expenses were associated with consultants, accounting, SOX 404 compliance, legal, investor relations and stock-based compensation expenses. We incurred investor relations costs of $580,000 in 2007 compared to $251,000 in 2006, an increase of $329,000 associated with an investor relations firm and fees associated with SEC filing requirements. Stock-based compensation on stock and warrant issued to consultants for services was $379,000 in 2007 and $213,000 in 2006. We incurred a $750,000 cost associated with developing our joint venture with Grain Enhancements LLC (see Note 10 of the consolidated financial statements). Our increase in professional fees also includes a $624,000 charge due to the inclusion of the results of VLI for the period of April 20, 2007 through December 31, 2007 (see Note 10 of the Consolidated Financial Statements).

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Other income (expense):

Interest income increased $2,264,000 to $2,809,000 from $545,000 in the twelve month period ended December 31, 2007 over the same period in the prior year due to the higher cash balance available.

The gain on a settlement increased $1,250,000 due to the settlement of a lawsuit in relation to the investment in Langley (see Note 4 of the Consolidated Financial Statements).

The loss on an equity investment increased $309,000 as a result of our investment in Grain Enhancements LLC (see Note 10 of the Consolidated Financial Statements).

The loss on retirement of assets increased $347,000 due to the sale or retirement of assets.

The loss on disposition of marketable equity securities increased $162,000 due to the sale of Langley (see Note 4 of the Consolidated Financial Statements).

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 $37,488,000 for federal tax purposes that expire at various dates from 2011 through 2021 and $10,087,000 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.

YEAR ENDED DECEMBER 31, 2006 AND DECEMBER 31, 2005

For the year ended December 31, 2006, our net income was $1,585,000, or $0.02 per share, compared to a loss of $3,872,000, or ($0.10) loss per share, in 2005, showing an improvement of $5,457,000. The improvement for the year ended December 31, 2006 was primarily due to increased revenue of $12,526,000, offset by increased cost of sales of $6,252,000, resulting in an increase in gross margins of $6,274,000 for 2006 compared to 2005. The favorable increase of $5,457,000 was primarily due to increased total revenues combined with new product sales and new license and royalty fees. There were positive trends in our infomercial products, domestic animal product lines primarily sold to the equine market and our domestic functional foods and nutraceutical product lines. Assuming the merger with RiceX was effective for the entire year of 2005, the unaudited pro forma condensed combined consolidated net loss for year ended December 31, 2005 would have been $7,506,000 (NutraCea year ended December 31, 2005 net loss $3,567,000, RiceX year ended December 31, 2005 net loss $3,994,000 and $55,000 intercompany adjustment).

Revenue, cost of goods sold and gross margin

Consolidated revenues for the year ended December 31, 2006 were $18,090,000, an increase of $12,526,000, or 225%, from consolidated revenues of $5,564,000 in 2005. The increased revenue was a result of increased volume in all categories, including a $5,044,000 increase in the infomercial market, a $2,500,000 increase in the equine market, and a $2,000,000 increase in sales of the nutraceutical products. Also contributing to our revenue increase was license fees, royalties and other income in the amount of $985,000. Assuming the merger with RiceX was effective for the entire year of 2005, the unaudited pro forma condensed combined consolidated revenues for year ended December 31, 2005 would have been $8,082,000 (NutraCea year ended December 31, 2005 consolidated revenues $4,569,000, RiceX year ended December 31, 2005 consolidated revenues $3,838,000 and $325,000 intercompany adjustment).

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Cost of goods sold increased $6,252,000 from $2,878,000 in 2005 to $9,130,000 in 2006 due primarily to the significant increase in product sold in 2006. Gross margins increased $6,274,000 to $8,960,000 in 2006, from $2,686,000 in 2005. This 233% increase was due to new sales in the infomercial market and increased sales in the equine market and nutraceutical markets. Assuming the merger with RiceX was effective for the entire year of 2005, the unaudited pro forma condensed combined consolidated gross margins for the year ended December 31, 2005 would have been $4,351,000 (NutraCea year ended December 31, 2005 gross margins at $2,046,000 and RiceX year ended December 31,2005 gross margins at $2,305,000).

Operating expenses:

Research and Development (R&D) expenses increased $186,000 in 2006 to $377,000 due to increased product development costs.

Sales, General and Administrative (SG&A) expenses increased $2,158,000 from $3,860,000 in 2005 to $6,018,000 in 2006. The increase was mostly due to added employee-related, travel, office, commission, and other general operating expenses. Included in SG&A category is stock-based compensation for employees, directors and consultants. Stock-based compensation decreased $142,000 from $868,000 in 2005 to $726,000 in 2006. Stock-based compensation expenses decreased $420,000 from $1,511,000 in 2005 to $1,091,000 in 2006. These non-cash charges relate to issuances of common stock and common stock warrants and options in 2006 and 2005. The higher issuances of restricted stock, options and warrants during 2005 was deemed necessary by management to retain and compensate officers, directors, consultants and employees while conserving cash assets that would otherwise have been expended for these purposes.

Professional fees decreased $123,000 from $1,627,000 in 2005 to $1,504,000 in 2006. In 2006, professional expenses were associated with consultants, accounting, SOX 404 compliance, legal, investor relations and stock-based compensation expenses. We incurred investor relations costs of $251,000 in 2006 compared to $307,000 in 2005, a decrease of $56,000 associated with an investor relations firm and fees associated with SEC filing requirements. Stock-based compensation on stock and warrant issues to consultants for services decreased $278,000 from $643,000 in 2005 to $365,000 in 2006

Other income and expense:

Interest income increased by $527,000 from $18,000 to $545,000 due to the higher balance of cash available.

Interest expense decreased by $889,000 to $7,000 in 2006 due to the payoff of a note of $2,400,000 at 7% interest compounded quarterly on October 4, 2005. Interest expense in 2006 primarily consisted of interest on a loan for equipment.

Income tax:

The provision for income tax expense increased $3,000 from $2,000 to $5,000 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, 2006 and 2005, management determined that realization of these benefits is not assured and has provided a valuation allowance for the entire amount of such benefits. At December 31, 2006, net operating loss carry forwards were approximately $25,018,000 for federal tax purposes that expire at various dates from 2011 through 2020 and $12,230,000 for state tax purposes that expire in 2010 through 2015.

The Company has an unrecorded income tax benefit of $14,100,000 resulting from the exercise of options during 2006. 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.

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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 $41,298,000 and $14,867,000 at December 31, 2007 and 2006, respectively.

We have $2,549,000 of restricted cash ($758,000 and $1,791,000 classified as current and non-current asset, respectively), of which $310,000 is in 3^rd party escrow to be paid in April, 2008 as the final payment on our Grainnovations purchase (see Note 10 to the consolidated Financial Statements). The $2,239,000 balance is restricted by contract as security on our office lease in Phoenix. The amount of restricted cash relating to the office lease reduces yearly for five years per the lease agreement. The lease itself expires in 2016.

For the year ended December 31, 2007, net cash used in operations was $2,353,000, compared to net cash used in operations in the same period of 2006 of $629,000, an increase of $1,724,000. This increase in cash used by operations resulted primarily from the $13,496,000 increase in our net loss, offset by non-cash charges of: a $2,202,000 for depreciation and amortization, $1,300,000 for the impairment of goodwill, a $3,229,000 increase in allowance for doubtful accounts, a $2,166,000 charge for stock-based compensation, a $347,000 loss on the retirement of assets, a $309,000 loss on equity investments, a $290,000 loss on marketable equity securities, an $886,000 increase in accounts receivable, a $971,000 increase in inventories and a $1,167,000 increase in deposits and other current assets, offset by a $2,738,000 increase in accounts payable and accrued liabilities..

Cash used in investing activities for the year ended December 31, 2007 was $27,261,000, compared to $9,698,000 for the same period of 2006. This increase of $17,563,000 was caused primarily by our current plant expansion projects. We invested $11,652,000 in the purchase of property and equipment at several locations, an increase of $6,970,000 over the year ended December 31, 2006, including our Mermentau, LA facility which became operational in the second quarter of 2007. We invested $2,169,000 in the acquisition of Grainnovations, Inc., and $5,143,000 in our acquisition of certain securities of Vital Living, Inc. We invested $1,500,000 in Grain Enhancements LLC, a joint venture we formed in the second quarter of 2007. We placed restrictions on $2,239,000 of cash and purchased $2,225,000 of other assets. Additionally, we issued notes receivable to several strategic customers and others totaling $7,828,000 and received payments against outstanding notes receivable of $5,410,000.

Cash provided from financing activities for the year ended December 31, 2007 was $56,045,000, an increase of $34,342,000 over the year ended December 31, 2006. The increase is due to a $46,805,000 private placement financing (see below), an increase of $30,871,000 over 2006, and proceeds of $9,240,000 from the exercise of common stock options and warrants, an increase of $3,456,000 over 2006.

Our working capital position was $45,863,000 and $23,320,000 as of December 31, 2007 and 2006, respectively.

Equity financing:

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 on 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.

On May 12, 2006, we sold an aggregate of 17,560 shares of our Series C Convertible Preferred Stock at a price of $1,000 per share in a private placement transaction. This private placement of securities generated aggregate gross proceeds of approximately $17,560,000 ($15,934,000 net after offering and related expenses). The preferred shares can be converted to shares of our common stock at a conversion rate of approximately 1,176 shares of common stock for each preferred share issued in the transaction. Additionally, the investors were issued warrants to purchase an aggregate of 10,329,412 shares of our common stock at an exercise price of $1.35 per share. The warrants have a term of five years and are immediately exercisable. An advisor for the financing received a customary fee based on aggregate gross proceeds received from the investors and a warrant to purchase 500,000 shares of common stock at an exercise price per share of $1.35 and a term of five years.

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Subsequent expenditures (see Note 20 - Subsequent Events, to the consolidated financial statements):

In January, 2008, through our newly formed subsidiary, Medan, LLC, we purchased 51% of the stock of PT Panganmas Inti Nusantara, an Indonesian company for $10,675,000

In February 2008, we purchased Irgovel, a Brazilian company which operates a rice bran oil processing plant, for approximately $14,492,000. Additionally, we agreed to fund as necessary up to $5,300,000 to pay deferred taxes due to the Brazilian government. These deferred taxes are payable over a period of 10 years.

Purchase commitments:

In January 2008 we signed a letter of intent to purchase a building in Phoenix for our planned SRB stage II processing facility for $8,250,000. We expect to close escrow in March 2008. Additionally, we estimate our costs to equip the facility for the production of our products to be $5,000,000. We plan for the facility to be operational in the fourth quarter of 2008.

Domestic Initiatives

We continued an initiative to expand our Dillon, Montana plant to increase production capacity to meet the growing market demand for our value-added products made from stabilized Rice Bran. We ordered additional equipment and expanded the Dillon Montana facility. The plant was increased from its initial annual capacity of 900 tons to a capacity of 2,700 tons by the end of the second quarter of 2007.

We have existing financial liquidity from cash on hand and current cash flow to complete the expansion. Strong market interest in our proprietary stabilized Rice Bran derivatives has prompted the need for increased manufacturing capability and is consistent with our goal of meeting growing customer demands and a new awareness of our products’ value. This increase in manufacturing capacity is the most efficient and economical means of boosting capacity as quickly as possible to meet the increasing demands of the marketplace.

We entered into a raw rice bran supply agreement with Louisiana Rice Mill LLC, (LRM) and completed the construction of a stabilization facility with an annual capacity of 30,000 tons of stabilized rice bran. The agreement quadrupled our previous annual supply of raw rice bran in the United States. In addition, we announced the construction of an additional stabilization facility at Lake Charles, LA that will provide an additional 30,000 tons of annual capacity, which we expect to become operational in the second quarter of 2008. We funded these projects from existing capital resources.

International Initiatives

On September 13, 2005, we entered into an agreement with a Dominican Republic rice mill whereby the two companies agreed to form a joint venture. The terms of the agreement allows us the option to install equipment to produce annually at least 5,000 metric tons of stabilized rice bran in the Dominican Republic, or in the alternative to produce the product in the United States and ship the raw ingredients to the Dominican Republic and package it in final form there. The joint venture will be equally owned by the two companies and will commercially sell stabilized rice bran products through retail and government in the Dominican Republic and Haiti. NutraCea has shipped product directly rather than utilize the joint venture since the company chose not to build a processing facility in the Dominican Republic at this time. We are shipping product from the United States facilities to honor obligations in the Dominican Republic.

On October 28, 2005, we entered into a binding letter of intent with an Ecuadorian company to determine whether we should enter into a working arrangement that will allow the Ecuadorian company the right to utilize our proprietary ingredients and value-added processing in their multi-faceted food business, which includes animal feed, poultry and cereals. We are currently servicing this company with product shipped from the United States although we have not entered into a definitive agreement as of March 3, 2008, as we chose not to locate facilities in Ecuador at this time.

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On December 19, 2006, NutraCea began distributing product to thousands of orphans through community- based organizations in Malawi as part of an extraordinary collaborative effort with Feed the Children, Raising Malawi and The Malaria Solution Foundation. The mission was to provide direct physical assistance, long-term sustainability and support to many of Malawi’s two million orphans and vulnerable children. Approximately ten thousand children at the Consol Homes-Raising Malawi Orphan Care Center received our product to help improve their overall nutrition. The initial product distribution was made possible through funding raised by The Malaria Solution Foundation with a purchase and donation of NutraCea’s products.

In June, 2007 we began distributing product to thousands of children in Indonesia as part of a humanitarian feeding program sponsored by Feed the Children.

In June 2007, we entered into a joint venture with an Indonesian company to construct Rice Bran Stabilization facilities in Southeast Asia. We expect the first such facility to be operation in the fourth quarter of 2008.

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 activities.

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

As part of the normal course of business, the Company incurs certain contractual obligations and commitments which will require future cash payments. The following tables summarize the significant obligations and commitments.

	Payments Due by Period
	Total		2008		2009		2010		2011		2012
	($ in thousands)
Long-term debt	$	100	$	26	$	26	$	26	$	22	$	—
Capital lease		—		—		—		—		—		—
Operating leases		7,801		1,303		1,608		1,637		1.655		1,598
Purchase obligations		250		50		50		50		50		50
Total contractual obligations	$	8,151	$	1,379	$	1,684	$	1,713	$	1,727	$	1,648

CRITICAL ACCOUNTING POLICIES

A summary of our significant accounting policies is included in Note 2, 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, and inventories.

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Revenue Recognition

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

Allowance for Doubtful Accounts

We continuously monitor collections from our customers and maintain an allowance for doubtful accounts based upon our historical experience and any specific customer collection issues that we have identified. While such credit losses have historically not exceeded our expectations and the provisions established, there is a risk that credit losses in the future will exceed those that have occurred in the past, in which case our operating results would be adversely affected.

Valuation of long-lived assets

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

Factors we consider important that could trigger a review for impairment include the following:

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

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

(c) significant negative industry or economic trends.

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

Marketable Securities

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

Inventory

Inventory is stated at the lower of cost (first-in, first-out) or market and consists of nutraceutical products. While we have an inventory of these products, any significant prolonged shortage of these ingredients or of the supplies used to enhance these ingredients could materially adversely affect our results of operations.

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Property and Equipment

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

Furniture and equipment	3-7 years
Automobile	5 years
Software	3 years
Leasehold improvements	7 years
Property and equipment	7-10 years

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

Fair Value of Financial Instruments

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

Stock-Based Compensation

On January 1, 2006, NutraCea adopted SFAS No. 123(R), “Share-Based Payment” (“SFAS 123(R)”). SFAS 123(R) replaced SFAS No. 123 and supersedes APB Opinion No. 25. SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The pro forma disclosures previously permitted under SFAS 123 are no longer an alternative to financial statement recognition. NutraCea adopted SFAS 123(R) using the modified prospective method which requires the application of the accounting standard as of January 1, 2006. The consolidated financial statements as of and for the year ended December 31, 2006 reflect the impact of adopting SFAS 123(R). In accordance with the modified prospective method, the consolidated financial statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123(R). For stock-based compensation grants to consultants, we recognize as compensation expense the fair value of such grants, recognized over the related service period. Prior to 2006, we recorded stock-based compensation grants to employees based on the excess of the estimated fair value of the common stock on the measurement date over the exercise price.

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, 2007, there was one note payable outstanding which bears interest of 8% and is payable over 4 years (see Note 12 of the consolidated financial statements). 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

Report of Malone & Bailey, PC, Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2007 and 2006

Consolidated Statements of Operations for the three years ended December 31, 2007

Consolidated Statement of Comprehensive Income (Loss) for the three years ended December 31, 2007

Consolidated Statement of Changes in Shareholder Equity for the three years ended December 31, 2007

Consolidated Statements of Cash Flows for the three years ended December 31, 2007

Notes to Consolidated Financial Statements

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The financial statements and financial information required by Item 8 are set forth below on pages F-1 through F-30 of this report.

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

None.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rules  13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

In connection with the preparation of this Annual Report on Form 10-K, our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, carried out an evaluation of the effectiveness of NutraCea’s disclosure controls and procedures as of December 31, 2007. In making this evaluation, our management considered the two material weaknesses in our internal controls over financial reporting and the status of their remediation as discussed below. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2007.

Notwithstanding the existence of the material weaknesses described below, we concluded that the consolidated financial statements in this Annual Report on Form  10-K present fairly, in all material respects, NutraCea’s consolidated financial condition as of December 31, 2007 and 2006, and consolidated results of its operations and cash flows for the years ended December 31, 2007, 2006 and 2005, in conformity with U.S. generally accepted accounting principles (“GAAP”).

Management’s Report on Internal Control Over Financial Reporting

Management of NutraCea is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed under the supervision of our principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

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 our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2007 based on the criteria established in Internal Control— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

Solely as a result of the material weaknesses described below, our management concluded that as of December 31, 2007 we did not maintain effective internal control over financial reporting based on the criteria established in Internal Control— Integrated Framework, issued by COSO.

As of December 31, 2007, the following material weaknesses in our internal control over financial reporting had not been fully remedied and continued to exist:

1. Our procedures for hiring third-party financial and valuation experts are inadequate. We have a written policy relating to the hiring of third-party financial experts, however, we believe we need to revise this policy to (i) lower the transaction dollar threshold before we need to report to, and seek the approval of, our Board of Directors regarding the qualifications and hiring of financial experts and (ii) require the same approval from the Board of Directors for the engagement of valuation experts as we will require for the hiring of financial experts.

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2. We do not have adequate procedures to assure that significant and complex transactions are timely analyzed and reviewed. As a result, significant adjustments to the results of operations have been required at year-end and at the end of last three quarters of 2007 prior to filing our 10-K and 10-Qs for 2007, including adjustments relating to revenue recognition, valuation of certain receivables, classification of settlement expenses and goodwill impairment.

The effectiveness of NutraCea’s internal control over financial reporting as of December 31, 2007 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.

Remediation

NutraCea is actively engaged in the development and implementation of a remediation plan to address the material weaknesses in controls and oversight thereof as of December 31, 2007.

For the material weakness concerning retention of experts, we have developed the following remediation plan:

1.We have developed a written policy and procedures that document the processes relating to retention of expert service providers for assistance with valuations and significant financial transactions of NutraCea. Included in the process is an analysis to verify and document the extent of any past relationships with the service providers and to confirm the lack of apparent conflicts of interest. Since December 31, 2007, we have revised these procedures as follows:

· For transactions or valuations with aggregate amounts ranging from two to five percent of net equity (“Reporting Threshold”), management will report to the Board of Directors the retention and qualifications of selected experts.

· For transactions or valuations with aggregate values greater than five percent of net equity (“Approval Threshold”), management will report to the Board of Directors its recommendation for the retention of experts and seek approval to retain expert service providers.

Our expert retention policy in effect as of December 31, 2007 (i) did not apply to the engagement of experts for the purpose of providing valuation and (ii) maintained a Reporting Threshold of five to ten percent of net equity and an Approval Threshold of over ten percent.

These percentage thresholds will be monitored and revised as appropriate.

2.For the material weakness concerning performing timely, comprehensive review of financial transactions, we have developed the following remediation plan that will enhance our current policies and procedures:

· Assess and evaluate the Chief Executive Officer’s authorization thresholds to enter into agreements that has been delegated by the Board of Directors and make appropriate recommendations. Additionally, we will recommended that the Board of Directors expand its documentation requirements and receive analysis from our Chief Financial Officer and Chief Operating Officer when reviewing proposed transactions.

· Continue to enhance and improve month-end and quarter-end closing procedures by having reviewers analyze and monitor financial information in a consistent and thorough manner. We plan to continue to enhance and improve the documentation and review of required information associated with the preparation of our quarterly and annual filings.

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· Perform SAB 104 analysis of significant revenue transactions in excess of $100,000 per customer per quarter, or over $250,000 in any one year to assess if collectibility is reasonable assured and to ensure proper period revenue recognition.

· Prepare accounting memos within twenty days after the end of each quarter analyzing our allowance for doubtful accounts for all accounts receivable that exceed ten percent of our total accounts receivable.

· Prepare accounting memos to summarize all significant transactions and the accounting treatment therefore within forty days after the completion of such transactions.

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.

Item 9B. Other Information.

None.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance

The names, the ages as of March 3, 2008 and certain other information about our executive officers and directors are set forth below:

Name	Age	Position
Bradley D. Edson	48	Chief Executive Officer, President and Director
Todd C. Crow	59	Chief Financial Officer
Leo G. Gingras	50	Chief Operating Officer
Margie D. Adelman	47	Secretary and Senior Vice President
Kody Newland	51	Senior Vice President of Sales
David Bensol (1)(2)(3)	52	Director and Chairman of the Board
Wesley K. Clark	63	Director
James C. Lintzenich (1)(2)	54	Director
Edward L. McMillan (1)(3)	62	Director
Steven W. Saunders	52	Director
Kenneth L. Shropshire (2)(3)	53	Director

(1) Member of the Audit Committee.

(2) Member of the Compensation Committee.

(3) Member of the Nominating/Governance Committee

Bradley D. Edson, has served as our Chief Executive Officer and President since October 2005 and as our President and as one of our directors since December 2004. Since October 2005, Mr. Edson also serves as Chief Executive Officer of our subsidiary, The RiceX Company, and one of its directors. From February 1999 to January 2004 Mr. Edson was the Chief Executive Officer and a director of Vital Living Inc. (OTC BB: VTLV), a company that primarily developed and marketed nutraceuticals. Prior to Vital Living, Mr. Edson spent a decade developing a nationwide insurance agency focused on distribution channels for specialty products for the retail market. Prior to that, Mr. Edson was a former principal and officer of a NASD broker/dealer firm.

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

Leo G. Gingras, has served as our Chief Operating Officer since April 2007. 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.

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

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Kody K. Newland, has served as our Senior Vice President of Sales and Marketing since February 2006. From 1997 to 2006 Mr. Newland was a Vice President of Sales for American Modern Insurance Group Inc., a subsidiary of The Midland Company (Nasdaq: MLAN). 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).

David Bensol, has served as one of our directors since March 2005. Mr. Bensol currently is President of Bensol Realty Corp and a management consultant. Mr. Bensol was the former CEO of Critical Home Care, which 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.

Wesley K. Clark, was served as one of our directors since June 2007. Since March 2003 he has been the Chairman and Chief Executive Officer of Wesley K. Clark & Associates, a business services and development firm based in Little Rock, Arkansas. Mr. Clark is a Senior Fellow at UCLA’s Burkle Center for International Relations and is Chairman of the Board of Rodman & Renshaw Holding, LLC, the parent company of Rodman & Renshaw, LLC. Mr. Clark also serves as a general partner in Four Seasons Ventures, an investment fund dedicated to commercializing military technology. From March 2001 to February 2003 he was a Managing Director of the Stephens Group Inc., an emerging company development firm. From July 2000 to March 2001 he was a consultant for Stephens Group Inc. Prior to that time, Mr. Clark served as the Supreme Allied Commander of NATO and Commander-in-Chief for the United States European Command and as the Director of the Pentagon’s Strategic Plans and Policy operation. Mr. Clark retired from the United States Army as a four-star general in July 2000 after 38 years in the military and received many decorations and honors during his military career. Mr. Clark is a graduate of the United States Military Academy and studied as a Rhodes Scholar at the Magdalen College at the University of Oxford. Mr. Clark is a director of Argyle Security Acquisition Corp., Summit Global Logistics, Inc. and Enthrust Financial Services, Inc.

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

Edward L. McMillan, has served as one of our directors since October 2005. Mr. McMillan has been a director of The RiceX Company since July 2004. From January 2000 to present Mr. McMillan 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 July 2004 to October 2005, Mr. McMillan was a director of The RiceX Company. From June 1969 to December 1987 he was with Ralston Purina, Inc. and Purina Mills, Inc. where he held various senior level management positions including marketing, strategic planning, business development, product research, and business segment management. From January 1988 to March 1996, McMillan was President and CEO of Purina Mills, Inc. From August 1996 to July 1997, McMillan presented a graduate seminar at Purdue University. From August 1997 to April 1999 he was with Agri Business Group, Inc. Mr. McMillan currently serves on the boards of directors of Balchem, Inc. (AMEX:BCP); Durvet, Inc.; Newco Enterprises, Inc.; Marical, Inc.; and Hintzsche, Inc.

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

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

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Board of Directors and Audit Committee

Our board of directors is currently comprised of seven members. Our directors serve one-year terms. The board of directors has a separately-designated standing audit committee (the “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, each an independent director as defined by the listing standards of the Nasdaq Global Market relating to audit committee members. The Audit Committee met five times in 2007 and each member of the Audit Committee attended all of those meetings. The Board of Directors has determined that Mr. Lintzenich is an “Audit Committee Financial Expert”, as defined in Item 401(h) of Regulation S-K.

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, NutraCea believes that all reporting requirements under Section 16(a) for the fiscal year ended December 31, 2007 were met in a timely manner by the directors, executive officers and greater than 10% beneficial owners.

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 improving 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 evaluates 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 as measured against established goals.

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Before the establishment of our compensation committee in 2006, our board of directors established our compensation policies. Other than for Leo Gingras, who was hired in 2007, the compensation of our executive officers through 2007 was determined by our board of directors at the time we hired our executive officers.

Role of Executive Officers in Compensation Decisions

Our compensation committee makes 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. Our chief executive officer, Bradley Edson, provides input and arranges for our compensation committee to have access to our records and personnel for purposes of its deliberations. Mr. Edson reviews the performance of each executive officer (other than his own, which is reviewed by our compensation committee) and provides input and observations to our compensation committee. The conclusions reached and recommendations based on these reviews are presented to our compensation committee. 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 has 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 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 Executive Officers

The principal components of the compensation paid to our executive consists of:

· Base salary;

· Signing bonuses, paid in cash;

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

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

Base Salary

Our 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. The base salary paid to Mr. Edson in 2007 reflects his base salary under his original employment agreement. 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.

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Our Chief Financial Officer

We hired Todd C. Crow as our as our chief financial officer in October 2005 concurrent with our acquisition of RiceX. Mr. Crow had 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 reflects his base salary under his original employment agreement that we assumed.

Our Chief Operating Officer

We hired Leo Gingras in February 2007 to serve as a special assistant to our then chief operating officer, and Mr. Gingras became 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 in order to accept employment with us, 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.

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. The base salary paid to Mr. Newland in 2007 reflects his base salary under this employment agreement. 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 Secretary and Senior Vice President

We hired Margie Adelman as our senior vice president in January 2005. Our three-year employment agreement with Ms. Adelman provides for an initial annual salary of $150,000 with annual cost of living adjustments. The base salary paid to Ms. Adelman in 2007 reflects her base salary under this agreement. In determining her base salary in January 2005, our board of directors considered the base salary sought by Ms. Adelman, our weak financial position at that time, her educational background that directly related to our business, her relevant professional experience and the compensation then being paid to our executive officers.

Bonus Compensation

We have not historically paid automatic or guaranteed 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.

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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. 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, Ike Lynch, who we expected would be retiring from this position soon.

In December 2007, our compensation committee approved the payment of a holiday bonus to all employees equal to three days’ pay. Our executive officers participated in the bonus.

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 has gross sales of $25,000,000 in any year. Given his low initial base salary, Mr. Edson required that we provide him with 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.

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 executive officers, and to encourage their ownership of an equity interest in us. Through March 12, 2008, 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 have 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. In 2004, 2005, 2006 and 2007, each of Mr. Edson, Ms. Adelman, Mr. Newland and Mr. Gingras 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. Ms. Adelman’s 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 will 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 a new stock option 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 Mssrs. 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 (the “2008 Options”). Mr. Edson received an option to purchase 1,000,000 shares, Mr. Gingras received and option to purchase 350,000 shares and Todd Crow, Kody Newland and Margie 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 option grants to executives is 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. We believe that these performance targets are achievable in 2008 and 2009.

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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 are eligible to receive stock option grants under our 2005 Equity Incentive Plan, or the 2005 Plan.

Severance and Change of Control Payments

In 2007 and 2008, our board of directors and compensation committee approved severance arrangements in the amended employment agreements of Mr. Edson, Mr. Gingras and Mr. Newland and accelerated vesting provisions upon our change in control in the 2008 Options. We believe that we 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 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.”

Other Benefits

We believe 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 matching contribution under our 401(k) plan, but we do not offer retirement benefits.

Perquisites

Each of our executive officers receive 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 them 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 reimbursements of relocations costs. The most significant ongoing perquisite that our executive officers receive is an automobile allowance and other automobile expenses, including insurance costs.

Tax and Accounting Considerations

All equity-based awards have been reflected in our consolidated financial statements, based upon the applicable accounting guidance. Previously, we accounted for equity compensation paid to our employees under SFAS No. 123 and compensation was recorded for option grants based on the excess of the estimated fair value of the common stock on the vesting date over the exercise price. Effective January 1, 2006, we adopted FAS 123R using the modified prospective transition method. Under this method, stock-based compensation expense is recognized using the fair-value based method for all awards granted on or after the date of adoption of FAS 123R. FAS 123R requires us to estimate and record an expense over the service period of the stock-based award. In 2007, our compensation committee, conscious of the less favorable accounting treatment for stock options resulting from adoption of FAS 123R, took a more deliberate approach to the granting of awards of stock options.

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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.

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,” 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 2007 fiscal year were David Bensol, James Lintzenich and Kenneth L. Shropshire. All members of the Compensation Committee during 2007 were independent directors, and none of them were our employees or former employees. During 2007, 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.

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, 2007 and its proxy statement relating to our 2008 annual meeting of shareholders.

Respectfully Submitted by the Compensation Committee

David Bensol

James Lintzenich

Kenneth L. Shropshire

Summary Compensation Table

The following table sets forth information regarding compensation earned in or with respect to our fiscal year 2007 by:

· each person who served as our chief executive officer in 2007;

· each person who served as our chief financial officer in 2007; and

· 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 2007 and, at that time, were our only other executive officers.

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

Name and Principal Position	Year		Salary ($)		Bonus ($)		Option Awards ($) (1)		All Other Compensation ($)(2)(3)		Total ($)
Bradley Edson, President and Chief Executive Officer		2007		255,769		3,173		—		24,909		283,851
		2006		159,723		—		—		22,307		182,030
Todd C. Crow, Chief Financial Officer		2007		159,362		1,863		—		26,584		187,809
		2006		153,427		—		—		19,062		172,489
Leo G. Gingras, Chief Operating Officer		2007		177,479		152,538		438,550		13,051		781,618
Margie D. Adelman, Secretary and Senior Vice President		2007		157,901		1,830		—		22,352		182,083
		2006		154,504		—		—		16,324		170,828
Kody Newland, Senior Vice President of Sales		2007		152,412		1,793		182,488		18,711		336,944
		2006		121,754		—		250,228		14,545		386,526

(1)	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). The assumptions used to calculate the value of option awards are set forth in Note 17 of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for 2007.
(2)	Consists of the following amounts for 2006: (i) for Mr. Edson, an automobile allowance ($7,200), life insurance premium payments ($381), payment for unused personal time ($8,294) and a matching 401(k) contribution ($6,432); (ii) for Mr. Crow, an automobile allowance ($9,600), automobile insurance payments ($1,000), life insurance premium payments ($400), payment for unused personal time ($3,362) and a matching 401(k) contribution ($4,700); (iii) for Ms. Adelman, an automobile allowance ($7,200), life insurance premium payments ($381), payment for unused personal time ($2,522) and a matching 401(k) contribution ($6,221); and (iv) for Mr. Newland, an automobile allowance ($7,200), life insurance premium payments ($318), payment for unused personal time ($3,606) and a matching 401(k) contribution ($3,421).
(3)	Consists of the following amounts for 2007: (i) for Mr. Edson, an automobile allowance ($7,200), life insurance premium payments ($381), payment for unused personal time ($3,222) and a matching 401(k) contribution ($14,106); (ii) for Mr. Crow, an automobile allowance ($9,600), automobile insurance payments ($852), life insurance premium payments ($381), payment for unused personal time ($3,105) and a matching 401(k) contribution ($12,646); (iii) for Mr. Gingras, an automobile allowance ($6,300), life insurance premium payments ($381), payment for unused personal time ($3,966.35) and a matching 401(k) contribution ($2,403.64); (iv) for Ms. Adelman, an automobile allowance ($7,200), life insurance premium payments ($381), payment for unused personal time ($3,813) and a matching 401(k) contribution ($10,958); and (v) for Mr. Newland, an automobile allowance ($7,200), life insurance premium payments ($381), payment for unused personal time ($2,988) and a matching 401(k) contribution ($8,142).

2007 Grants Of Plan-Based Awards

Set forth in the table below is information regarding a stock option award granted to a named executive officer in 2007. This stock option grant represents all of the grants of awards to our named executive officers under any plan during or with respect to 2007.

Name	Grant Date		All Other Option Awards: # of Shares Underlying Options		Exercise Price of Options ($/Sh)		Close Price on Grant Date ($/Sh)		Grant Date Fair Value of Option Awards
Leo G. Gingras		2/08/2007		250,000	$	2.63	$	2.63	$	438,560

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The fair market value that is used to determine the exercise price for option grants is the closing price of NutraCea’s stock on the last market trading day prior to the grant date as reported on the OTC Bulletin Board.  The stock option granted to Mr. Gingras during 2007 expires on February 8, 2017, and the shares subject to the option vest as to 1/36^th of the shares at the end of each successive calendar month in which Mr. Gingras remains a service provider for us. The grant date fair value of the option awards is calculated using the Black-Scholes valuation model using the following assumptions:

Assumption	Rate
Average risk free interest rate		4.75	%
Average expected term (years)		6.2
Average expected volatility		6.9	%

Outstanding Equity Awards As Of December 31, 2007

The following table provides information as of December 31, 2007 regarding unexercised stock options held by each of our named executive officers.

	Outstanding Equity Awards at 12/31/07
Name	# of Securities Underlying Unexercised Options (# Exercisable)		# of Securities Underlying Unexercised Options (# Un-exercisable)		Option Exercise Price ($/sh)		Option Expiration Date
Bradley Edson		6,000,000		—	$	0.30		12/16/2014
Todd C. Crow(1)		46,079		—		0.30		10/04/2008
		38,399		—		0.30		10/04/2008
		691,191		—		0.30		10/31/2009
		76,799		—		0.30		2/22/2011
		38,399		—		0.30		2/22/2011
		38,399		—		0.30		1/28/2012
		95,998		—		0.30		1/02/2012
		507,807		29,871		0.30		3/31/2015
Leo G. Gingras(2)		76,389		173,602		2.63		2/08/2017
Margie Adelman(3)		1,000,000		—		0.30		1/24/2015
		—		1,000,000		0.30		1/24/2015
Kody Newland(4)		450,000		50,000		1.00		12/31/2015

(1) For the option expiring on March 31, 2015, one half of the shares subject to the option vested upon grant and 1/36^th of the remaining shares vest monthly over three years.

(2) For the option expiring on February 8, 2017, 1/36^th of the shares subject to the option vest monthly over three years.

(3) The un-exercisable option vests as to all 1,000,000 shares if we achieve while Ms. Adelman is employed with us, annual gross sales of at least $25,000,000 and a positive EBITDA, disregarding noncash charges, over the same period.

(4) 100,000 of the shares subject to the option vested upon grant and 50,000 shares vest each calendar quarter thereafter over two years.

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2007 Option Exercises and Stock Vested

In 2007, none of our named executive officers exercised any stock options or similar awards we granted to them, nor did any stock or similar award granted by us to any of our named executive officers vest.

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.

Executive Employment Agreements

Brad Edson

On December 17, 2004, we entered into an employment agreement with our current 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 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 be entitled to an annual incentive bonus based upon performance (“Edson Incentive Bonus”) and to be provided a car allowance of $600 per month. The incentive bonus is payable annually within 10 days of the completion of our annual independent audit. The bonus is one percent of our “Gross Sales over $25,000,000,” but only if we report a positive EBITDA for the period. The bonus amount 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.

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. This option will vest as follows so long as Mr. Edson is employed by us on each vesting date: (1) ¼ 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) ¼ 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) ¼ 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) ¼ 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.

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.”

Todd C. Crow

In September 2005, we entered into a first amendment to employment agreement with Todd C. Crow, pursuant to which we assumed the employment agreement between Mr. Crow and The RiceX Company. The employment agreement, as amended, provides that Mr. Crow will serve asChief Financial Officer of NutraCea and the RiceX Company. Mr. Crow’s employment agreement, as amended, provides that Mr. Crow will receive an annual base salary of $150,000, which salary will be reviewed annually and be adjusted to compensate for cost of living adjustments in the Sacramento metropolitan area. The agreement terminates on October 4, 2008. The term will be automatically extended for an additional one-year term unless either party delivers notice of election not to extend the employment at least 90 days prior to the expiration of the initial term. On January 8, 2008, we issued to Mr. Crow an option to purchase 100,000 shares of our common stock at an exercise price per share of $1.49. This option will vest as follows so long as Mr. Crow is employed by us on each vesting date: (1) 1/2 of the option shares vest on December 31, 2008 so long as we achieve for 2008 gross revenue that equal or exceed 85% of gross revenue budgeted for 2008, (2) 1/2 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.

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

Leo Gingras

On February 8, 2007, we entered into an employment agreement with Leo Gingras, our current Chief Operating Officer. Leo 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 that vested monthly as to 1/36^th of the underlying shares over three years.

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. This option will vest as follows so long as Mr. Newland is employed by us on each vesting date: (1) ¼ 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) ¼ 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) ¼ 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) ¼ of the option shares vest on December 31, 2009 so long as we achieve for 2008 net income that equals or exceeds 85% of net income budgeted for 2008.

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 adjustments in the Sacramento metropolitan area. The term of agreement may be extended by mutual agreement of the parties on a month to month basis. The agreement provides 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 includes 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 of one dollar per share.

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. This option will vest as follows so long as Mr. Newland is employed by us on each vesting date: (1) ¼ 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) ¼ 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) ¼ 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) ¼ of the option shares vest on December 31, 2008 so long as we achieve for 2009 net income that equals or exceeds 85% of net income budgeted for 2009.

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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.”

Margie D. Adelman

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 for the balance of the term of her agreement. On January 8, 2008, we issued to Ms. Adelman an option to purchase 100,000 shares of our common stock at an exercise price per share of $1.49. This options will vest as follows so long as Ms. Adelman is employed by us on each vesting date: (1) 1/2 of the option shares vest on December 31, 2008 so long as we achieve for 2008 gross revenue that equal or exceed 85% of gross revenue budgeted for 2008, (2) 1/2 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.

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

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.

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 changer of control and in the event of disability or death of the executive is discussed below.

Bradley Edson

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;

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· 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.

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.

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Todd Crow

Termination Without Cause. In the event Mr. Crow is terminated without “cause,” Mr. Crow is entitled to:

· the greater of (i) Mr. Crow’s monthly base salary times the number of months remaining on the terms of the agreement or (ii) one year of Mr. Crow’s base salary.

“Cause” is defined as (i) Mr. Crow’s willful and continued failure substantially to perform his duties and obligations under the agreement after written demand for substantial performance has been delivered to him by us which sets forth with reasonable specificity the deficiencies in Mr. Crow’s performance and giving Mr. Crow at least thirty (30) days to correct such deficiencies, (ii) Mr. Crow committing fraud or making intentionally material misrepresentations, (iii) Mr. Crow’s unauthorized disclosure or use of our trade secrets or confidential information, (iv) Mr. Crow’s conviction of a felony, (v) theft or conversion of our property by Mr. Crow, or (vi) Mr. Crow’s habitual misuse of alcohol, illegal narcotics, or other intoxicant.

Termination in Connection with a Change in Control. In the event Mr. Crow is terminated as a result of a “change in control” and Mr. Crow is not employed in the same capacity or being paid the same base salary by the successor entity, Mr. Crow is entitled to:

· the greater of (i) two years of base salary or (ii) the base salary remaining to be paid through the term of the agreement;

· continued medical and dental benefits for two years after the change of control; and

· immediate vesting of any unvested shares under his option to purchase 537,678 shares.

“Change in control” is defined as (i) a merger or acquisition in which we are not the surviving entity, except for (a) a transaction the principal purpose of which is to change the state of our incorporation, or (b) a transaction in which our shareholders immediately before such transaction hold, immediately after such transaction, at least 50% of the voting power of the surviving entity; (ii) a shareholder approved sale, transfer or other disposition of all or substantially all of our assets; (iii) a transfer of all or substantially all of our assets pursuant to a partnership or joint venture agreement or similar arrangement where our resulting interest is less than fifty percent (50%); (iv) any reverse merger in which we are the surviving entity but in which fifty percent (50%) or more of our outstanding voting stock is transferred to holders different from those who held the stock immediately before such merger; (v) a change in ownership of our stock through an action or series of transactions, such that any person is or becomes the beneficial owner, directly or indirectly, of our stock representing fifty percent (50%) or more of the voting power of our outstanding stock; or (vi) a majority of the members of our board of directors are replaced during any twelve (12) month period by directors whose appointment or election is not endorsed by a majority of the members of our board of directors before the date of such appointment of election.

Change of Control Benefit (Option for 100,000 shares). In the event of a “change of control”, Mr. Crow’s stock option to purchase 100,000 shares of our common stock, which was granted to him on January 8, 2008, 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.

Leo Gingras

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.

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“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.

Under this option to purchase 250,000 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.

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.

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“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.

Margie Adelman

Termination Without Cause. In the event Ms. Adelman is terminated by us without “cause,” Ms. Adelman is entitled to:

· an amount equal to 12 months of her then base salary, to be paid immediately following termination.

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

Disability. In the event the agreement is terminated by reason of Ms. Adelman’s “disability,” Ms. Adelman is entitled to:

· twelve months of his base salary payable in a lump sum; and

· continued benefits for six months following termination.

Under the agreement, Ms. Adelman is considered “disabled” if she is incapable of substantially fulfilling her duties because of physical, mental or emotional incapacity from injury, sickness or disease for a period of three (3) months in a twelve month period.

Change of Control Benefit (Option for 100,000 Shares). In the event of a “change of control”, Ms. Adelman’s stock option to purchase 100,000 shares of our common stock, which was granted to her on January 8, 2008, 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.

Quantified Benefits

The following tables indicate the potential payments and benefits to which our named executive officers will 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, 2007; and (ii) salaries were paid through December 31, 2007.

Voluntary Termination, Involuntary For Cause Termination

If on December 31, 2007 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.

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Termination Because of Death or Disability

Name	Salary			Bonus		Stock Options		Benefits			Total Benefits
Bradley Edson	$	137,500	(1)		—		—		—		$	137,500
Todd C. Crow		—			—		—		—			—
Leo Gingras		—			—		—		—			—
Kody Newland		—			—		—		—			—
Margie Adelman(2)	$	161,460	(3)		—		—	$	5,511	(4)	$	166,971

(1) Represents six months of base salary.

(2) Ms. Adelman’s benefits described above are payable in the event of disability, but not death.

(3) Represents twelve months of base salary.

(4) Represents six months of health and dental insurance premiums.

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

Name	Salary			Bonus		Stock Options			Benefits			Total Benefits
Bradley Edson	$	255,769	(1)		—		—			—		$	255,769
Todd C. Crow	$	322,920	(2)		—	$	32,858	(3)	$	21,643	(4)	$	377,421
Leo Gingras		—			—		—			—	(5)		—
Kody Newland		—			—		—			—			—
Margie Adelman		—			—		—			—			—

(1) Represents an amount equal to the salary paid to Mr. Edson in 2007. Mr. Edson’s employment agreement was amended on January 8, 2008 to extend the term of his employment through December 31, 2010. If the amended employment agreement were in effect on December 31, 2007 and Mr. Edson was terminated on December 31, 2007 without cause, he would have been entitled to receive an immediate payment of all base salary under the remaining three years of the term ($825,000) instead of an amount equal to the remaining eleven months of base salary shown above.

(2) Represents two years of base salary.

(3) Represents six months of health and dental insurance premiums.

(4) Represents the benefit that Mr. Crow would have received from the vesting of the 29,871 unvested shares underlying his option to purchase 537,678 shares. The benefit to Mr. Crow for the accelerated vesting of his stock option was calculated by multiplying the 29,871 unvested shares by the difference between the closing price of our common stock on December 31, 2007 ($1.40) and the per share exercise price of the stock option ($0.30).

(5) Mr. Gingras’ option to purchase 250,000 shares vests as to all unvested shares if Mr. Gingras is terminated following a change of control other than for cause, disability or death. The benefit that Mr. Gingras would have received upon the vesting of these option shares is not included above because the exercise price of his option exceeds the closing price of our common stock on December 31, 2007.

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Voluntary Termination for Good Reason

Name	Salary			Bonus		Stock Options		Benefits		Total Benefits
Bradley Edson	$	255,769	(1)		—		—		—	$	255,769
Todd C. Crow		—			—		—		—		—
Leo Gingras		—			—		—		—		—
Kody Newland		—			—		—		—		—
Margie Adelman		—			—		—		—		—

(1) Represents an amount equal to the salary paid to Mr. Edson in 2007. Mr. Edson’s employment agreement was amended on January 8, 2008 to extend the term of his employment through December 31, 2010. If the amended employment agreement were in effect on December 31, 2007 and Mr. Edson was terminated on December 31, 2007 without cause, he would have been entitled to receive an immediate payment of all base salary under the remaining three years of the term ($825,000) instead of an amount equal to the remaining eleven months of base salary shown above.

Involuntary Not For Cause Termination

Name	Salary			Bonus		Stock Options		Benefits		Total Benefits
Bradley Edson	$	255,769	(1)		—		—		—	$	255,769
Todd C. Crow	$	161,460	(3)		—		—		—	$	161,460
Leo Gingras	$	220,000	(3)		—		—		—	$	220,000
Kody Newland	$	25,900	(4)		—		—		—	$	29,900
Margie Adelman	$	161,460	(3)		—		—		—	$	161,460

(1) Represents an amount equal to the salary paid to Mr. Edson in 2007. Mr. Edson’s employment agreement was amended on January 8, 2008 to extend the term of his employment through December 31, 2010. If the amended employment agreement were in effect on December 31, 2007 and Mr. Edson was terminated on December 31, 2007 without cause, he would have been entitled to receive an immediate payment of all base salary under the remaining three years of the term ($825,000) instead of an amount equal to the remaining eleven months of base salary shown above.

(2) Assumes our gross revenue for 2008 will be the same is it was in 2007.

(3) Represents one year of base salary.

(4) Represents the remaining two months of salary under Mr. Newland’s employment agreement as of December 31, 2007. Mr. Newland’s employment agreement was amended on January 8, 2008 to extend the term of his employment by two years. If the amended employment agreement were in effect on December 31, 2007 and Mr. Newland was terminated on December 31, 2007 without cause, he would have been entitled to receive an immediate payment of twelve months base salary ($155,400) instead of two months salary as shown above.

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Change of Control Not Involving a Termination

Name	Salary		Bonus		Stock Options			Benefits		Total Benefits
Bradley Edson		—		—		—	(1)		—		—
Todd C. Crow		—		—		—	(1)		—		—
Leo Gingras		—		—		—	(1)		—		—
Kody Newland		—		—	$	20,000	(2)		—	$	20,000
Margie Adelman		—		—		—	(1)		—		—

(1) Mssrs. Edson, Crow, Gingras, and Newland and Ms. Adelman were granted options to purchase 1,000,000, 100,000, 350,000, 100,000 and 100,000 shares of common stock, respectively, on January 8, 2008. Each of these options vest as to all unvested shares upon a change of control. As these options were granted after December 31, 2007, the change of control benefits that they would have received with respect to these options is not included in the table.

(2) Represents the benefit that Mr. Newland would have received from the vesting of the 25,000 unvested shares underlying his option to purchase 500,000 shares. The benefit to Mr. Newland for the accelerated vesting of his stock option was calculated by multiplying the 25,000 unvested shares by the difference between the closing price of our common stock on December 31, 2007 ($1.40) and the per share exercise price of the stock option ($1.00).

Director Compensation

Before May 2007, non-employee directors received the following amounts:

· $12,000 annual cash retainer;

· $1,000 for each board meeting attended in person;

· $500 for each telephonic board meeting attended;

· $2,000 annual cash retainer for serving on the audit committee or the compensation committee;

· $4,000 annual cash retainer for the chairman of the board of directors;

· $1,000 annual cash retainer for serving as a committee chairman; and

· an option to purchase 35,000 shares of common stock each year pursuant to our 2005 Equity Incentive Plan.

Beginning in May 2008, the consideration payable to our non-employee directors changed to the following:

· $40,000 annual cash retainer;

· $2,000 for each board meeting attended in person;

· $1,000 for each telephonic board meeting attended;

· $4,000 annual cash retainer for serving on the audit committee;

· $2,000 annual cash retainer for serving on the compensation committee or the nominating and corporate governance committee;

· $25,000 annual cash retainer for the chairman of the board of directors;

· $6,000 annual cash retainer for serving as chairman of the audit committee;

· $5,000 annual cash retainer for serving as chairman of the compensation committee or the nominating and corporate governance committee; and

· an option to purchase 35,000 shares of common stock each year pursuant to our 2005 Equity Incentive Plan.

Directors are reimbursed for reasonable expenses incurred in attending meetings of the Board and Board committees. In addition, directors are eligible to receive common stock and common stock options under our 2005 Equity Incentive Plan. In January 2008, each non-employee director was granted an option to purchase 100,000 shares of common stock at an exercise price per share of $1.49.

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Director Compensation Table

The following Director Compensation Table sets forth summary information concerning the compensation paid to our non-executive officer directors in 2007 for services to our company.

Name	Fees Earned or Paid in Cash ($)			Option Awards ($)(1)(2)(3)			All Other Compensation ($)			Total ($)
David Bensol		82,833			35,000			—			82,833
Eliot Drell		4,258			—	(4)		—			4,258
Wesley K. Clark		43,000			35,000			—			43,000
James C. Lintzenich		67,667			35,000			—			67,667
Edward L. McMillan		62,833			35,000			—			62,833
Patricia McPeak		—	(5)		—	(5)		229,227	(6)		229,227
Steven W. Saunders		56,500			35,000			—			56,500
Kenneth L Shropshire		65,167			35,000			—			65,167
Total		611,104			175,000			381			611,485

(1)	Amounts shown do not reflect compensation actually received by the directors. Instead, the amounts shown are the compensation costs recognized by NutraCea in 2007 for option awards as determined pursuant to Statement of Financial Accounting Standards No. 123(R), or FAS 123R. The assumptions used to calculate the value of option awards are set forth in Note 17 of the Notes to Consolidated Financial Statements contained in our Annual Report on Form 10-K for 2007.
(2)	The compensation cost recognized by NutraCea in fiscal 2007 for each stock option grant is based on the following fair values as of the grant date: $89,066 for a stock option grant to each non-employee director other than Mr. Clark to purchase 35,000 shares of common stock made on June 19, 2007 at an exercise price of $3.83 per share, and $86,629 for a stock option grant to Mr. Clark to purchase 35,000 shares of common stock made on May 1, 2007 at an exercise price of $3.76 per share.
(3)	At the end of 2007, Mr. Bensol, Mr. Clark, Mr. Drell, Mr. Lintzenich, Mr. McMillan, Ms. McPeak, Mr. Saunders and Mr. Shropshire held options to purchase an aggregate of 70,000 shares, 35,000 shares, 35,000 shares, 70,000 shares, 70,000 shares, 0 shares, 70,000 shares and 70,000 shares, respectively, as compensation for serving as NutraCea’s directors. Also, at the end of 2007, Mr. Bensol, Mr. Clark, Mr. Drell, Mr. Lintzenich, Mr. McMillan, Ms. McPeak, Mr. Saunders and Mr. Shropshire held an aggregate 0 shares, 0 shares, 35,000 shares, 0 shares, 0 shares, 35,000 shares, 0 shares and 0 shares, respectively, of common stock received as compensation for serving as directors.
(4)	Mr. Drell ceased being a director on March 8, 2007.
(5)	Ms. McPeak ceased being a director on June 19, 2007. Ms. McPeak did not receive a stock option grant and was not paid for her services as a director because she was an employee of NutraCea at the time she was a director. This amount does include $1,029,000 paid to Ms. McPeak in November, 2007 reached as part of a separation agreement (see Note 18 to the Consolidated Financial Statements)
(6)	Reflects compensation received by Ms. McPeak for serving as an employee of NutraCea. Compensation consists of the following: $228,846 as salary and $381 for payment of life insurance premiums.

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 February 27, 2008, 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.

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The table is based on information provided to us or filed with the Securities and Exchange Commission (“SEC”) by our directors, executive officers and principal shareholders. Beneficial ownership is determined in accordance with the rules of the SEC, and includes voting and investment power with respect to shares. Shares of common stock issuable upon exercise of options and warrants that are currently exercisable or are exercisable within 60 days after February 27, 2008, 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 40^th Street, Fourth Floor, Phoenix, Arizona 85018.

	Shares of Common Stock Beneficially Owned
Name and Address of Beneficial Owner	Number (1)		Percentage (1)
Patricia McPeak (2)		13,040,249		8.61	%
Bradley D. Edson (3)		6,181,000		4.08	%
James C. Lintzenich (4)		2,983,436		2.03	%
Todd C. Crow (5)		1,572,642		1.07	%
Margie D. Adelman (6)		1,072,207		*
Steven W. Saunders (7)		1,404,411		*
Kody Newland (8)		526,700		*
Leo G. Gingras(9)		107,167		*
Edward L. McMillan (10)		271,754		*
David Bensol (11)		145,417		*
Kenneth L. Shropshire (12)		100,417		*
Wesley K. Clark (13)		65,417		*
All directors and executive officers as a group (11 persons) (14)		14,420,568		9.17	%

* less than 1%

(1)	Applicable percentage of ownership is based on 145,418,965 shares of our common stock outstanding as of February 27, 2008, together with applicable options and warrants for such shareholder exercisable within 60 days of February 27, 2008.
(2)	Includes 2,002,882 shares issuable upon exercise of options held by reporting person. Also includes 153,598 common shares held by a trust controlled by the reporting person.
(3)	Includes 6,000,000 shares issuable upon exercise of options.
(4)	Includes 1,587,025 shares issuable upon exercise of a warrants and options.
(5)	Includes 1,562,942 shares issuable upon exercise of options and warrants.
(6)	Includes 2,500 shares issuable upon exercise of options held by Adelman Global of which the filing person is the owner. Also includes 1,000,000 shares issuable upon exercise of options held by the reporting person.
(7)	Includes 607,609 shares issuable upon exercise of options or warrants.
(8)	Includes 500,000 shares issuable upon exercise of options.
(9)	Includes 104,167 shares issuable upon exercise of options.
(10)	Includes 177,215 shares issuable upon exercise of options held by the reporting person. Also includes 76,799 shares issuable upon exercise of warrants jointly held by the reporting person and his spouse. Also includes 17,740 shares of common stock held by reporting person and his spouse.
(11)	Includes 100,417 shares issuable upon exercise of options.
(12)	Includes 100,417 shares issuable upon exercise of options.
(13)	Includes 65,417 shares issuable upon exercise of options.
(14)	Includes an aggregate of 11,884,508 shares issuable upon exercise of options and warrants.

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Equity Compensation Plan Information

The following table sets forth, as of December 31, 2007, information with respect to our 2003 Stock Plan and 2005 Equity Incentive Plan, and with respect to certain other options and warrants, as follows:

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column a)
	(a)		(b)		(c)
Equity compensation plans approved by shareholders		210,000	$	3.82		9,790,000	(1)
Equity compensation plans not approved by shareholders		20,573,502	$	1.10		33,792	(2)
Total		20,783,502	$	1.11		9,823,792

(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, 2007 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.

Our board of directors adopted our 2005 Equity Incentive Plan, or 2005 Plan, in May 2005 and our shareholders approved the 2005 Plan in September 2005. 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, 2007, no shares were issued under the 2005 Plan, 210,000 shares underlie outstanding stock option granted pursuant to the 2005 Plan and 9,790,000 shares were available for future grants under the 2005Plan. 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.

As of December 31, 2007, options and warrants to purchase a total of 39,481,749 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 $0.20 to $10.00. Of these options to purchase 20,573,502 shares, as of December 31, 2007 options to purchase a total of 9,312,942 shares are held by our current officers (See table titled “Outstanding Equity Awards As Of December 31, 2007” in Item 11 of this Form 10-K) and options to purchase a total of 1,184,187 shares of common stock held by our current non-employee directors (for directors Bensol, Clark, Lintzenich, McMillan, Saunders and Shropshire, options to purchase 70,000, 35,000, 185,197, 146,798, 677,192 and 70,000 shares, respectively). Of the options to purchase 1,184,197 shares held by our non-employee directors, options to purchase a total of 799,197 shares held by directors Lintzenich, McMillan and Saunders were assumed by us when we acquired The RiceX Company in October 2005.

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Item 13. Certain Relationships and Related Transactions and Director Independence

Review, Approval or Ratification of Transactions with Related Parties

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 of the below transactions discussed below under “Related Party Transactions” has been reviewed and approved by our Audit Committee.

Related Party Transactions

During 2007, we believe that there has not been 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, other than compensation described above in “Executive Compensation,” and as set forth below.

· In April 2005, ITV Global, a direct response marketing company, agreed to pay Patricia McPeak, our former Chief Executive Officer and one of our directors, a royalty per unit of our products sold through infomercials that demonstrate certain of our products. Pursuant to this agreement, Ms. McPeak should have earned approximately $311,000 in 2007 from ITV Global. These payments are not the obligations of NutraCea.

· On November 7, 2007, we entered into an agreement with Patricia McPeak, our founder and former Chairman and CEO, concerning our business relationship. Pursuant to the agreement, in consideration for a payment of $1 million, we acquired certain inventions and intellectual property rights from Ms. McPeak and acquired a right of first refusal to license, manufacture and/or sell products that Ms. McPeak may formulate in the future for the retail market and for feeding programs, subject to certain exceptions and agreement on license terms. In addition Ms. McPeak agreed to assign to us her interest as a co-inventor in certain patent applications. The agreement also terminates her employment agreement with us and contains a number of other customary provisions relating to termination of employment, and also includes a general mutual release of all claims concerning any past events or conduct. The agreement also grants Ms. McPeak the non-exclusive right to sell stabilized rice bran products formulated from NutraCea ingredients in Central and South America, and via websites owned or controlled by Ms. McPeak. Additionally, we transferred to her the vehicle we purchased for her in 2004 for $73,000 as part of the separation agreement (see Note 18 to the Consolidated Financial Statements).

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 and has no relationship with NutraCea, except as a director and/or shareholder of NutraCea: David Bensol, Wesley Clark, Jim Lintzenich, Ed McMillan and Kenneth Shropshire.

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Item 14. Principal Accountant Fees and Services

Our independent public accountant for the last two completed fiscal years ended December 31, 2007 and 2006, was Perry-Smith LLP (“Perry-Smith”). The Audit Committee of our board of directors has not yet selected its principle independent registered public accounting firm to perform the audit of our financial statements for 2008. The Audit Committee anticipates the selection will occur at its next scheduled meeting on June 4, 2008.

The following table presents fees for professional services rendered by Perry-Smith to us for the audit of our annual financial statements for the years ended December 31, 2007 and 2006, and fees billed for audit-related services, tax services and all other services rendered to us by Perry-Smith for 2006 and 2007. The table also presents fees for professional services rendered by Malone & Bailey, PC (“Malone”), our former independent public accountant, for fees billed for audit and audit-related services, tax services and all other services rendered to NutraCea by Malone for the portion of 2006 during which Malone served as our independent auditors.

Fees	2007		2006
Audit Fees	$	313,000	$	150,000
Tax Fees	$	60,000	$	18,000
All Other Fees		—		—
Total	$	373,000	$	150,000

Audit fees. Audit fees relate to services related to the audit of our financial statements and review of financial statements included in our quarterly reports on Form 10-Q, including review of registration statements filed with the SEC.

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 2007 and 2006.

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 2006 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.

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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	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.
3.05.1(11)	Bylaws of NutraCea.
3.05.2(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

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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(14)±	Private Label Supply Agreement and Strategic Alliance between NutraCea and ITV Global.
10.08(15)±	W.F. Young Distribution Agreement.

10.10(5)±	Production Facility Development and Rice Bran Supply and Purchase Agreement dated September 13, 2005 between NutraCea and Food Trading Company Dominicana, S.A.
10.11(5)±	Assignment dated April 12, 2005 from W.F. Young, Inc. to NutraCea
10.12(5)±	Distribution Agreement dated April 12, 2005 between W.F. Young, Inc. and NutraCea
10.13(5)	Manufacturing Agreement dated April 12, 2005 between W.F. Young, Inc. and NutraCea
10.14(7)±	Limited Liability Company Agreement for Grain Enhancements, LLC
10.15+	Amendment of Limited Liability Company Agreement for Grain Enhancements, LLC
10.16(7)±	Supply Agreement
10.17(7)±	License and Distribution Agreement
10.18+	Amendment of License and Distribution Agreement
10.19(7)±	Equipment Lease Agreement
10.20(7)	Form of non-statutory Stock Option Agreement between the Company and the non-employee members of the Board of Directors dated May 1, 2007
10.21(16)	Form of Senior Secured Convertible Note of Vital Living, Inc.
10.22(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.
10.23(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.
10.24(18)	Letter dated September 10, 2007, from Vital Living, Inc. to NutraCea.

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10.25	Stock Purchase Agreement, dated January 24, 2008, between Fortune Finance Overseas Ltd., and Medan, LLC
10.26+	Wheat Bran Stabilization Equipment Lease, dated January 24, 2008, between NutraCea and PT Panganmas Inti Nusantara
10.27(15)	Executive Employment Agreement between NutraCea and Bradley D. Edson.

10.28	First Amendment to Employment Agreement between NutraCea and Bradley D. Edson.
10.29(5)	Executive Employment Agreement between The RiceX Company and Todd C. Crow.
10.30(5)	Amendment No. 1 to Employment Agreement between NutraCea, Todd C. Crow and The RiceX Company.
10.31*	Employment Agreement between NutraCea and Leo Gingras.
10.32(19)*	Executive Employment Agreement between NutraCea and Kody Newland.
10.33*	First Amendment to Employment Agreement between NutraCea and Kody Newland.
10.34(15)*	Executive Employment Agreement between NutraCea and Margie D. Adelman.
10.35(20)*	NutraCea 2003 Stock Compensation Plan
10.36(5)*	NutraCea 2005 Equity Incentive Plan
10.37	Intentionally Omitted
10.38	Intentionally Omitted
10.39	Intentionally Omitted
10.40*	Stock Option Agreement dated February 8, 2007 between NutraCea and Leo Gingras.
10.41	Intentionally Omitted
10.42	Intentionally Omitted
10.43	Intentionally Omitted
10.44(14)	Warrant Agreement between NutraCea and Steven Saunders dated February 27, 2006.
10.45(21)	Form of non-statutory Stock Option Agreement between NutraCea and the non-employee members of the Board of Directors dated May 23, 2006.
10.46(22)*	The RiceX Company 1997 Stock Option Plan.
10.47(23)	Form of Directors Stock Option Agreement for The RiceX Company.
10.48(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.

66

10.49(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.
10.50(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.
10.51(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.
10.52(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.
10.53(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.
10.54(27)	Form of Non-statutory Stock Option Agreement issued July 1, 2004 between The RiceX Company and Edward McMillan.
10.55(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.
10.56(29)	Form of Non-statutory Stock Option Agreement issued under the 1997 Stock Option Plan between The RiceX Company and certain non-employee RiceX Directors dated March 31, 2005.
10.57(29)*	Form of Non-statutory Stock Option Agreement issued under the 1997 Stock Option Plan between The RiceX Company and certain employees of RiceX dated March 31, 2005.
10.58(5)*	Form of Option Assumption Agreement between NutraCea and Option Holders relating to assumed Options granted under The RiceX Company 1997 Stock Option Plan.
10.59(5)*	Form of Option Assumption Agreement between NutraCea and Option Holders relating to assumed non-plan RiceX Options.
10.60(5)	Form of Option Assumption Agreement between NutraCea and former Directors of The RiceX Company.
10.61(5)	Form of Resale Restriction Agreement entered into between NutraCea and each of Todd C. Crow and Ike E. Lynch.
10.62(5)	Form of Resale Restriction Agreement entered into between NutraCea and each of James Lintzenich, Edward McMillan and Steven Saunders.
10.63(5)	Form of Resale Restriction Agreement entered into between NutraCea and each of Bradley Edson, Patricia McPeak, Margie Adelman, Eliot Drell and David Bensol.
21.01	List of subsidiaries.
23.1	Consent of Malone & Bailey, PC, Independent Registered Public Accounting Firm.
23.2	Consent of Perry-Smith LLP, Independent Registered Public Accounting Firm.
24.1	Power of Attorney (See signature page).

67

31.1	Certification by CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	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.
32.2	Certification by CFO 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.

(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.

68

(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.

69

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: March 17, 2008	By:	/s/ Bradley D. Edson
		Bradley D. Edson,
		Chief Executive Officer

Power of Attorney

Each person whose signature appears below constitutes and appoints each of Bradley D. Edson and Todd C. Crow, true and lawful attorney-in-fact, with the power of substitution, for him 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/ Bradley D. Edson	President, Chief Executive Officer	March 17, 2008
Bradley D. Edson	and Director
Principal Financial Officer and Principal Accounting Officer:
/s/ Todd C. Crow	Chief Financial Officer	March 17, 2008
Todd C. Crow
Additional Directors:
/s/ David Bensol	Director	March 17, 2008
David Bensol
/s/ Wesley Clark	Director	March 17, 2008
Wesley Clark
/s/ James C. Lintzenich	Director	March 17, 2008
James C. Lintzenich
/s/ Edward L. McMillan	Director	March 17, 2008
Edward L. McMillan
/s/ Steven W. Saunders	Director	March 17, 2008
Steven W. Saunders
/s/ Kenneth L. Shropshire	Director	March 17, 2008
Kenneth L. Shropshire

70

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
REPORT OF MALONE & BAILEY, PC, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM		F-4
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 2007 and December 31, 2006		F-5
Consolidated Statements of Operations for the three years ended December 31, 2007		F-6
Consolidated Statement of Comprehensive Income (Loss) for the three years ended December 31, 2007		F-7
Consolidated Statement of Changes in Shareholder Equity for the three years ended December 31, 2007		F-8
Consolidated Statements of Cash Flows for the three years ended December 31, 2007		F-10
Notes to Consolidated Financial Statements		F-11

71

REPORT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

Board of Directors

NutraCea and subsidiaries

Phoenix, Arizona

We have audited the accompanying consolidated balance sheet of NutraCea and subsidiaries (the “Company”) as of December 31, 2007 and 2006, and the related consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2007 and 2006, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

We have also 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, 2007, based on “criteria established inInternal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Our report dated March 17, 2008 expressed an opinion that the company had not maintained effective internal control over financial reporting as of December 31, 2007, base on “criteria established in Internal Control-Integrated Framework issued by the committee of Sponsoring Organizations of the Treadway commission (COS)”.

/s/ Perry-Smith LLP

Perry-Smith LLP

Sacramento, California

March 17, 2008

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The Shareholders and Board of Directors

NutraCea, Inc. and Subsidiaries

Phoenix, Arizona

We have audited NutraCea and subsidiaries (the "Company") internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). 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. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of 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, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included erforming 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 (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) 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 (3) 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.

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. Policies were inadequate related to the retention of financial experts providing assistance in financial transactions. Additionally, the Company did not perform timely, comprehensive reviews of financial transactions, the collectibility of accounts receivable or the potential impairment of goodwill. These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2007 financial statements, and this report does not affect our report dated March 17, 2008.

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, 2007, based on “criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).”

/s/ Perry-Smith LLP

Perry-Smith LLP

Sacramento, California

March 17, 2008

F-2

REPORT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

Board of Directors

NutraCea and subsidiaries

El Dorado Hills, California

We have audited the accompanying consolidated statement of operations, comprehensive loss, changes in shareholders’ equity, and cash flows for year ended December 31, 2005. These financial statements are the responsibility of NutraCea’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of NutraCea as of December 31, 2005, and the results of its operations and its cash flows for the one year then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ Malone & Bailey, PC

MALONE & BAILEY, PC

www.malone-bailey.com

Houston, Texas

March 15, 2006

F-3

NUTRACEA AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	As of December 31,
	2007			2006
ASSETS
Current assets:
Cash and cash equivalents	$	41,298,000		$	14,867,000
Restricted cash		758,000			-
Marketable securities		-			368,000
Trade accounts receivables, net of allowance for doubtful
accounts of $2,999,000 and $20,000, respectively		2,346,000			7,093,000
Inventories		1,808,000			796,000
Notes receivable, current portion, net of allowance for doubtful
notes receivable of $250,000 and $0, respectively		2,936,000			1,694,000
Deposits and other current assets		2,545,000			1,383,000
Total current assets		51,691,000			26,201,000
Restricted cash		1,791,000			-
Notes receivable, net of current portion		5,039,000			682,000
Property and equipment, net of accumulated depreciation		19,328,000			8,961,000
Investment in joint venture		1,191,000			-
Patents and trademarks, net of accumulated amortization		5,743,000			5,097,000
Goodwill		39,510,000			32,314,000
Total assets	$	124,293,000		$	73,255,000
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	7,506,000		$	2,778,000
Deferred revenue		90,000			103,000
Note payable, current portion		23,000			-
Total current liabilities		7,619,000			2,881,000
Long-term liabilities:
Notes payable, net of current portion		77,000			-
Total liabilities		7,696,000			2,881,000
Commitments and contingencies
Shareholder’s equity:
Convertible, series B preferred stock, no par value, $1,000 stated value 25,000 shares authorized, 0 and 470 shares issued and outstanding		-			439,000
Convertible, series C preferred stock, no par value, $1,000 stated value 25,000 shares authorized, 0 and 5,468 shares issued and outstanding		-			5,051,000
Common stock, no par value, 350,000,000 shares authorized, 144,108,000 and 103,978,000 shares issued and outstanding		177,813,000			114,111,000
Accumulated deficit		(61,216,000	)		(49,305,000	)
Accumulated other comprehensive income, unrealized gain on marketable securities		-			78,000
Total shareholders’ equity		116,597,000			70,374,000
Total liabilities and shareholders’ equity	$	124,293,000		$	73,255,000

The accompanying notes are an integral part of these financials

F-4

NUTRACEA AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

	For the Years Ended December 31,
	2007			2006			2005
Revenues
Product sales	$	18,372,000		$	17,105,000		$	5,545,000
Less sales returns		(1,551,000	)		-			-
Royalty, label and licensing fees		5,340,000			985,000			19,000
Total revenue		22,161,000			18,090,000			5,564,000
Cost of goods sold		9,898,000			9,130,000			2,878,000
Gross profit		12,263,000			8,960,000			2,686,000
Research and development expenses		878,000			377,000			191,000
Selling, general and administrative expenses		16,262,000			6,018,000			3,860,000
Allowance for bad debt expense		3,233,000			9,000			—
Impairment of intangible assets		1,300,000			—			—
Separation agreement with former chief executive officer		1,000,000			—			—
Professional fees		4,720,000			1,504,000			1,627,000
Total operating expenses		27,393,000			7,908,000			5,678,000
(Loss) income from operations		(15,130,000	)		1,052,000			(2,992,000	)
Other income (expense)
Interest income		2,809,000			545,000			18,000
Gain on settlement		1,250,000			-			-
Loss on equity investment		(309,000	)		-			-
Loss on retirement of assets		(347,000	)		-			-
Loss on sale of marketable securities		(163,000	)		-			-
Interest expense		(1,000	)		(7,000	)		(896,000	)
Total (loss) income before income tax		(11,891,000	)		1,590,000			(3,870,000	)
Income tax expense	$	20,000		$	5,000		$	2,000
Net (loss) income available to common shareholders	$	(11,911,000	)	$	1,585,000		$	(3,872,000	)
Basic and diluted (loss) earnings per share:
Basic (loss) income per share	$	(0.09	)	$	0.02		$	(0.10	)
Fully diluted (loss) income per share	$	(0.09	)	$	0.02		$	(0.10	)
Weighted average basic number of shares outstanding		125,938,000			76,692,000			38,615,000
Weighted average diluted number of shares outstanding		125,938,000			102,636,000			38,615,000

The accompanying notes are an integral part of these financials

F-5

NUTRACEA AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE (LOSS) INCOME

	For the Years Ended December 31,
	2007			2006		2005
Net (loss) income available to common shareholders	$	(11,911,000	)	$	1,585,000	$	(3,872,000	)
Other comprehensive income (loss):
Unrealized (loss) gain on marketable securities		(78,000	)		78,000		(78,000	)
Net and comprehensive (loss) income	$	(11,989,000	)	$	1,663,000	$	(3,950,000	)

The accompanying notes are an integral part of these financials

F-6

NUTRACEA AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

	Convertible, Redeemable Series A, B, C Preferred						Common Stock					Deferred			Other Comprehensive			Accumulated
	Shares			Amount			Shares		Amount			Compensation			Income (Loss)			Deficit			Total
Balance, January 1, 2005		-		$	21,000			36,130,000	$	48,123,000		$	(16,000	)		(2,012,000	)	$	(44,928,000	)	$	1,167,000
Amortization of deferred compensation													81,000									81,000
Common stock issues for
consultants service rendered								1,905,000		907,000												907,000
patent incentive plan								30,000		13,000												13,000
officers and directors								70,000		30,000												30,000
settlements								97,000		98,000												98,000
Preferred stock issued		8,000			7,301,000
RiceX acquisition					(21,000	)		28,272,000		40,029,000												40,029,000
Stock options/warrants exercised for
cash								531,000		104,000												104,000
cashless								67,000														—
Stock options/warrants issued for
consultants										349,000												349,000
employees										130,000			(65,000	)								65,000
Other comprehensive loss																(78,000	)					(78,000	)
Net loss																			(3,872,000	)		(3,872,000	)
Balance, December 31, 2005 as originally reported		8,000			7,301,000			67,102,000		89,783,000			—			(2,090,000	)		(48,800,000	)		38,893,000
Implementation 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	)	$	38,893,000
Common stock issues for consultants service rendered								30,000		30,000												30,000
Preferred stock issued, net of expense		17,000			15,934,000																	5,490,000
Preferred stock conversions
series B		(7,000	)		(6,862,000	)		14,760,000		6,862,000												6,862,000
series C		(12,000	)		(10,883,000	)		14,226,000		10,883,000												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																			1,585,000			1,585,000
Balance, December 31, 2006		6,000			5,490,000			103,978,000		114,111,000						78,000			(49,305,000	)		70,374,000

The accompanying notes are an integral part of these financials

F-7

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY - (CONTINUED) 

	Convertible, Redeemable Series A, B, C Preferred						Common Stock					Deferred		Other Comprehensive			Accumulated
	Shares			Amount			Shares			Amount		Compensation		Loss			Deficit			Total
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								20,000,000			46,805,000										46,805,000
Stock options/warrants exercised (non-cash)								3,512,000													-
Cancellation of certificates								(700,000	)												-
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																		(11,911,000	)		(11,911,000	)
Balance, December 31, 2007		-		$	-			144,108,000		$	177,813,000		-	$	-		$	(61,216,000	)	$	116,597,000

The accompanying notes are an integral part of these financials

F-8

NUTRACEA AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

	For the Years Ended December 31,
	2007			2006			2005
Cash flow from operating activities:
Net (loss) income	$	(11,911,000	)	$	1,585,000		$	(3,872,000	)
Adjustments to reconcile net (loss) income to net cash from operating activities:
Depreciation and amortization		2,202,000			1,150,000			1,091,000
Impairment of goodwill		1,300,000			-			-
Provision for doubtful accounts and notes receivable		3,229,000			-			-
Non-cash issuances of common stock		-			-			1,017,000
Loss on retirement of assets		347,000
Stock based compensation		2,166,000			1,091,000			510,000
Loss on equity investment		309,000			-			-
Loss on sale of marketable securities		290,000			-			-
Net changes in operating assets and liabilities:
(Increase) decrease in
Trade accounts receivable		(886,000	)		(4,578,000	)		(2,094,000	)
Inventories		(971,000	)		(202,000	)		(107,000	)
Deposits and other current assets		(1,167,000	)		(1,301,000	)		(106,000	)
Increase (decrease) in:
Accounts payable, accrued liabilities		2,739,000			1,531,000			354,000
Advances from related parties		-			(3,000	)		(71,000	)
Customer deposits		-			98,000			(100,000	)
Net cash used in operating activities		(2,353,000	)		(629,000	)		(3,378,000	)
Cash flows from investing activities:
Issuance of notes receivable		(7,828,000	)		(2,376,000	)		-
Proceeds of payments from notes receivable		5,410,000			-			-
Purchase of The RiceX Company, net of $546,148 cash received		-			-			33,000
Purchase of property and equipment		(11,652,000	)		(4,682,000	)		(14,000	)
Investment in Grainnovation, Inc.		(2,169,000	)		-			-
Investment in Vital Living, Inc.		(5,143,000	)		-			-
Investment in joint venture		(1,500,000	)		-			-
Restricted cash		(2,239,000	)
Issuance of long-term note		69,000			-			-
Proceeds from sale of assets		16,000			-			-
Purchase of other assets		(2,225,000	)		(2,640,000	)		(82,000	)
Net cash used in investing activities		(27,261,000	)		(9,698,000	)		(63,000	)
Cash flows from financing activities:
Private placement financing, net		46,805,000			15,934,000			7,301,000
Principal payments on notes payable, net of discount		-			(15,000	)		(2,402,000	)
Proceeds from exercise of common stock options and warrants		9,240,000			5,784,000			105,000
Net cash provided by financing activities		56,045,000			21,703,000			5,004,000
Net increase in cash and cash equivalents		26,431,000			11,376,000			1,563,000
Cash and cash equivalents, beginning of year		14,867,000			3,491,000			1,928,000
Cash and cash equivalents, end of year	$	41,298,000		$	14,867,000		$	3,491,000
Cash paid for interest	$	1,000		$	3,000		$	137,000
Cash paid for income taxes	$	20,000		$	5,000		$	2,400
Non-cash disclosures:
Payments for patents with common stock	$	-		$	-		$	13,000
Conversions of preferred stock to common stock	$	5,490,000		$	17,835,000		$	-
Accounts receivable converted to note receivable	$	3,881,000		$	-		$	-
Accounts receivable exchanged for an intangible assets	$	300,000		$	-		$	-
Settlement of accounts receivable, net, to acquire intangible asset	$	284,000		$	-		$	-
Common stock issued to acquire assets related to equine feed supplement business	$	-		$	350,000		$	-
Adjustment to allocation of RiceX purchase price of property and equipment	$	-		$	375,000		$	-
Reduce goodwill for RiceX options cancelled	$	-		$	642,000		$	-
Change in fair value of marketable securities	$	-		$	78,000		$	-

The accompanying notes are an integral part of these financials

F-9

NUTRACEA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Organization and Line of Business

General

We are a health-science company focused on the development and distribution of products based upon the use of stabilized rice bran and proprietary rice bran formulations. Rice bran is the outer layer of brown rice which is typically a wasted by-product of the commercial rice industry. These products include food supplements and medical foods which provide health benefits for humans and animals (known as “nutraceuticals”) based on stabilized rice bran, rice bran derivatives and the rice bran oils.

On October 4, 2005, we consummated the acquisition of The 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 .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 NutraCea common stock, valued at $11,422,000.

Due to the acquisition of RiceX, and the subsequent reorganization, NutraCea and its subsidiaries are operating as one segment.

Note 2 — Summary of Significant Accounting Policies

Principles of Consolidation - The consolidated financial statements include the accounts of NutraCea and its wholly-owned subsidiaries, NutraCea Technologies Incorporated, NutraGlo® Incorporated, The RiceX Company, Infomaxx, LLC, Grainnovations, Inc., and our interests in NutraCea-Cura LLC (10%), Rice RX LLC (50%), 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^th, 2007 to December 31, 2007 and their financial position at December 31, 2007 in our financial statements. All significant inter-company accounts and transactions are eliminated in consolidation.

Revenue Recognition - We derive our revenue primarily from product sales. Product is shipped when an approved purchase order is received. Products shipped by us are generally sold FOB Origin, with the customer taking title to the product once it leaves our plant via common carrier. At this point, the price to the customer is fixed and determinable, and collectability is reasonably assured. On occasion, we receive purchase orders for multiple product deliveries. In these situations, each delivery is individually evaluated to determine appropriate revenue recognition. Each delivery is generally considered to be a separate unit of accounting for the purposes of revenue recognition and, in all instances, persuasive evidence of an arrangement, delivery, pricing and collectability must be determined or accomplished, as applicable, before revenue is recognized. In addition, if the purchase order includes customer acceptance provisions, no revenue is recognized until customer acceptance occurs. Revenue is accounted for at the point of shipment FOB Origin, unless accompanied by a memorandum of understanding detailing the requirement of customer acceptance in order to transfer title, in which case revenue is recognized at the time of such acceptance.

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 grant is then individually evaluated to determine appropriate revenue recognition in accordance with Staff Accounting Bulletin No. 104, Revenue Recognition (SAB 104), SAB 104 requires that four basic criteria must be met before revenue can 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. Determination of criteria (3) and (4) are based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts.

F-10

NUTRACEA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 — Summary of Significant Accounting Policies - (continued)

Provisions for allowances and other adjustments are provided for in the same period the related sales are recorded. If all criteria are met, revenue is recognized in the period in which the sale occurred and recorded in the financial statements as label fees.

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

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, 2007, the Company maintains its cash, including $2,549,000 of restricted cash, and cash equivalents with a major investment firm and a major bank.

Cash Concentration - We maintain our cash in bank accounts, which at times may exceed federally insured limits. We have not experienced any losses on such accounts.

Short-Term Investments - As part of our cash management program, we maintain a portfolio of commercial paper. The securities are investment grade (AAA) and mature in thirty days.

Accounts Receivable - Accounts receivable consists of amounts due from customers for product sales, net of an allowance for losses. We determine the allowance for doubtful accounts by reviewing each customer account and specifically identifying any potential for loss. The allowance for doubtful accounts at December 31, 2007 is $2,999,000 and at December 31, 2006 and 2005 was $20,000. Uncollected accounts are written off after the customer has been past due in excess of twelve months. Past due status is determined based on contractual terms. Actual losses related to collection of accounts receivable for the years ended December 31, 2007, 2006 and 2005 were insignificant.

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

Inventory - Inventory is stated at the lower of cost (first-in, first-out) or market and consists of stabilized rice bran manufactured by RiceX, and nutraceutical products manufactured by NutraCea. We employ a full absorption procedure using standard cost techniques. The standards are customarily reviewed and adjusted annually. While the Company has an inventory of these products, any significant prolonged shortage of these ingredients or of the supplies used to enhance these ingredients could materially adversely affect the Company’s results of operations.

Inventories are composed of the following at December 31;

	2007		2006
Finished goods	$	1,396,000	$	533,000
Raw materials		184,000		168,000
Packaging supplies		228,000		95,000
	$	1,808,000	$	796,000

F-11

NUTRACEA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 — Summary of Significant Accounting Policies - (continued)

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

Furniture and equipment	3-7 years
Automobile	5 years
Software	3 years
Leasehold improvements	7 years
Property and equipment	7-10 years

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

Impairment of Long-Lived Assets - We assess the carrying value of long-lived assets which includes property, plant and equipment, intangible assets and goodwill annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important which could trigger an impairment review include the following:

· significant adverse change in legal factors or in the business climate;

· unanticipated competition;

· a loss of key personnel;

· significant changes in the manner of our use of the asset;

· significant negative industry or economic trends; and

· our market capitalization relative to net book value.

Annually and upon the existence of one or more of the above indicators of impairment, we would test such assets for a potential impairment. The carrying value of a reporting unit, including goodwill, is considered impaired when the fair value is less than the asset’s carrying value. In that event, an impairment loss is recognized based on the amount by which the carrying value exceeds the fair market value. Fair market value is determined primarily using quoted market prices and cash flow projections. During the year ended December 31, 2007 events indicated an impairment had occurred (see next paragraph). We have determined that there was no impairment as of December 31, 2006.

In April, 2007, we purchased, for $5,226,000, certain debt securities and certain preferred stock securities of Vital Living, Inc. (“VLI”) (see Note 10 to the Consolidated Financial Statements). In September 2007, we entered into an asset purchase agreement in which the company agrees 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 have recorded that contingent liability in our financial statements. As a result, the total increase in goodwill on our books associated with this transaction is $7,579,000. We have evaluated this intangible and determined that the value based upon our analysis is $6,279,000. Accordingly we have recorded an intangible impairment of $1,300,000.

Patents and Trademarks - In addition to patents filed and acquired directly by the Company, the Company owns several patents, which were acquired from independent third parties and a related party. All costs associated with the patents are capitalized. Patents acquired from related parties are recorded at the carryover basis of the transferor. The Company paid cash as consideration for all patents and trademarks acquired, except the Via-Bran registered trademark, which was acquired for 21,409 shares of common stock valued at $21,000.

In conjunction with the RiceX acquisition, NutraCea has been assigned five U.S. patents relating to the production or use of Nutraceutical or HVF products. The patents include:

(1) Patent Number 5,512,287 “PRODUCTION OF BETA-GLUCAN AND BETA-GLUCAN PRODUCT,” which issued on April 30, 1996;

F-12

NUTRACEA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 — Summary of Significant Accounting Policies - (continued)

(2) Patent Number 5,985,344 “PROCESS FOR OBTAINING MICRONUTRIENT ENRICHED RICE BRAN OIL,” which issued on November 16, 1999;

(3) Patent Number 6,126,943 “METHOD FOR TREATING HYPERCHOLESTEROLEMIA, HYPERLIPIDEMIA, AND ATHEROSCLEROSIS,” which issued on October 3, 2000;

(4) Patent Number 6,303,586 B1 “SUPPORTIVE THERAPY FOR DIABETES, HYPERGLYCEMIA AND HYPOGLYCEMIA,” which issued on October 15, 2001; and

(5) Patent Number 6,350,473 B1 “METHOD FOR TREATING HYPERCHOLESTEROLEMIA, HYPERLIPIDEMIA AND ATHEROSCLEROSIS,” which issued on February 26, 2002.

We plan to apply for additional patents in the future as new products, treatments, and uses are developed.

Patents and trademarks are stated at cost. 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

Fair Value of Financial Instruments - The fair value of the Company’s financial instruments approximated carrying value at December 31, 2007, and 2006. The Company’s financial instruments include cash, marketable securities and accounts receivable for which the carrying value approximates fair value due to the short maturity of the instrument.

Research and Development - Research and development expenses include internal and external costs. Internal costs include salaries and employment related expenses and allocated facility costs. External expenses consist of costs associated with product development. All such costs are charged to expense as incurred.

Stock and Warrants Issued to Third Parties - If the agreements do not have a disincentive for nonperformance, the Company records 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.

Stock-Based Compensation - Management estimates the fair value of each option award as of the date of grant using a Black-Scholes-Merton option pricing model. Expected volatility is based on the historical volatility of the Company’s common stock. The expected term represents the period that the stock-based awards are expected to be outstanding. The risk free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The expected dividend yield was not considered in the option pricing formula because the Company has not paid cash dividends historically and had no plans to do so at the grant date. In addition to these assumptions, management makes estimates regarding pre-vesting forfeitures that will impact total compensation expense recognized under the Plan.

As of January 1, 2006, we adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123(R), Accounting for Stock-Based Compensation. Under the provisions of SFAS 123(R), we are required to measure the cost of services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is recognized over the period during which services are provided in exchange for the award, known as the requisite service period (usually the vesting period). The Company applied the alternative transition method in calculating its pool of excess tax benefits available to absorb future tax deficiencies as provided by FSP FAS 123(R)-3, Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards. Prior to January 1, 2006, the Company accounted for those instruments under the recognition and measurement provisions of APB “Opinion” No. 25, Accounting for Stock Issued to Employees, and related Interpretations, as permitted by FASB Statement No 123, Accounting for Stock-Based Compensation.

F-13

NUTRACEA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 — Summary of Significant Accounting Policies - (continued)

We have made the transition to SFAS 123(R) using the modified prospective method. Under the modified prospective method, SFAS 123(R) is applied to new awards and to awards modified, repurchased, or cancelled after

January 1, 2006. Additionally, compensation cost for the portion of awards for which the requisite service has not been rendered (such as unvested options) that are outstanding as of January 1, 2006 are being recognized over the period that the remaining requisite services are rendered. The compensation cost relating to unvested awards at January 1, 2006 is based on the grant-date fair value of those awards. Under this method of implementation, no restatement of prior periods has been made.

As a result of adopting Statement 123(R) on January 1, 2006, the Company’s net income for the year ended December 31, 2006 was $1,907,711 lower than if it had continued to account for share-based compensation under Opinion 25. Basic and diluted earnings per share for the year ended December 31, 2006 would have been $(0.26), if the Company had not adopted Statement 123(R), compared to reported basic and diluted earnings per share of $(0.29). We have not recorded income tax benefits related to equity-based compensation expense as deferred tax assets are fully offset by a valuation allowance. As a result, the implementation of SFAS 123(R) did not impact the Statement of Cash Flows for the year ended December 31, 2006.

The following table illustrates the effect on net loss and loss per share if the Company had applied the fair value recognition provisions of Statement 123(R) to options granted under the company’s stock option plans for the year ended December 31, 2005. For purposes of this pro forma disclosure, the value of the options is estimated using a Black-Scholes option-pricing model and amortized to expense over the options’ vesting periods.

	For The Year Ended
	December 31, 2005
Net loss, reported:	$	(3,872,000	)
Deduct: stock-based compensation expense included in reported net loss, net of $0 related tax benefits		1,511,000
(Add): stock-based compensation determined under fair value based method for all awards, net of $0 related tax benefits		(387,000	)
Pro forma net loss	$	(2,748,000	)
Basic loss per common share (basic and diluted):
As reported	$	(0.10	)
Pro forma	$	(0.07	)

Shipping and Handling Expenses- Expenses relating to shipping and handling are expensed and reported as a cost of sale or a selling expense as appropriate.

Advertising Expense - The Company expenses all advertising costs, including direct response advertising, as they are incurred. Advertising expense for 2007, 2006 and 2005 was $1,171,000, $307,000 and $8,000, respectively.

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.

F-14

NUTRACEA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 — Summary of Significant Accounting Policies - (continued)

Net Income (Loss) per Common Share - Basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common and potentially dilutive shares outstanding during the period. Potentially dilutive shares consist of the incremental common shares issuable upon the exercise of stock options and warrants. Potentially dilutive shares are excluded from the computation if their effect is anti-dilutive.

We had a net loss for 2007 and 2005 presented herein; therefore, none of the stock options and warrants outstanding during each of the periods presented, as discussed in Notes 16 and 17, were included in the computation of diluted loss per share as they were anti-dilutive.

For 2006, the dilutive effect of 5,873,738 outstanding options, 14,666,449 outstanding warrants, 940,000 convertible Series B preferred stock, and 6,430,368 convertible Series C preferred stock is calculated using the treasury stock method. Additionally, for 2,083,114 outstanding warrants and options there is no dilutive effect because the average market price of the common stock during the period is less than the exercise price of the warrants and options for 2006.

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

Concentrations of Credit Risk and Major Customers - On August 24, 2005, NutraCea signed an agreement with a direct response marketing company to market and sell products through infomercials. The agreement is for two years and may be extended for an additional year. The agreement covers pricing of specific products at wholesale prices which will be private labeled for direct sale by the marketing company. During the term of the agreement, NutraCea will not sell its products through any other infomercials so long as the marketing company maintains minimum quarterly orders beginning October 1, 2005 of $500,000. Additionally, NutraCea granted the company an option to purchase 250,000 shares of restricted common stock at a price of $1.275 per share. The options vest 50,000 shares upon payment in full of the contract quarter minimum purchase orders during the term of the agreement. At December 31, 2006, 100,000 options are fully vested. For the year ended December 31, 2005, sales to this customer totaled $3,013,000 or 54% of total sales and receivables were $1,910,000, or 76% of total receivables. For the year ended December 31, 2006, sales to this customer totaled $8,057,000 or 48% of total sales and receivables were $3,516,000, or 49% of total receivables. For the year ended December 31, 2007, sales to this customer totaled $1,946,000 or 11% of sales and the note receivable due from this customer was $1,978,000.

Reclassifications - Certain reclassifications have been made to the prior year statement of operations to conform to the current year presentation.

Recently Issued Accounting Pronouncements - In June 2006, the FASB issued Interpretation No.48, “Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109”, (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes”. FIN 48 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return that results in a tax benefit. Additionally, FIN 48 provides guidance on de-recognition, statement of operations classification of interest and penalties, accounting in interim periods, disclosure, and transition. This interpretation is effective for fiscal years beginning after December 15, 2006. The Company adopted FIN 48 as of January 1, 2007, as required. The Company has determined that there is no impact in adopting FIN 48.

In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108 (SAB 108), “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” which addresses how uncorrected errors in previous years should be considered when quantifying errors in current-year financial statements. SAB 108 requires companies to consider the effect of all carry over and reversing effects of prior-year misstatements when quantifying errors in current-year financial statements and the related financial statement disclosures. SAB 108 must be applied to annual financial statements for the first fiscal year ending after November 15, 2006. The impact of adopting SAB 108 is discussed in Note 3.

F-15

NUTRACEA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 — Summary of Significant Accounting Policies - (continued)

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurement”, (FAS 157). This Standard defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. As of December 1, 2007 the FASB has proposed a one-year deferral for the implementation of the Statement for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a non-recurring basis. We have not determined the effect that the adoption of FAS 157 will have on our consolidated results of operations, financial condition or cash flows.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115” (“FAS 159”). This statement provides all entities with an option to report selected financial assets and liabilities at fair value. The Statement is effective as of the beginning an entity’s first fiscal year beginning after November 15, 2007, with early adoption available in certain circumstances. We have not determined the effect that the adoption of FAS 159 will have on our consolidated results of operations, financial condition, or cash flows, accordingly, we have not decided whether or not to adopt this standard.

In September 2007 the FASB issued SFAS No. 141(R), “Business Combinations”. This statement requires all entity’s to recognize the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair value on the acquisition date. It further requires that acquisition-related costs be recognized separately from the acquisition and be expensed as incurred, restructuring cost generally be expensed in period subsequent to the acquisition date, and changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period impact income tax expense. In addition, acquired in-process research and development is capitalized as an intangible asset and amortized over its estimated useful life. The adoption of this statement will change the accounting treatment for business combinations on a prospective basis beginning in the first quarter of fiscal year 2009.

In December, 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements”. This statement changes the accounting and reporting for minority interests, which will be re-characterized as non-controlling interests and classified as a component of equity. This statement is effective for the Company on a prospective basis for business combinations with an acquisition date beginning in the first quarter of fiscal year 2009.

In December 2007, the SEC issued Staff Accounting Bulleting (“SAB”) No. 110, “Share-Based Payment”. This bulletin amends the SEC’s views discussed in SAB 107 regarding the use of the simplified method in developing an estimate of expected life of share options in accordance with SFAS No. 123(R). SAB 110 is effective beginning in the first quarter of fiscal year 2008.

Note 3 — 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, 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. 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.

F-16

NUTRACEA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 — 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 is 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 5 — Stock-based Compensation

On January 1, 2006, NutraCea adopted SFAS No. 123(R), “Share-Based Payment” (“SFAS 123(R)”). SFAS 123(R) replaced SFAS No. 123 and supersedes APB Opinion No. 25. SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The pro forma disclosures previously permitted under SFAS 123 are no longer an alternative to financial statement recognition. NutraCea adopted SFAS 123(R) using the modified prospective method which requires the application of the accounting standard as of January 1, 2006. The consolidated financial statements as of and for the twelve months ended December 31, 2007 and 2006 reflect the impact of adopting SFAS 123(R).

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

Stock-based compensation expenses consisted of the following for the twelve months ended December 31,

	2007 (1)		2006 (2)		2005 (3)
Consultants	$	379,000	$	213,000	$	1,241,000
Directors		330,000		176,000		30,000
Employees		1,294,000		602,000		142,000
Research and development		108,000		-		-
To directors and former director for services outside of directors duties		55,000		100,000		-
Stock issued for a settlement		-		-		98,000
Total stock-based compensation expense	$	2,166,000	$	1,091,000	$	1,511,000

(1) Includes $55,000 fair value of common stock issued, all other amounts are the fair value of options and warrants issued

(2) Includes $30,000 fair value of common stock issued, all other Amounts are the fair value of options and warrants issue

(3) Includes $949,000 fair value of common stock issued, all other amounts are the fair value of options and warrants issued

F-17

 

NUTRACEA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5 — Stock-based Compensation - (continued)

As of December 31, 2007, there was $1,889,000 of total unrecognized compensation cost related to non-vested options granted under the plans. That cost is expected to be recognized over a weighted average period of one year.

The weighted average grant date fair value of the stock options granted during the twelve months ended December 31 2007, 2006 and 2005 was $3.43, $1.35, and $0.54 per share, respectively.

Note 6 — (Loss) Earnings Per Share

Basic (loss) earnings per share are computed by dividing net (loss) income 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.

The dilutive effect of outstanding options and warrants is calculated using the treasury stock method and the dilutive effect of the convertible series B preferred stock, and convertible series C preferred stock is calculated using the as-if converted method.

As of December 31, 2007 and 2005, options and warrants to purchase approximately 41,981,000 and 38,293.000 shares of our common stock, respectively, were outstanding. Of these, approximately 25,915,000 and 33,602,000 were “in the money” at December 31, 2007 and 2005, respectively. These are excluded from the calculation of diluted loss per share at December 31, 2007 and 2005 because their inclusion would have been anti-dilutive. The weighted average exercise price of anti-dilutive options and warrants for the twelve months ended December 31, 2007 and 2005 was $0.60 and $0.45, respectively.

Components of basic and diluted (loss) earnings per share were as follow for the twelve months ended:

	December 31,
	2007			2006		2005
Net (loss) income	$	(11,911,000	)	$	1,585,000	$	(3,872,000	)
Weighted average outstanding shares of common stock		125,938,000			76,692,000		38,615,000
Convertible preferred stock		-			5,045,000		-
Common stock equivalents		-			20,899,000		-
Total diluted shares		125,938,000			102,636,000		38,615,000
(Loss) earnings per share:
Basic	$	(0.09	)	$	0.02	$	(0.10	)
Diluted	$	(0.09	)	$	0.02	$	(0.10	)

F-18

NUTRACEA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 7 — Property and Equipment

Property and equipment consisted of the following at December 31:

	2007		2006
Land	$	15,000	$	9,000
Furniture and equipment		2,405,000		916,000
Automobile		-		73,000
Software		402,000		389,000
Leasehold improvements		700,000		430,000
Property and plant		14,243,000		4,197,000
Construction in progress		4,347,000		4,392,000
Subtotal		22,112,000		10,406,000
Less accumulated depreciation		2,784,000		1,445,000
Total	$	19,328,000	$	8,961,000

Depreciation expense was $1,431,000, $839,000 and $241,000 for 2007, 2006 and 2005, respectively. Interest expense incurred during 2007 was nominal and no interest was capitalized.

Note 8 — Patents and Trademarks

Patents and trademarks consisted of the following at December 31:

	2007		2006
Patents	$	2,657,000	$	2,540,000
Trademarks		3,288,000		2,987,000
Non-compete agreement		650,000		-
License and supply agreement		220,000		-
Subtotal		6,815,000		5,527,000
Less Accumulated Amortization		1,072,000		430,000
Total	$	5,743,000	$	5,097,000

Amortization expense was $642,000, $302,000 and $70,000 for 2007, 2006 and 2005, respectively. Amortization expense for the next five years will be approximately $3,200,000.

Note 9 — Notes Receivable

At December 31, 2007, we have nine secured promissory notes outstanding to the Company with an aggregate amount of $7,975,000; $2,936,000 reported as current (net of a $250,000 allowance for doubtful notes receivable) and $5,039,000 reported as long-term. These secured promissory notes bear interest at annual rates of either five (5%) or eight (8%) with the principals and all accrued interest due and payable to us at dates ranging from October 2007 to October 2012.

During the twelve months ended December 31, 2007 we loaned a total of $7,828,000, (net of the conversion of $3,881,000 of accounts receivables to a promissory note) to certain strategic customers, which loans were evidenced by promissory notes, and received payments totaling $5,410,000 on existing promissory notes. During this twelve month period we also accrued interest income of $472,000 and received cash payments of $135,000 for accrued interest.

In February 2007, we converted $3,516,000 of one customer’s accounts receivable to a note receivable included in the above total, bearing interest at 7% and due in December 2007. This note receivable was paid in full by January 2008.

F-19

NUTRACEA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8 — Notes Receivable - (continued)

In April 2007, we converted $365,000 of another customer’s accounts receivable to a note receivable included in the above total, bearing interest at 10% and due in October 2007. This note is past due as of December31, 2007. As of March 3, 2008 we have re-negotiated the settlement terms and extended the due date to April 2008 and received payment of the accrued interest due on this note. We have recorded an allowance for doubtful notes of $250,000 against this receivable which is included in our bad debt expense for the year ended December 31, 2007.

During the second quarter of 2007, we granted to Pacific Holdings Advisors Limited (“PAHL”) an exclusive, perpetual, royalty-free right and license to use and SRB and SRB derivative products in certain Southeast Asian countries. PAHL paid a one-time license fee of $5,000,000 for these rights. PAHL paid the license fee by issuing to NutraCea an interest bearing promissory note due within five years. In January 2008, in conjunction with another agreement (see Note 20 to the Consolidated Financial Statements) the we amended the payment terms. PAHL will pay NutraCea the license fee of $5,000,000 by March 31, 2008 in full satisfaction of its obligations under the Note. In consideration for this accelerated payment, NutraCea agrees to waive all accrued interest owed by PAHL ($118,000 at December 31, 2007).

During August 2007 we exchanged one customer’s note receivable of $300,000 for a certain trademark and associated rights to a product line (see Note 10 to the consolidated financial statements).

In December, 2007, we sold to one customer, $1,968,000 of infomercial products. This customer paid us by issuing a to NutraCea a promissory note bearing 7% interest, with even weekly payments, due in April 2008.

Note 10 — Acquisition and Joint Ventures

Infomaxx, LLC

In December 2006, our wholly-owned subsidiary Nutramercials, Inc. became a 50% member of Infomaxx, LLC (“INFMX”). In accordance with FIN46R, 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, we became the sole member of INFMX after we purchased from the other member of INFMX their 50% of INFMX’s outstanding membership interests by canceling a $300,000 note payable to NutraCea by that member of INFMX. We received along with the 50% interest, all rights to a certain trademark and product line of that member. We recorded an intangible asset of $296,000 (net of a valuation allowance of $280,000). Additionally, in order to consummate this transaction we agreed to accept the return of $275,000 of inventory from the other previous member of INFMX which we sold them in December 2006, for $1,551,000. The $1,551,000 return is recorded as a sales return on our consolidated statement of operations.

For the twelve months ended December 31, 2007 our Infomaxx subsidiary generated sales of $315,000 which was not related to the product return mentioned above.

NutraCea/Cura LLC

In August 2007, we formed NutraCea/Cura, LLC (“NCC”) with Cura Pharmaceuticals (“CURA”). We formed this LLC with CURA to jointly develop, produce through third-party pharmaceutical-grade co-packers, market, and sell nutraceutical and pharmaceutical products. In the initial agreement our interest was 60%. In December we acquired from Cura 75% of their 40% interest, increasing our interest to 90%. Accordingly, NCC is included in our consolidated financial statements. For the twelve months ended December 31, 2007 NCC had sales of $230,000.

Under the agreement, NCC acquired the rights to a supply agreement for materials with minimum purchase requirements of approximately $1,150,000 for the first year, which increase 5% a year for 5 years. If the minimum purchase commitments are not met in any year the co-packer of the products may terminate the supply agreement. We recorded an intangible of $220,000 which we are amortizing on a straight-line basis over five years.

F-20

NUTRACEA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10 — Acquisitions and Joint Ventures - (continued)

Grainnovation, Inc.

In April 2007, we acquired 100% of the outstanding stock of Grainnovation, Inc. (“GI”) a privately held company that had equipment for pelletizing horse feed for equine customers of strategic value to NutraCea, and certain assets used in GI’s business for a total of $2,150,000, of which $1,605,000 of the purchase price was paid at closing, with the balance (“holdback”) being due in payments of $235,000 and $310,000 in six months and twelve months, respectively, subject to reduction in the event of breaches of representations, warranties and covenants contained in the transaction documents. The holdback is held in third-party escrow and is included in our consolidated condensed balance sheet as restricted cash and current liabilities. The investment is recorded in our financial statements included herein at the aggregate purchase price and its results of operations from the date of acquisition are reflected in our statement of operations for the period ended December 31, 2007. In November, 2007, the second installment of $235,000 due was distributed to the sellers from the third-party escrow as agreed.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition. We incurred $20,000 in legal fees relating to this purchase, which are added to the purchase price and Goodwill. The Company is in the process of obtaining third-party valuations of certain intangible assets; the allocation of the purchase price is subject to refinement:

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

For the eight months ended December 31, 2007 our Grainnovations subsidiary generated $490,000 in sales.

Grain Enhancements LLC

In June 2007, we entered into a joint venture with PAHL to form Grain Enhancements LLC (“GE”), a Delaware limited liability company. NutraCea and PAHL each hold a 47.5% share of Grain Enhancements. The remaining interest is held by Theorem Group LLC (“Theorem”) (3.333%) and Ho’okipa Capital Partners, Inc. (1.667%). The purpose of GE is to develop and market stabilized rice bran (“SRB”) and related products in certain Southeast Asian countries. GE will purchase SRB exclusively from NutraCea until its own facilities are in operation and NutraCea will lease to GE at cost the necessary equipment for such facilities. Payments under the equipment lease will be payable in full upon installation of the equipment.

Under the agreement, NutraCea and PAHL will contribute up to $5,000,000 each to Grain Enhancements to fund the operations, of which $1,500,000 each was due on June 30, 2007. Both members made their initial contribution in July 2007. Additionally, $2,000,000 each was to be contributed no later than October 2007, and the remaining $1,500,000 from each member is due no later than August 2008. Only the initial capital contribution due of $1,500,000 from each member has been made. On January 24, 2008, NutraCea and PAHL amended certain terms of the Operating Agreement. Pursuant to the modified agreement, the timing of mandatory capital contributions of the members was changed from an agreed upon schedule to a determination by the Finance Committee on an as-needed basis. In addition, PAHL will no longer receive a monthly management fee.

F-21

NUTRACEA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10 — Acquisitions and Joint Ventures - (continued)

Theorem was paid $750,000 and $500,000 by NutraCea and GE, respectively, for services relating to the formation of the joint venture. Through December 31, 2007, our portion of Grain Enhancements net loss was $309,000.

Our investment in Grain Enhancements is accounted for under the equity method of accounting. At December 31, 2007 the value of our investment was $1,191,000.

Summary financial information of Grain Enhancements, LLC at December 31, 2007 is:

Assets
Cash	$	2,435,000
Liabilities and equity
Accounts payable and accrued liabilities	$	54,000
Members equity		3,000,000
Accumulated deficit		(619,000	)
Total equity		2,381,000
Total liabilities and equity	$	2,435,000

Vital Living, Inc.

In April 2007, we acquired certain securities of Vital Living, Inc. (“VLI”), a publicly traded company. VLI distributes nutritional supplements using similar processes as NutraCea for manufacturing and distribution. We paid $1,000,000 for 1,000,000 shares of outstanding preferred stock and $4,226,000 for the outstanding Senior Secured Notes (“Notes”). The Notes are convertible to VLI common stock and bear interest at 12% per annum, payable June 15 and December 15 and mature in December 2008. On September 11, 2007, NutraCea and VLI entered into a letter agreement confirming their 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 will 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, NutraCea entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Vital Living.  The Purchase Agreement provides that NutraCea will purchase substantially all of Vital Living’s intellectual property and other assets used by Vital Living 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, Vital Living will assign to NutraCea its rights under various distribution and other agreements relating to the products being acquired.  NutraCea will not acquire inventory, raw materials, cash or accounts receivable of Vital Living nor assume any accounts payable, liabilities, or other obligations of VLI.

The purchase price consists of (i) $1,500,000 to be paid by NutraCea at the closing, (ii) cancellation of outstanding indebtednesses of Vital Living, its subsidiaries and certain related entities to NutraCea, including all of the Notes, and (iii) cancellation of all shares of Series D Preferred Stock of Vital Living held by NutraCea.  

F-22

NUTRACEA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10 — Acquisitions and Joint Ventures - (continued)

Completion of the transaction is subject to a variety of customary closing conditions, including, among other things, approval of the transaction by the shareholders of Vital Living at a special meeting of shareholders of Vital Living and the absence of a material adverse effect on the assets between the date of the agreement and the closing date.  NutraCea anticipates that Vital Living will prepare and file with the SEC a proxy statement relating to the transaction.  NutraCea expects that the transaction will close in the second quarter of 2008, although the actual timing of the closing will depend on many factors including preparation of the proxy statement and the SEC’s review of the proxy statement, and the closing may occur later than the second quarter of 2008.

The Purchase Agreement contains customary representations and warranties of the parties, covenants, closing conditions, and certain termination rights for both NutraCea and Vital Living, and further provides that, upon termination of the Purchase Agreement under specified circumstances, Vital Living may be required to pay NutraCea a termination fee.  

Our accounting for the purchase of these securities of VLI qualifies as a Variable Interest Entity (“VIE”) in accordance with FIN 46R . As the primary beneficiary, we have consolidated VLI into our financial statements.

The purchase price allocated to the assets and liabilities in April 2007 is 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		2,212,000
Net assets acquired	$	5,226,000

The purchase price allocation will change when the asset purchase agreement anticipated to be consummated in 2008 and the additional cash payment of $1,500,000 is made. Under that agreement, NutraCea is not purchasing the cash, accounts receivable, inventory, other assets, nor any of the liabilities of VLI.

We have included in our balance sheet at December 31, 2007 the financial position of VLI for the period ended December 31, 2007, and VLI’s results of operations for the period from April 20, 2007 through December 31, 2007 in our statement of operations for the twelve months ended December 31, 2007, while eliminating inter-company balances. The effect on our consolidated balance sheet at December 31, 2007 was an increase in total assets of $8,154,000 (before inter-company eliminations), an increase in total liabilities of $2,762,000 (before inter-company eliminations) and an increase in shareholder equity of $5,392,000 (before inter-company eliminations). The effect on our consolidated income statement for the twelve months ended December 31, 2007 was an increase in revenues of $601,000 (net of inter-company eliminations), an increase in cost of goods sold of $378,000 (net of inter-company eliminations), an increase in operating expenses of $1,508,000, an increase of other expenses of $49,000 (net of inter-company eliminations), and an increase in net loss of $1,335,000. Additionally, we have accrued the $1,500,000 payment to be made under the terms of the asset purchase agreement which results in an increase in goodwill and accrued liabilities associated with this transaction.The total increase in goodwill associated with this transaction of $7,579,000. We evaluated this intangible and based upon our analysis determined the value of this goodwill is $6,279,000. Accordingly we have recorded an intangible impairment of $1,300,000.

F-23

NUTRACEA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10— Acquisitions and Joint Ventures - (continued)

Rice Science LLC

In December 2007 we formed Rice Science, LLC (“RS”), a Delaware LLC with Herbal Science Singapore PTe. Ltd. (“HS”), a Singapore corporation. We formed this LLC with HS to acquire from Herbal Science certain Isolates License Rights and to commercialize and sell the SRB Isolates. NutraCea.and HS have an 80% and 20% interest in the operating results, respectively, but HS has no interest in the initial capital contributions.

We made an initial capital contribution to RS in December 2007 of $1,200,000 as specified in the LLC agreement. We may make an additional $1,000,000 contribution at our discretion and maintain our 80% holding. HS contributed certain Licenses as their capital contribution with a deemed value of $440,000. There are no further capital contributions required of either member. However HS does not have an interest in the initial capital contributed by NutraCea and will not have a minority interest until there are results of operations.

NutraCea holds an 80% interest in RS and therefore will account for the investment as a fully consolidated subsidiary. As of December 31, 2007 the LLC had no sales, operations or expenses. Summary financial information for RS as of December 31, 2007 is as follows:

Assets
Cash	$	1,200,000
Liabilities and Equity
Members equity - NutraCea, Inc.		1,200,000
Total liabilities and equity	$	1,200,000

Rice RX LLC

In December 2007 we formed RICE Rx LLC (“RRX”), a Delaware LLC, with Herbal Science Singapore PTe. Ltd. (“HS”), a Singapore corporation. We formed this LLC with HS to obtain and commercialize certain patentable pharmaceutical license rights from HS. NutraCea, Inc. 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, Inc. 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 Bank of America 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, 2007 no capital contributions had been made, the LLC had no operations, expenses or income.

RixeX

In November, 2005, NutraCea merged with RiceX. See Note 15 to the Consolidated Financial Statements for a full discussion of the merger.

F-24

NUTRACEA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11 — Concentration of Credit Risk

Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of trade accounts receivable and notes receivable for sales to major customers. We perform credit evaluations on our customers’ financial condition and generally do not require collateral on accounts receivable.

For the twelve months ended December 31, 2007, six customers accounted for a total of 51% of sales: 15%, 14%, 11%, 5%, 3% and 3% respectively. No other customer was responsible for more than 3% of total sales. At December 31, 2007, two of those customers accounted for 65% of total accounts receivable: 34%, and 31%, 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% of sales. At December 31, 2006, accounts receivable due from this customer was 49% of the total outstanding accounts receivable.

Accounts receivable:

We maintain an allowance for doubtful accounts on our trade receivables based upon expected collection of all accounts receivable. A summary of the activity in the allowance for doubtful accounts for the three years ended December 31, 2007 is summarized in the following table:

	December 31,
	2007		2006			2005
Balance, beginning of period	$	20,000	$	20,000		$	20,000
Provision for allowance for doubtful accounts
charged to operations		2,979,000		9,000			-
Losses charge against allowance				(9,000	)
Recoveries of accounts previously allowed for		-		-			-
Balance, end of period	$	2,999,000	$	20,000		$	20,000

During the twelve months ended December 31, 2007, 2006 and 2005 we recorded an allowance for doubtful accounts of $2,979,000, $0 and $0, respectively. The 2007 allowance consisted of provisions for doubtful accounts receivable of $1,601,000 and $1,378,000 for amounts due from two customers.

F-25

NUTRACEA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11 — Concentration of Credit Risk- (continued)

Notes receivable:

We maintain an allowance for doubtful accounts on our notes receivables based upon expected collection of individual notes receivable. A summary of the activity in the allowance for doubtful accounts for the twelve ended December 31, 2007, 2006, and 2005 follows:

	December 31,
	2007		2006		2005
Balance, beginning of period	$	-		-	$	-
Provision for allowance for doubtful notes receivable
charged to operations		250,000
Losses charged against allowance		-		-		-
Recoveries of accounts previously allowed for		-		-		-
Balance, end of period	$	250,000	$	-	$	-

During the twelve months ended December 31, 2007, 2006 and 2005, we recorded an allowance for doubtful notes receivable of $250,000, $0 and $0, respectively.

Bad debt expense:

Our bad debt expense for the twelve months ended December 31, 2007, 2006, and 2005, including the provisions for doubtful accounts receivable and doubtful notes receivable was $3,229,000, $9,000 and $0 respectively. Additionally, we wrote off $4,000 of accounts receivable we deemed to be un-collectible.

Note 12 — Notes Payable

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 in payments of $2,572 per month for the build-out of tenant improvements. At December 31, 2007 the short-term portion of this note was approximately $23,000 and the remaining long-term portion was approximately $77,000. Future principle payments for the next four years are: 2008, $26,000; 2009, $26,000; 2010, $26,000; 2012, $22,000.

Note 13 — Income Taxes

Tax expense consisting of minimum franchise and capital taxes for the years ended December 31, 2007, 2006 and 2005 was of $20,000, $5,000 and $2,000, respectively.

F-26

NUTRACEA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 13 — Income Taxes - (continued)

Deferred tax assets (liabilities) are comprised of the following at December 31:

	2007			2006
Net operating loss carry forward	$	19,740,000		$	14,860,000
Allowance for doubtful accounts		1,195,000			-
Marketable securities		-			801,000
Stock options and warrants		40,000			-
Other		175,000			39,000
Intangible assets		(622,000	)		(275,000	)
Property and equipment		(1,343,000	)		(1,341,000	)
Capitalized expenses		128,000			-
Merger expenses		70,000			-
		19,383,000			14,084,000
Less valuation allowance		(19,383,000	)		(14,084,000	)
	$	—		$	—

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 $51,915,956 for federal tax purposes that expire at various dates from 2011 through 2021 and $35,828,480 for state tax purposes that expire in 2010 through 2016.

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. We have not been audited by any jurisdiction since our inception in 1998. We are open for audit by the U.S. Internal Revenue Service and U.S. state tax jurisdictions from our inception in 2003 to 2006.

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:

	2007			2006			2005
Income tax (benefit) expense at federal statutory rate	$	4,043,000		$	541,000		$	(1,316,000	)
Increase (decrease) resulting from:
State franchise tax expense (benefit), net of federal tax effect		1,403,000			92,000			(224,000	)
Change in valuation allowance		5,299,000			(608,000	)		(3,170,000	)
Goodwill impairment		442,000			-			-
True up to 2006 tax return		(102,000	)		-			-
Other, net		(2,999,000	)		(25,000	)		-
RiceX acquisition		-			-			4,710,000
	$	0		$	0		$	0

F-27

NUTRACEA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 14 — Commitments and Contingencies

Employment contracts

Minimum future payments for key employees as of December 31 are as follows:

2008	$	978,000
2009		1,032,000
Total	$	2,010,000

Generally, if we terminate these agreements without cause or the employee resigns with good reason, as defined, we will pay the employees’ salaries, bonuses, and benefits payable for the remainder of the term of the agreements.

Leases

We lease our office and laboratory space in Phoenix, AZ under a lease agreement with Transwestern that expires in March 2016 and requires monthly payments that range from $58,831 to $142,135 during the lease term. We also lease warehouse space in West Sacramento, California, which expires in October 2011 for $11,000 per month, and warehouse space in Lake Charles, LA, for $3,500 per month through 2013. Additionally, we have a number of operating leases for small office space in Burley, ID, and Freeport, TX, and office equipment at all of our locations.

Future minimum payments under these leases at December 31, 2007 were as follows:

Year Ending December 31,
2008	$	1,289,000
2009		1,593,000
2010		1,622,000
2011		1,639,000
2012		1,581,000
2013		1,630,000
Total	$	9,354,000

Rent expense was $1,079,000, $124,000 and $111,000 for the years ended December 31, 2007, 2006 and 2005, respectively.

Litigation

Faraday Financial, Inc.

On July 16, 2002, the Company was summoned to answer a Complaint filed by Faraday Financial, Inc. (“Faraday”) in District Court, County of Salt Lake, Utah (Case No. 020906477). The Complaint alleges that the Company issued convertible promissory notes totaling $450,000 and a promissory note totaling $50,000. On December 13, 2001, Faraday entered into a settlement agreement with the Company, whereby Faraday agreed to cancel the promissory notes in exchange for 735,730 shares of preferred stock. Faraday claims that the settlement agreement required that the Company effect a registration statement covering the preferred stock by June 30, 2002, which the Company failed to do, and demands the Company immediately forfeit to Faraday 735,730 shares of common stock owned by the Chief Executive Officer of the Company. Faraday has filed its fourth claim for relief for a judgment against the Company for $500,000, plus accrued, but unpaid interest, attorneys’ fees and costs, and other such costs. A Settlement Agreement was executed on December 10, 2003. In consideration for the mutual releases, Faraday converted 735,730 preferred into 735,730 common shares and $90,000 of accrued preferred dividends into 1,201,692 common shares. Within the next year, if Faraday cannot realize $552,000 and approximately $10,000 in legal expenses from the sale of the common shares, NutraCea will make up any deficiency. If stock sale exceeds $562,000, Faraday is entitled to keep any excess. Subsequent to December 31, 2003, the Company issued an additional 250,000 shares to Faraday. Concurrently, with the executed Settlement Agreement, a joint stipulated motion to stay all proceedings was filed with the Court. After all the above conditions are met, if Faraday has not lifted the stay within 18 months of December 10, 2003, NutraCea shall deliver to Faraday an executed stipulation for dismissal with prejudice of the Complaint and Counterclaim. In 2005, we issued the final 97,000 shares, valued at $98,000, to Faraday to settle in full the executed Settlement Agreement.

F-28

NUTRACEA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 14 — Commitments and Contingencies - (continued)

Langley Park Investments

NutraCea commenced a lawsuit on September 8, 2006 against Langley Park Investments, PLC, a United Kingdom Corporation (“Langley”) in the United States District Court for the Eastern District of California, Sacramento Division. The factual basis underlying that case involved a private-placement transaction in which NutraCea exchanged 7 million restricted shares of its common stock for 1,272,026 ordinary shares of Langley common stock (the “Langley Shares”), half of which were immediately saleable by NutraCea and half of which were placed in escrow subject to certain conditions. After the commencement of the litigation, the parties entered into a Pre-Settlement/Escrow Agreement, pursuant to which they agreed that the proceeds from Langley’s sale of certain NutraCea shares, totaling $2.5 million, would be deposited into an escrow account. The matter has now been settled. Pursuant to the settlement, NutraCea received $1.25 million in March 2007 from the $2.5 million held in escrow (Langley received the remainder), and NutraCea retained all of the Langley Shares. 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.

In addition to the matters discussed above, from time to time we are involved in litigation incidental to the conduct of our business. While the outcome of lawsuits and other proceedings against us cannot be predicted with certainty, in the opinion of management, individually or in the aggregate, no such lawsuits are expected to have a material effect on our financial position or results of operations.

F-29

NUTRACEA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15 - The RiceX Acquisition

On October 4, 2005, NutraCea merged with RiceX. 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 options and warrants to purchase 11,810,496 shares of RiceX common stock.

On October 4, 2005, certain investors purchased an aggregate of 7,850 shares of Series B Convertible Preferred Stock at a price of $1,000 per share. Additionally, the investors were issued warrants to purchase an aggregate of 7,850,000 shares of common stock at an exercise price of $0.70 per share. An advisor for the financing received a customary fee based on aggregate gross proceeds received from the investors and a warrant to purchase 1,099,000 shares of common stock at an exercise price per share of $0.50 per share.

The acquisition was accounted for using the purchase method of accounting. The purchase price allocation included within these Consolidated Financial Statements is based on a purchase price of $40,542,000 calculated as follows:

NutraCea shares issued		28,272,064
Price per share (NutraCea closing price, October 4, 2005)	$	1.03
Aggregate value of NutraCea common stock consideration	$	29,120,000
Value of the RiceX warrants and options assumed		11,422,000
Total consideration	$	40,542,000
Fair value of identifiable net assets acquired:
Estimate of fair value adjustment of property, plant and equipment	$	5,600,000
Acquired other net tangibles assets		611,000
Estimate of fair value adjustment of RiceX intellectual property		2,000,000
Goodwill		32,331,000
Total	$	40,542,000

The purchase price allocation is based on estimates and assumptions. This information is presented for informational purposes only.

The accompanying unaudited pro forma condensed combined consolidated statement of operations for the year ended December 31, 2005 is presented for illustrative purposes only and does not give effect to any cost savings, revenue synergies or restructuring costs which may result from the integration of NutraCea and RiceX’s operations. In addition, actual results may be different from the projections set forth in this unaudited pro forma condensed combined consolidated statement of operations.

F-30

NUTRACEA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15 — The RiceX Acquisition - (continued)

Unaudited Pro Forma Condensed Combined Consolidated

Statement of Operations

Year Ended December 31, 2005

	HISTORICAL						PRO FORMA
Income Statement	NutraCea			RiceX			Adjustment			Combined
Revenues
Net sales	$	4,569,000		$	3,838,000		$	(325,000	(a)	$	8,082,000
Total Revenues	$	4,569,000		$	3,838,000		$	(325,000	)	$	8,082,000
Cost of Goods Sold	$	2,523,000		$	1,533,000		$	(325,000	(b)	$	3,731,000
Gross Profit	$	2,046,000		$	2,305,000		$	—		$	4,351,000
Sales, General and Administrative	$	2,853,019		$	5,085,000		$	(55,000	(c)	$	7,883,019
Research and Development	$	262,000		$	267,000					$	529,000
Stock Option and Warrant Expense	$	1,511,000		$	—					$	1,511,000
Investor Relations	$	-		$	41,000					$	41,000
Professional Fees	$	109,000		$	914,029					$	1,023,029
Loss From Operations	$	(2,689,019	)	$	(4,002,029	)	$	(55,000	)	$	(6,636,048	)
Interest Income				$	10,000		$	—		$	10,000
Interest Expense	$	(878,000	)							$	(878,000	)
Provision for income tax	$	—		$	(2,000	)				$	(2,000	)
Total other income (expense)	$	(878,000	)	$	8,000		$	—		$	(870,000	)
Net Loss	$	(3,567,019	)	$	(3,994,029	)	$	55,000		$	(7,506,048	)
Cumulative Preferred dividends	$	—		$	—		$	—
Net Loss Available to Common Shareholders	$	(3,567,019	)	$	(3,994,029	)	$	55,000		$	(7,506,048	)
Basic and Diluted Loss per share	$	(0.10	)					(0.01	)	$	(0.11	)
Basic Shares Outstanding		38,830,015						28,272,064	(d)		67,102,079

(a) Represents the elimination of intercompany sales

(b) Represents the elimination of intercompany cost of sales

(c) Represents the elimination of intercompany rent expense of sublease

(d) Represents the net change in total combined common stock outstanding

Note 16 — Preferred and Common Stock

Convertible, Series B Preferred Stock

On October 4, 2005, certain investors purchased an aggregate of 7,850 shares of Series B Convertible Preferred Stock at a price of $1,000 per share pursuant to the Purchase Agreement. The preferred shares can be converted to shares of common stock at a conversion rate of 2,000 shares of common stock for each preferred share issued in the transaction. Additionally, pursuant to the Purchase Agreement, the investors were issued warrants to purchase an aggregate of 7,850,000 shares of common stock at an exercise price of $0.70 per share, valued at $7,690,000. The warrants have a term of five years and are immediately exercisable.

F-31

NUTRACEA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 16 — Preferred and Common Stock - (continued)

An advisor for the financing received a customary fee based on aggregate gross proceeds received from the investors and a warrant to purchase 1,099,000 shares of common stock at an exercise price per share of $0.50 per share valued at $1,086,000.

During the year ended December 31, 2006, fourteen Series B shareholders converted 7,380 shares of preferred stock into 14,760,000 shares of common stock. The preferred shares converted at a conversion rate of 2,000 shares of common stock for each preferred shares.

During the year ended December 31, 2007, four Series B Shareholders converted 470 shares of preferred stock into 940,000 shares of our common stock. The preferred shares converted at a conversion rate of 2,000 shares of common stock for each preferred shares.

At December 31, 2007 there is no outstanding Series B preferred stock.

Convertible, Series C Preferred Stock

On May 12, 2006, we sold an aggregate of 17,560 shares of our Series C Convertible Preferred Stock at a price of $1,000.00 per share in connection with a private placement for aggregate gross proceeds of approximately $17,560,000 ($15,934,000 net after offering and related expenses). The Series C preferred shares can be converted to shares of our common stock at a conversion rate of approximately 1,176 shares of common stock for each preferred share. Additionally, the investors were issued warrants to purchase an aggregate of 10,329,412 shares of our common stock at an exercise price of $1.35 per share. The warrants have a term of five years and are immediately exercisable.

Halpern Capital, Inc. acted as advisor and placement agent for the financing and received a customary fee based on aggregate gross proceeds received from the investors and a warrant to purchase 500,000 shares of NutraCea’s common stock at an exercise price per share of $1.35. The warrants have a five-year term and are immediately exercisable.

During the year ended December 31, 2006, thirty Series C Shareholders converted 12,092 shares of preferred stock into 14,225,854 shares of common stock. The preferred shares converted at a conversion rate of 1,176 shares of common stock for each preferred shares.

During the year ended December 31, 2007, seventeen Series C Shareholders converted 5,486 shares of preferred stock into 6,432,932 shares of our common stock. The preferred shares converted at a conversion rate of 1,176 shares of common stock for each preferred shares.

At December 31, 2007 there is no outstanding Series C preferred stock.

Common Stock

F-32

NUTRACEA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 16 — Preferred and Common Stock - (continued)

During the year ended December 31, 2005, we:

Issued 1,904,805 shares of common stock to seven consultants for services rendered, valued at $907,000;

Issued 70,000 shares of common stock to two officers and directors, valued at $30,000;

Issued a total of 30,000 shares of common stock to two consultants under the Patent Incentive Plan, valued at $13,000; and

Issued 97,000 shares of common stock, valued at $98,000, to Faraday, which was the last required payment to Faraday under the Settlement Agreement dated December 10, 2003.

During the year ended December 31, 2006, we:

Issued 29,999 shares of common stock to a consultant for services rendered, valued at $30,000;

Issued 1,742,723 shares of common stock for the cashless exercise of options/warrants.

During the year ended December 31, 2007 we:

Issued 20,000,000 shares of common stock to investors pursuant to the 2007 Preferred Private Placement,valued at $63,600,000:

Issued 17,500 shares of common stock to a past board member for past board service, valued at $56,350:

Issued 11,927,280 shares of common stock to 45 investors for the exercise of options or warrants:

Issued 1,512,218 shares of common stock to five employees for the exercise of options or warrants:

Cancelled 615,199 shares of common stock, returned to us by an investor in an exercise of options transaction:

Cancelled 84,889 shares of common stock which were returned to us because the holder did not complete certain performance criteria.

Note 17 — Stock Options and Warrants

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

On October 31, 2003, the Board of Directors approved and adopted the 2003 Stock Compensation Plan and authorized the President of the Company to execute a registration statement under the Securities Act of 1933 for 10,000,000 shares of common stock. As of December 31, 2007, 2006, and 2005, 9,966,208 shares of common stock and no options have been granted under the 2003 Stock Compensation Plan.

Our board of directors adopted our 2005 Equity Incentive Plan. or 2005 Plan, in May 2005 and our shareholders approved the 2005 Plan in September 2005. 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, 2007, no shares were issued under the 2005 Plan. 210,000 shares underlie outstanding stock option granted pursuant to the 2005 Plan and 9,790,000 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.

The expense, if any, of stock options issued to employees is recognized over the shorter of the term of service or vesting period. The expense of stock options issued to consultants or other third parties are recognized over the term of service. In the event services are terminated early or no specific future performance is required by the Company, the entire amount is recognized.

During the year ended December 31, 2005, we:

Assumed 11,810,496 options and warrants with exercise prices between $0.15 and $1.66 per share relating to the acquisition of RiceX. The warrants expire at varying times between 9 months and 10 years;

F-33

NUTRACEA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 17 — Stock Options and Warrants - (continued)

Issued 1,305,000 options and warrants to purchase common stock to ten consultants valued at $349,000. The warrants expire from three-five years, and have exercise prices between $0.30 and $1.275 per share;

Issued 1,099,000 warrants to purchase common stock, valued at $1,086,000, for commissions to the underwriter relating to the private placement of Series B preferred stock. The warrants have an exercise price of $0.50 and expire in five years;

Issued 7,850,000 warrants to purchase common stock to 17 investors in conjunction with the Series B preferred stock private placement, valued at $7,690,000, exercisable for $0.70 and expiring in five years;

Issued 2,200,000 options to 3 employees, which are exercisable between $0.30 and $0.46 per share, expiring in ten years;

Exercised 531,000 options and warrants for common stock for cash in the amount of $105,000; and,

Issued 66,666 shares of common stock in exchange for 100,000 options and warrants for a cashless exercise.

During the year ended December 31, 2006, we:

Issued 17,560 shares of our Series C Convertible Preferred Stock at a price of $1,000 per share in connection with a private placement for aggregate gross proceeds of approximately $17,560,000 ($15,934,000 net, after offering and related expenses).

Issued 10,329,411 warrants to purchase common stock to 33 investors in conjunction with the series C preferred private placement, valued at $13,524,000, immediately exercisable for $1.35 and expiring in five years;

Issued 500,000 warrants to purchase common stock, valued at $655,000, for commissions relating to private placement of series C preferred stock. The warrants are immediately exercisable at $1.35 and expire in five years;

Issued a total of 1,600,000 options to purchase common stock to 17 employees, non-employee directors and a medical advisor to the board of directors, vesting from immediately to 2 years, expiring in 3-10 years, with exercise prices of $1.00 to $2.50 per share;

Issued a total of 700,000 warrants to purchase common stock to 12 consultants, vesting from immediately to performance contingencies, expiring in 3-4 years, with exercise prices of $1.00 to $2.40 per share;

Canceled and/or expired 869,150 options and warrants, including 626,030 RiceX options.

Exercised 5,635,064 options and warrants for common stock for cash in the amount of $5,784,000; and

Issued 1,842,723 shares of common stock in exchange for 2,520,000 options and warrants for a cashless exercise:

Issued 297,108 shares of common stock in connection with our equine feed assets purchase, valued at $350,000;

Issued 5,635,064 shares of common stock for the exercise of options and warrants for cash in the amount of $5,784.000;

During the year ended December 31, 2007 we:

Issued 10,000,000 warrants to purchase common stock to twenty-three investors in conjunction with the February 2007 Preferred Private Placement. The warrants are immediately exercisable, have an exercise price of $3.25 and expire in five years.

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NUTRACEA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 17 — Stock Options and Warrants - (continued)

Issued 1,200,000 warrants to purchase common stock, for commissions to the underwriter relating to the February 2007 Preferred Private Placement. The warrants are immediately exercisable, have an exercise price of $3.25 and expire in five years.

Issued 210,000 options to purchase common stock to six Directors for yearly board service: The options vest monthly over a twelve month period, have an exercise price between $3.76 and $3.83, and expire in ten years.

Issued 1,039,000 options to purchase common stock to thirty-two employees, with vesting terms of up to three years that have exercise prices between $1.02 and $4.04 per share and expire ten years from the date of grant: One employee received 250,000 of these shares at an exercise price of $2.63 which expire in ten years.

Issued 1,815,000 warrants to purchase common stock to five consultants, with exercise prices between $2.38 and $5.25 per share, expiring from one to five years:.

Issued to thirty-nine investors a total of 10,754,598 shares of our common stock for the exercises of options and warrants for cash in the amount of $8,952,161 and the surrender of our common stock of 615,199 shares:.

Issued to three employees 960,747 shares of our common stock for the exercises of 960,747 options or warrants and cash of $288,224:

Issued to eight investors 1,172,682 shares of common stock in cashless exercises of 1,638,352 options or warrants:

Issued to three employees 551,471 shares of common stock in cashless exercises of 603,933 options or warrants:

Cancelled or expired 3,401,112 options or warrants, including 1,000,000 owned by an officer of the company which expired due to performance goals of the company not being met.

The Company determines fair value at grant date using the Black-Scholes option pricing model that takes into account the stock price at the grant date, the exercise price, and the expected life of the option, the volatility of the underlying stock and the expected dividend yield and the risk-free interest rate over the expected life of the option.

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 contractual 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, and valued in accordance with FAS 123 ®, 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 that an expected forfeitures rate ranging from 5% to 10%. Assumptions used in the Black-Scholes model in accordance with FAS 123 ® for the years ended December 31, 2007 and 2006 and summarized in the table below.

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NUTRACEA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 17 — Stock Options and Warrants - (continued)

In the year ended December 31, 2005, the fair value of compensation expense relating to non-employees stock option grants was estimated on the date of the grant in accordance with FAS123, using the Black-Scholes option-pricing model and the following weighted average assumptions:

	2007			2006			2005
Weighted average fair value of options granted	$	3.43		$	1.35		$	.54
Risk-free interest rate (2005)		n/a			n/a			2.0	%
Federal reserve treasury rates (2007 and 2006)		3.67-5.06	%		3.83-5.08	%		n/a
Expected life (years)		6.2			2-5			2-10
Expected volatility		67.9 - 80.5	%		124-305	%		112-166	%
Expected dividends		0			0			0

The Black-Scholes option valuation model requires the input of highly subjective assumptions, including the expected life of the stock-based award and stock price volatility. The assumptions listed above represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if other assumptions had been used, the Company’s recorded stock-based compensation expense could have been materially different from that previously reported in pro-forma disclosures. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. If the Company’s actual forfeiture rate is materially different from the estimate, the share-based compensation expense could be materially different.

A summary of option activity under our equity-based compensation plans as of December 31, 2007, and changes during the year then ended is presented below:

	Number of Options/Warrants			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Outstanding at January 1, 2007		42,488,556		$	0.76		4.86	$	79,111,000
Granted		14,334,000		$	3.43
Exercised		(13,957,629	)	$	0.86				29,642,000
Forfeited/Expired		(1,400,242	)	$	0.77
Outstanding at December 31, 2007		41,464,685		$	1.65		4.57	$	20,916,000
Exercisable at December 31, 2007		39,481,749		$	1.55		4.36	$	20,859,000

The weighted-average grant-date fair value of options granted during 2007 and 2006 was $3.43 and $1.35, respectively. The weighted-average grant-date fair value of options calculated in accordance with FAS 123 granted during 2005 was $0.54.

The total intrinsic value of options exercised during the years ended December 31, 2007, 2006, and 2005 was $29,642,000, $6,329,380, and $575,364 respectively.

The total fair value of options vested during the years ended December 21, 2007, 2006, and 2005 was $2,950,000, $733,000, and $479,000, respectively.

F-36

NUTRACEA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 17 — Stock Options and Warrants - (continued)

The Company’s stock options and warrants outstanding, exercisable, exercised and forfeited categorized as employees/directors and consultants/investors 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
Outstanding balance January 1, 2005	$	0.34		8,289,700		$	0.85		6,095,156
Granted	$	0.31		2,200,000		$	0.67		10,554,000
Expired or canceled	$	-		-		$	0.01		(135,004	)
Exercised	$	-		-		$	0.12		(531,000	)
Assumed	$	0.36		8,047,765		$	0.69		3,762,742
Outstanding balance December 31, 2005	$	0.34		18,537,465		$	0.75		19,745,894
Exercisable balance December 31, 2005	$	0.35		16,837,465		$	0.74		19,115,894
Outstanding balance January 1, 2006	$	0.34		18,537,465		$	0.75		19,745,894
Granted	$	1.36		1,600,000		$	1.35		11,629,411
Expired or canceled	$	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
Exercisable balance December 31, 2006	$	0.35		17,589,504		$	1.01		22,443,726
Outstanding balance January 1, 2007	$	0.43		19,444,221		$	1.03		23,044,335
Granted	$	2.97		1,319,000		$	3.47		13,015,000
Expired or canceled	$	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
Exercisable balance December 31, 2007	$	0.55		16,628,752		$	2.28		22,852,997

Cash received from warrant and stock options exercises for the years ended December 31, 2007, 2006, and 2005 was $9,241,000, $5,784,000, and $105,000, 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 18 — Related Party Transactions

Year ended December 31, 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.

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NUTRACEA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 18 — Related Party Transactions - (continued)

In November 2007, we reached an agreement with our former Chief Executive Officer, Ms. NutraCea, and paid her $1,000,000 in severance. She in turn, surrendered all rights to any previous patents issued during her tenure with RiceX and Nutracea. She also granted us the right of first refusal for the benefit of future patent filings for ten years.

In February 2007, we issued to one non-employee director an option to purchase 35,000 shares. The option expires in ten years, has an exercise price of $3.76 per share and vests evenly over twelve months.

In February 2007, we issued to one executive officer an option to purchase 250,000 shares. The option expires in ten years, has an exercise price of $2.63 per share and vests evenly over a 36 months.

In May 2007, we issued to one non-employee director an option to purchase 35,000 shares of our common stock. The options expire in ten years, have an exercise price of $3.76 per share and vest evenly over twelve months.

In June 2007, we issued to each of our five non-employee directors options to purchase 35,000 shares of our common stock (totaling 175,000 options). The options expire in ten years, have an exercise price of $3.83 per share and vest evenly over twelve months.

Year ended December 31, 2006:

In February 2006, we issued a warrant to purchase 100,000 shares of common stock to a member of our Board of Directors for services rendered outside of his directors duties. The warrant expires in five years, has an exercise price of $1.00 per share, and was charged to stock, stock option and warrant expense in the amount of $100,000.

In May 2006, we issued to each of our six non-employee directors an option to purchase 35,000 shares (totaling 210,000 option shares). The options expire in ten years, have an exercise price of $1.14 per share and vest evenly over twelve months

In May 2006, we issued 381,996 shares of common stock to a customer in an asset purchase agreement related to their trademarks associated with the equine market valued at $450,000.

In December 2006, we issued 75,000 warrant shares of common stock to a member of our limited liability company, contingent upon certain performance. A portion of these warrants were deemed to be probable of vesting. The value of the 25,000 probable vesting warrant shares was $16,000 and had an exercise price of $2.38. They will expire in December of 2009.

Year ended December 31, 2005:

In the first quarter of 2005, 70,000 shares of common stock, valued at $30,000, were issued to two directors.

Outside compensation of former Chief Executive Officer:

In April 2005, a direct response marketing company agreed to compensate our former Chief Executive Officer, Patricia McPeak, whereby she will receive a royalty per unit sold resulting from infomercials that will demonstrate specific products of ours. Pursuant to this agreement, Ms. McPeak should have earned approximately $311,000, $1,176,000 and $270,000 in 2007, 2006 and 2005, respectively from this direct marketing company. The agreement provides for royalty payments to be made for two years by the direct response marketing company and is not an obligation of ours.

Vital Living, Inc.:

In conjunction with our purchase of certain securities of VLI (Note 10), we consolidated VLI financial results for the period April 20, 2007 to December 31, 2007 into our financial results for the year ending December 31, 2007. Also during the three months ended June 30, 2007, we entered into a business relationship with a new customer that is also the principle customer of VLI. The CEO of VLI is also a principal partner with this new customer. During the twelve months ended December 31, 2007, we recorded sales of $2,461,000 to this new customer. At December 31, 2007 we had $1,465,000 due from this customer included in our accounts receivable of $5,345,000. The entire amount is past due at December 31, 2007 and we have recorded an allowance for doubtful accounts of $1,378,000 against this receivable. We have agreed upon a payment plan and received $65,000 in payments in February 2008 and continued to make sales on a cash basis. We believe the receivable is ultimately collectable.

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NUTRACEA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 18 — Related Party Transactions - (continued)

Also included in the summary financial statements of VLI, which is included in our consolidated balance sheet at December 31, 2007, is $557,000 of accounts receivable, which includes $539,000 due from VLI’s principle customer. During the year ended December 31, 2007 the CEO of VLI has advanced VLI $407,000 of short-term, non-interest bearing loans which are included in the accrued liabilities of VLI on our consolidated balance sheet. Because the CEO of VLI is also a principle member of VLI’s major customer, and because under the terms of the pending asset purchase agreement we will not be acquiring the receivables or any liabilities of VLI, we have offset the $407,000 due to the officer of VLI against the $539,000 of receivables due from the customer on our financial statements.

Note 19 — 401(K) Profit Sharing Plan

At the time of the merger with RiceX, we adopted RiceX’s 401(k) profit sharing plan (the “Plan”) for the exclusive benefit of eligible employees and their beneficiaries. Substantially all employees are eligible to participate in the Plan. 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 2007, 2006 and 2005, we made matching contributions of $113,000, $69,000, and $41,000, respectively.

Note 20 — Subsequent Events

Medan, LLC.

On January 24, 2008, NutraCea, through a newly formed wholly-owned subsidiary, Medan, LLC, a Delaware limited liability company (“Medan”), entered into a Stock Purchase Agreement (“Purchase Agreement”) with Fortune Finance Overseas Ltd., a British Virgin Islands company (“FFOL”). Pursuant to the Purchase Agreement, Medan will purchase 9,700 shares of capital stock of PT Panganmas Inti Nusantara, an Indonesian Company (“PIN”), from FFOL for $8,175,000 upon approval of PIN’s Foreign Investment Application. In addition, following the closing, Medan will purchase an additional 3,050 shares from PIN for $2,500,000. Upon completion of these transactions, Medan will own 51% of the capital stock of PIN and FFOL will own 49%. Medan and FFOL will enter a voting agreement where each party will vote all of their shares in a manner that PIN’s Board of Directors and Board of Commissioners shall consist of an even number of persons designated by each party. NutraCea entered into this Purchase Agreement to construct and operate a full scale, wheat bran stabilization facility in the Republic of Indonesia.

Concurrently with the Purchase Agreement, NutraCea entered into a Wheat Bran Stabilization Equipment Lease (“Lease”) with PIN. Pursuant to the Lease, NutraCea will lease to PIN wheat stabilization equipment developed by NutraCea for use at PIN’s facility. The term of the lease will be for 15 years with an automatic extension of 5 years if the facility is fully operational and the equipment is still being used in the operations of the facility. The lease amount payable by PIN will be the actual cost incurred for manufacturing and installing the equipment at the facility.

F-39

NUTRACEA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 20 — Subsequent events - (continued)

In a separate transaction, on January 24, 2008, NutraCea and Pacific Advisors Holdings Limited (“PAHL”), a British Virgin Islands company and affiliate of FFOL, amended certain terms of the Operating Agreement (“Amendment”) of Grain Enhancement, LLC, a Delaware limited liability company (“Joint Entity”). The Joint Entity was formed on June 22, 2007 by NutraCea and PAHL to construct and operate multiple rice bran stabilization facilities in the Republic of Indonesia, Vietnam, Malaysia, Singapore and Thailand and was granted an exclusive license and distribution rights for the sale of NutraCea’s stabilized rice bran (“SRB”) and other products throughout these countries, and Australia and New Zealand (the “Territory”). Pursuant to the Amendment, the timing of mandatory capital contributions of the members was changed from an agreed upon schedule to a determination by the Finance Committee on an as needed basis. In addition, PAHL will no longer receive a monthly management fee.

Concurrently with the Amendment, NutraCea and PAHL amended the terms of the License and Distribution Agreement dated June 22, 2007. In that agreement, NutraCea granted PAHL a perpetual and exclusive license and distribution rights for the production and sale of SRB and SRB derivative products in the Territory (the “License”). PAHL agreed not to distribute or market any items competitive with NutraCea’s SRB and SRB derivative products outside of the Territory. In exchange for the License, PAHL agreed to pay NutraCea a fee in the amount of $5,000,000 (U.S.) on five year payment terms, together with interest. The parties have agreed to amend the payment terms. PAHL now agrees to pay NutraCea the license fee of $5,000,000 by March 31, 2008. In consideration for this payment, NutraCea agrees to waive all accrued interest owed by PAHL ($118,000 at December 31, 2007).

Also concurrently with the Amendment, NutraCea has agreed to issue to PAHL a new warrant for the purchase of 1,000,000 shares of NutraCea common stock at an exercise price of $2.50 per share (“Warrant”), and PAHL has agreed to cancel the existing warrant currently held by PAHL for the purchase of 1,500,000 shares at an exercise price of $5.25. NutraCea has agreed to register the shares underlying the Warrant subject to certain cutback restrictions set forth in the Warrant. The Warrant shall vest and become exercisable in full upon the Joint Entity depending on certain conditions agreed to upon the parties.

Irgovel:

On January 31, 2008, NutraCea entered into a Quotas Purchase and Sale Agreement (“Purchase Agreement”) with the Quota Holders (“Sellers”) of Irgovel - Industria Riograndens De Oleos Vegetais Ltda., a limited liability company organized under the laws of the Federative Republic of Brazil (“Irgovel”). Irgovel, located in Brazil, owns and operates a rice bran oil processing facility in South America.

In February 2008, we completed the purchase of Irgovel paying $14,080,000 for 100% of the company. Additionally, we agreed to fund as necessary up to $5,300,000 to pay deferred taxes due to the Brazilian government. These deferred taxes are payable over a period of 10 years.

Purchase commitments:

In January 2008 we signed a letter of intent to purchase a building in Phoenix for our planned SRB stage II processing facility for $8,250,000. We expect to close escrow in March 2008. Additionally, we estimate our costs to equip the facility for the production of our products to be $5,000,000. We plan for the facility to be operational in the fourth quarter of 2008.

In March 2008, we entered an agreement to purchase a customer list from a supplier for $3,000,000. We expect to finalize that purchase in the second quarter of 2008.

F-40

NUTRACEA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 20 — Subsequent events - (continued)

Options and Warrants Issued

In January 2008, we issued options to purchase 1,650,000 shares to five (5) Executive Officers of the Company, with an exercise price of $1.49, vesting contingent upon the certain performances of the company, all expire in five.

In January 2008, we issued options to purchase 600,000 shares to six outside Directors with an exercise price of $1.49 per share, vesting monthly over a twelve month period, all expire in five years.

In January 2008, we issued warrants to purchase 100,000 shares to one consultant with an exercise price of $1.21 per share, vesting over a five year period, and expire in eight years.

In January 2008, we issued warrants to purchase 1,000,000 shares to one consultant with an exercise price of $2.50 per share, vesting is contingent upon certain performances, expire in three years.

In February 2008, we issued a warrant to purchase 100,000 shares to one consultant with an exercise price of $1.45 per share, vesting over a six month period once certain performance contingencies are met, and expire in three years.

In January and February 2008, we issued options to purchase 135,000 shares to four employees with exercise prices from $1.26 to $1.47 per share, vesting over three years, and expire in five years.,

Options and Warrants Exercised

In January and February 2008, we issued 1,096,316 shares of common stock to eleven investors in an exercise of options or warrants for cash in the amount of $623,821.

In January, we issued 165,080 shares of common stock to two investors in cashless exercises of 231,322 options or warrants.

F-41

NUTRACEA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 21 — Quarterly Financial Data (Unaudited)

	2007
	First Quarter			Second Quarter		Third Quarter			Fourth Quarter
Revenues	$	1,997,000		$	12,996,000	$	1,520,000		$	5,648,000
Operating (loss) income		(2,009,000	)		1,770,000		(5,593,000	)		(9,298,000	)
Net (loss) income		(247,000	)		2,002,000		(4,784,000	)		(8,882,000	)
Basic net income (loss) per common share		0.00			0.01		(0.03	)		(0.07	)
Diluted net income (loss) per common share		0.00			0.01		(0.03	)		(0.07	)

	2006
	First Quarter			Second Quarter		Third Quarter		Fourth Quarter
Revenues	$	3,782,000		$	4,166,000	$	4,946,000	$	5,196,000
Operating (loss) income		(254,000	)		290,000		460,000		556,000
Net (loss) income		(233,000	)		399,000		641,000		778,000
Basic net income (loss) per common share		0.00			0.01		0.01		0.00
Diluted net income (loss) per common share		0.00			0.01		0.01		0.00

F-42

NUTRACEA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 22 — Geographic Operations

For purposes of geographic reporting, revenues are attributed to the geographic location of the sales organization. The following table presents net revenues and long-lived assets by geographic area:

Fiscal Year Ended December 31,	2007		2006		2005
Net revenue from customers:
United States	$	21,209,000	$	17,748,000	$	5,564,000
International		952,000		342,000		-
Total revenues	$	22,161,000	$	18,090,000	$	5,564,000
Property, plant and equipment, net:
United States	$	19,328,000	$	8,961,000	$	5,493,000
Other countries		-		-		-
Total property, plant and equipment	$	19,328,000	$	8,961,000	$	5,493,000

The accompanying notes are an integral part of these financials

F-43

EX-2.04

EXHIBIT 2.04

QUOTAS PURCHASE AND SALE AGREEMENT

among

NUTRACEA, A CALIFORNIA CORPORATION

as Purchaser

and

OSMAR TEIXEIRA DO AMARAL BRITO

NEWMAN TEIXEIRA DO AMARAL BRITO

EDILSON TEIXEIRA DO AMARAL BRITO

DARLAN TEIXEIRA DO AMARAL BRITO

SAMUEL AMARAL BRITO JÚNIOR

DARLENE DO AMARAL BRITO COSTA

MARIA ZENIA AMARAL BRITO VILELA

MARIA HELENA AMARAL BRITO FERREIRA

CANDIDA MARIA TEIXEIRA DO AMARAL BRITO

HELENA TEIXEIRA BRITO

ALDOMIRO PEREIRA FALEIRO

as Sellers

IRGOVEL - INDÚSTRIA RIOGRANDENSE DE ÓLEOS VEGETAIS LTDA.

as Intervening Party

dated as of 31^st January 2008

QUOTAS PURCHASE AND SALE AGREEMENT

This Quotas Purchase and Sale Agreement (the “Agreement”) is entered into by and among the PARTIES below on January 31, 2008, (the “Execution Date”) and shall become effective on February 4, 2008 (the “Effective Date”):

On one side,

(1) NUTRACEA, a corporation organized and existing in accordance with the laws of the State of California, with head offices and legal domicile in the city of Phoenix, State of Arizona, United States of America, located at 5090 N. 40th Street, Ste 400, AZ 85018, herein represented by its Chief Executive Officer, Mr. Bradley Edson, an American citizen, married, businessman, resident and domiciled in the United States of America, with commercial offices located in the city of Phoenix, State of Arizona, at 5090 North 40th Street, Suite 400, AZ 85018 (hereinafter referred to simply as “NUTRACEA”);

And, on the other,

(2) OSMAR TEIXEIRA DO AMARAL BRITO, a Brazilian citizen, married, businessman, residing and domiciled at Rua Maranhão, 320, 5º andar, in the city of São Paulo, SP, registered as Individual Taxpayer under No. 008.620.458/00;

(3) NEWMAN TEIXEIRA DO AMARAL BRITO, a Brazilian citizen, married, businessman, residing and domiciled at Rua Albuquerque Lins, 848, apto. 162, in the city of São Paulo, SP, registered as Individual Taxpayer under No. 010.744.748/72;

(4) EDILSON TEIXEIRA DO AMARAL BRITO, a Brazilian citizen, married, businessman, residing and domiciled at Rua Guilherme Wetzel, 355, in the city of Pelotas, RS, registered as Individual Taxpayer under No. 076.735.151/72;

(5) DARLAN TEIXEIRA DO AMARAL BRITO, a Brazilian citizen, married, chemical engineer, residing and domiciled Rua Povoas Júnior, 683, in the city of Pelotas, RS, registered as Individual Taxpayer under No. 003.030.031/20;

(6) SAMUEL AMARAL BRITO JÚNIOR, a Brazilian citizen, married, economist, residing and domiciled at Rua T-38, nº 668, apto. 602, Setor Bueno, in the city of Goiânia, GO, registered as Individual Taxpayer under No. 076.429.461/04;

(7) DARLENE DO AMARAL BRITO COSTA, a Brazilian citizen, widow, businesswoman, residing and domiciled at Rua S-51, nº Quadra 59, lote 02, in the city of Anápolis, GO, registered as Individual Taxpayer under No. 692.406.631/34;

(8) MARIA ZENIA AMARAL BRITO VILELA, a Brazilian citizen, married, businesswoman, residing and domiciled at Rua Elvira, 42 Vila Santa Maria de Nazareth, in the city of Anápolis, GO, registered as Individual Taxpayer under No. 283.218.201/15;

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(9) MARIA HELENA AMARAL BRITO FERREIRA, a Brazilian citizen, married, businesswoman, residing and domiciled at Rua J-31, 40, Setor Jaó, in the city of Goiânia, GO, registered as Individual Taxpayer under No. 348.055.591/87;

(10) CANDIDA MARIA TEIXEIRA DO AMARAL BRITO, a Brazilian citizen, single, businesswoman, residing and domiciled at Rua Arlindo Costa, 17, in the city of Anápolis, GO, registered as Individual Taxpayer under No. 320.240.531/49;

(11) HELENA TEIXEIRA BRITO, Brazilian, widow, businesswoman, residing and domiciled at Rua Arlindo Costa, 17, in the city of Anápolis, GO, registered as Individual Taxpayer under No. 402.934.911/00; and

(12) ALDOMIRO PEREIRA FALEIRO, a Brazilian citizen, widower, businessman, residing and domiciled at Rua 9-B, Quadra J-3. Don Orlando, Lotes 11/17, nº 182, apto. 1.703, Setor Oeste, in the city of Goiânia, GO, registered as Individual Taxpayer under No. 002.799.001/04 (hereinafter referred to collectively simply as “SELLERS”);

And, as Intervening Party,

(13) IRGOVEL - INDÚSTRIA RIOGRANDENSE DE ÓLEOS VEGETAIS LTDA., a limited liability company organized and in existence in accordance with the laws of the Federative Republic of Brazil, taxpayer’s registration # 87.442.430/0001-41, headquartered in the city of Pelotas, State of Rio Grande do Sul, in the Federative Republic of Brazil, at Avenida Presidente João Goulart, 7351, Distrito Industrial, CEP 96.040-000 (hereinafter referred to simply as “IRGOVEL”)

NUTRACEA andeach of the SELLERS, as well as IRGOVEL, as the case may be and if the context so allows, hereinafter referred to individually as “PARTY” and collectively as “PARTIES”,

WHEREAS

A.On November 29, 2007, NUTRACEA and the SELLERS executed a Commitment to Purchase, Sell and Transfer Quotas of a Limited Liability Company’s Capital (the “Commitment”), providing for the promise to sell, assign and transfer quotas representing the total corporate capital of IRGOVEL (the “Acquisition”);

B.In view of the various issues pertinent to the Acquisition and the negotiations towards the conclusion of the Acquisition, the PARTIES agreed upon a further extension of the closing date from January 20, 2007 to February 18, 2008;

C.Under clause two, paragraphs five and six, as well as clause three and clause four of the Commitment, the SELLERS undertook to comply with certain conditions precedent to the closing of the Acquisition, as indicated in Schedule A hereto;

D.The SELLERS, except as mentioned in Schedule B hereto, (i) have provided NUTRACEA with sufficient and satisfactory evidence demonstrating that their obligations in connection with the conditions precedent referred to in the previous paragraph have been performed and (ii) have removed the contingencies capable of impairing the conclusion of the Acquisition and have providedNUTRACEAwithsufficient and satisfactory evidence of the measures taken to that effect;

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E.The SELLERS wish to sell, and NUTRACEA, through its wholly-owned subsidiary, Nutra SA, LLC, a limited liability company organized pursuant to the laws of the State of Delaware, United States of America, in accordance with the terms below, wishes to purchase, all quotas held by each of the SELLERS in IRGOVEL, comprising the total corporate capital of the company, as set forth in Schedule C to this Agreement, including all rights attached thereto, such as voting rights, the right to receive past, present or future dividends, the right to bonus quotas, the right to subscribe for new corporate capital, and payment to quotaholders by means of reduction of corporate capital and any other right of whatever nature (all collectively hereinafter referred as, the “Quotas”), pursuant to the terms and conditions hereof;

NOW, THEREFORE, the PARTIES, in consideration of the premises and covenants set forth herein, agree as follows:

I. DEFINITIONS AND INTERPRETATION PRINCIPLES

1.1.Definitions. When used in this Agreement or in the Schedules to this Agreement with capitalized bold letters, the following terms and expressions shall have the meanings ascribed to them under this Section I. Other terms not expressly listed below shall have the meanings ascribed to them herein and/or in the Schedules hereto:

Acquisition	has the meaning assigned in the preamble of this Agreement
Agreement	has the meaning assigned in the preamble hereof
Balance Sheet	shall mean the balance sheet of IRGOVEL drawn up for the period ending on November 30, 2007
Balance Sheet Date	shall mean November 30, 2007
Basic Purchase Price	shall have the meaning indicated in clause 3.1. hereof
Brazilian GAAP	shall mean the general accepted accounting principles in force and in effect in the Federative Republic of Brazil, pursuant to Law 6,404, dated as of December 15, 1976, as amended thereafter, and the Brazilian Civil Code, as well as the accounting methods, procedures and regulations issued by the Brazilian Accountants Institute - IBRACON and the Federal Accounting Council - CFC, consistently applied.
Business	shall mean the production of rice oil, rice bran livestock feed and other rice bran products, as indicated in Schedule D hereto.
Business Day	shall be any day on which commercial banks in the municipality of São Paulo, State of São Paulo, Brazil, Pelotas, State of Rio Grande do Sul, Brazil, and Phoenix, Arizona, United States, are open to the public under regular business hours and carrying their normal business activities.
Closing Date	shall mean February 18, 2008
Closing Statement	shall mean the closing statement to be issued in accordance with the terms of this Agreement, as per Schedule P, establishing the Final Purchase Price to be paid by NUTRACEA to the SELLERS as consideration for the purchase of the Quotas

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Confidential Information	shall mean all information related to the Business or any of the Parties, including any information related to any legal, financial, commercial, economic or accounting data; information on shareholders’ relations, marketing, sales and dispute proceedings; information on industrial processes, plans or projects; technical data or knowledge; trade secrets; market opportunities and strategies, except for such data that is already generally known or available to the public in general, without a breach of any confidentiality agreement.
Control	when used with respect to any Person, means the power, directly or indirectly, to direct, determine, manage, control or cause the direction of the management, business, operations, activities, investments or policies of such Person, whether through the ownership of equity in such Person, by contract or otherwise, and the terms “controlling”, “controlled by” and “under common control with” shall be construed accordingly.
Effective Date	shall mean February 4, 2008
Environmental Laws	shall have the meaning described in clause 4.23.
Escrow Account Deposit	means the amounts of the purchase price that shall be retained by NUTRACEA as collateral for contingent liabilities, in accordance with this Agreement and the Escrow Agreement.
Excluded Assets	shall mean all assets which, under the mutual agreement of NUTRACEA and the SELLERS are excluded from the Acquisition and shall be retained by the latter.
Execution Date	has the meaning set forth in the preamble of this Agreement
Final Purchase Price	shall have the meaning indicated in clause 3.5. hereof
Financial Statements	shall mean the consolidated financial statements (the Balance Sheet and the income statement) of IRGOVEL prepared for the period ending on the Balance Sheet Date, a copy of which is attached hereto as ScheduleF.
ICMS Credit	shall mean the credits derived from the payment of the Tax on Operations related to the Circulation of Goods and on the Rendering of Interstate and Inter-Municipal Transportation Services and Communication Services (ICMS) accrued by IRGOVEL in its operations, as a result of certain exemptions provided for to IRGOVEL’s operations by law.
Initial Deposit of Funds	means the deposit of the amount of USD 500,000.00 (five hundred thousand US Dollars) transferred by NUTRACEA, in accordance with clause five of the Commitment
Intellectual Property	shall mean all domestic and foreign intellectual property presently owned, possessed, used or held by IRGOVEL.
Inventory	shall mean all inventory of IRGOVEL, including without limitation, raw materials, work in process and finished products, packaging, unused spare parts, items purchased for distribution or resale and items which have been ordered or purchased by IRGOVEL, including inventory shown on the Financial Statements or acquired thereafter in the ordinary course of business.

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Indemnified Party	shall have the meaning assigned in clause 6.7.
Indemnifying Party	shall have the meaning assigned in clause 6.7.
Losses	shall mean any damage, loss, cost or expense (including costs of investigation and defense and reasonable attorneys’ and accountants’ fees) effectively incurred by a Party as a result of (i) the violation, breach or inaccuracy in any of the representations and/or warranties provided by the other Party in this Agreement; or (ii) the unremedied default by the other Party of its obligations hereunder.
Material Adverse Change	shall have the meaning assigned in clause 4.11.
NUTRACEA	has the meaning assigned in the preamble of this Agreement and/or means any wholly-owned subsidiary of NUTRACEA, including Nutra SA, LLC, mentioned above,which may be indicated by NUTRACEAto comply with the pertinent obligations undertaken by it hereunder, including the payment of the Final Purchase Price and the deposit of funds into the Escrow Account
Party	shall have the meaning assigned in the preamble to this Agreement.
Parties	shall have the meaning assigned in the preamble to this Agreement.
Person	means any individual, corporation, partnership, firm, joint venture, association, organization, joint stock company, trust, unincorporated organization or other entity.
Provisional Closing Statement	shall mean the provisional closing statement to be issued in accordance with the terms of this Agreement, as per Schedule E, establishing the Purchase Price to be paid by NUTRACEA to the SELLERS as consideration for the purchase of the Quotas
Purchase Price	shall have the meaning described in clause 3.2.
Quotas	has the meaning indicated in whereas “E” hereinabove.
Related Party	shall mean (i) any Person that has been, is or becomes a partner or a shareholder with an equity investment representing more than 10% (ten percent) of the capital stock of any company formed or that happens to be formed by any of the SELLERS in the future or a director, officer, manager, employee, associate, representative, attorney in fact and/or advisor or service provider of any of the SELLERS; (ii) the spouse, companion or any of the relatives up to the third degree of any of the individuals mentioned in item (i) above; or (iii) any Person that directly, or indirectly through one or more intermediaries, controls, or is under common control with any of the SELLERS or any of the Persons listed in item (i).
Rice Bran Credit	shall mean the ICMS credit accrued by IRGOVEL in certain export operations, which ICMS credit was transferred to the company named Coradine Alimentos Ltda., as per relevant authorization granted by the competent tax authorities, in exchange for receipt of rice bran to be delivered on January, 2008 and February 2008

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SELLERS	has the meaning assigned in the preamble of this Agreement.
Subsidiary	means, with respect to any Person, any entity controlled directly or indirectly by such Person.
Territory	shall mean the territory of the Federative Republic of Brazil, in accordance with the pertinent Brazilian laws

1.2.Interpretation Principles. This Agreement shall be construed in accordance with the following principles:

1.2.1. The headings and captions herein are inserted for convenience of reference only and shall not limit or construe the clauses, paragraphs or Sections to which they apply.

1.2.2. The terms “include”, “including”, and similar terms shall be construed as if followed by the phrase “without limitation”.

1.2.3. Whenever required by the context, references in this Agreement in the singular shall include the plural and vice versa, and the masculine gender shall include the feminine gender and vice versa.

1.2.4. References to any document or other instruments include all amendments, replacements and restatements thereof and supplements thereto except where expressly provided otherwise.

1.2.5. Unless otherwise expressly stated herein, references to Clauses, Sections, or Schedules are to Clauses, Sections and Schedules of this Agreement.

1.2.6. All references to Persons include their successors, and permitted transferees, designees and assignees.

1.2.7. The language in all parts of this Agreement shall in all cases be construed simply and according to its fair meaning, and not strictly for or against any of the Parties hereto.

II. PURCHASE AND SALE OF QUOTAS

2.1.Subject to the terms and conditions set forth in this Agreement, the SELLERS agree to sell, transfer and deliver the Quotas to NUTRACEA, and NUTRACEA agrees to purchase the Quotas from the SELLERS, together with all rights, title and interest attached thereto, for the consideration specified under Section 3 hereinbelow.

2.2.In order to complete the purchase and sale of the Quotas, the SELLERS and NUTRACEAagree to carry out the following actions:

2.2.1. NUTRACEA, upon receiving the Closing Statement, and on the Closing Date shall have the Final Purchase Price transferredto the SELLERS in accordance with the provisions of Section III hereof.

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2.2.2. Concomitantly with the receipt of confirmation by the SELLERS that the FinalPurchase Price has been transferred in accordance with this Agreement, as per clause 3.5.1 below, NUTRACEA and the SELLERS shall cause the relevant amendment to the articles of association of IRGOVEL, providing for the transfer of title to all Quotas from SELLERS to NUTRACEA to be executed, in the form of Schedule G hereto.

III. PURCHASE PRICE AND ESCROW ACCOUNT

3.1The basic consideration to be paid by NUTRACEA to the SELLERS for the purchase of the Quotas hereunder is USD 14,080,000.00 (fourteen million, eighty thousand US Dollars) (the “Basic Purchase Price”).

3.2.Notwithstanding clause 3.1. above, the PARTIES agree that the Basic Purchase Price shall be, as of the Closing Date and in accordance with the Closing Statement: (i) increased by the usable inventory of semi-manufactured and manufactured products, raw materials, warehouse goods (new parts not having been used for replacement purposes), packaging and industrial consumption materials, the ICMS Credit and the Rice Bran Credit, the cash balance, bank account balances, account receivables and financial investments of IRGOVEL; and (ii) reduced by liabilities indicated in Schedule H (the “Purchase Price”).

3.2.1.The total amount of the account receivables collected within 120 days after the Closing Date shall be used to offset accounts payable and short, medium and long term debts existing at the Closing Date. However, after 120 (one hundred and twenty days) after the Closing Date the occasional positive or negative balance between the account receivables actually collected by IRGOVEL and the accounts payable and short, medium and long term indebtdness shall be either, respectively, paid by IRGOVEL to the SELLERS or offset by NUTRACEA from the second installment of the Final Purchase Price, pursuant to the mechanism of clause 3.7.3.

3.2.2.The Initial Deposit of Funds transferred by NUTRACEA in accordance with the Commitment will be returned to NUTRACEA.

3.3.The Purchase Price shall be described in the relevant ProvisionalClosing Statement to be issued on the Effective Date in the form of Schedule E hereto, taking into consideration the provisions of clause 3.2. above.

3.4.KPMG Transaction and Forensic Services Ltda. (“KPMG”) is hereby appointed on an irrevocable basis by the SELLERS and NUTRACEA in order to verify and value, until the Closing Date, the existing usable inventory of semi-manufactured and manufactured products, raw materials, warehouse goods, packaging and industrial consumption materials (the “Inventory”), pursuant to clause 3.2. above.

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3.5. The valuation report of the Inventory issued by KPMG after the Effective Date shall cause an adjustement of the Purchase Price and the issuance of the Closing Statement, in its final version, in the form of Schedule P hereto. The PARTIES hereby agree that the report related to the Inventory issued by KPMG shall be binding upon them in accordance with its terms.

3. 6.As collateral for potential contingent liabilities, as described in Schedule H hereto, USD 2,022,817.00 (two million twenty-two thousand eight hundred and seventeen US Dollars) shall be deposited by NUTRACEA into an escrow account to be opened and managed in accordance with the terms of this Agreement, and Schedule I hereto and the escrow agreement (“Escrow Agreement”) that shall be entered by between NUTRACEA and the SELLERS with a bank operating in the United States of America (the “Escrow Agent”).

3..6.1.The Escrow Agreement referred to in clause 3.6. above shall be entered into by NUTRACEA and SELLERS in accordance with the terms and conditions ser forth in Schedule I hereto and those terms and conditions that will be specified by the Escrow Agent in accordance with the relevant Escrow Agreement.

3. 7.On the Closing Date, NUTRACEA shall (i) pay to the SELLERS, proportionally to the relevant equity interest held by each of them in IRGOVEL’s equity capital, 95% (ninety-five percent) of the Final Purchase Price, deducted by the Escrow Account Deposit, in immediately available funds, via wire transfer pursuant the payment instructions set forth in Schedule J hereto; and (ii) transfer the Escrow Account Deposit in accordance with the provisions hereof and those of the Escrow Agreement.

3.7.1 Immediately upon making of the payment of the Final Purchase Price, as indicated under clause 3.7. above, NUTRACEA shall deliver to the SELLERS a copy of the swift confirmation of the relevant wire transfer or a copy of any document indicating that such event has occured.

3.7.2 The remaining installment of the Final Purchase Price, equivalent to 5% (five percent), shall be paid within 120 (one hundred and twenty) days as of the Closing Date.

3.7.3 NUTRACEA may offset the amounts of any Loss hereunder against the payment of the remaining installment of the Final Purchase Price should any event of Loss occur between the Closing Date and the date of the actual payment of the remaining two installments of the Final Purchase Price.

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IV. REPRESENTATIONS AND WARRANTIES OF THE SELLERS

IV.A. GENERAL AND CORPORATE MATTERS

4.1.General. The SELLERSundertake that until the Closing Date all representations and warranties made under this Section IV shall be true and correct in all material respects.

4.2.Organization and Conduct of Business. IRGOVEL is a company duly organized, validly existing and in good standing under the laws of the Federative Republic of Brazil. It has obtained all registrations and permits necessary, and it has the corporate and legal capacity required, to operate and conduct the Business. All necessary registrations and permits allowing IRGOVEL to conduct the Business are valid and in effect and the conclusion of the Acquisition will not cause their termination, revocation, suspension, expiration or any other event that may interrupt their validity.

4.3.Bankruptcy and/or Liquidation Procedures. IRGOVELis not subject to any bankruptcy, judicial or extrajudicial restructuring, or liquidation procedure, voluntary or not, nor have any bankruptcy, judicial or extrajudicial restructuring, liquidation or similar procedures been applied for or threatened or initiated by any third party against it to the best knowledge of the SELLERS.

4.4.Due Authorizations; Enforceability. The SELLERS have taken all actions necessary to authorize them to enter into and perform their respective obligations hereunder. This Agreement is the legal, valid and binding obligation of the SELLERS, enforceable against them in accordance with its terms.

4.5.No Conflict; No Violation; No Consents. Neither the execution and delivery of this Agreement, nor the performance of the obligations hereunder by the SELLERS, nor the implementation of the provisions set forth herein will (with or without the giving of notice or lapse of time): (i) violate or conflict with any provision of the organizational documents of IRGOVEL; (ii) violate, breach or otherwise constitute or give rise to an acceleration of any obligations, or imposition of any lien, or a default or a penalty, under any contract, commitment or other obligation which is relevant to IRGOVEL (including its corporate documents); (iii) violate or conflict with any statute, ordinance, law, rule, regulation, license or permit, judgment or order of any court or other governmental or regulatory authority to which either IRGOVEL or any of the SELLERS is subject; or (iv) require any consent, approval or authorization of, notice to, or filing or registration with any Person, entity, court or governmental or regulatory authority, except as otherwise provided for hereunder or as required by the laws of the Federative Republic of Brazil.

4.6.Foreign Direct Investment, Exchange and Foreign Trade Issues. Except as provided in Schedule H hereto, (i) all foreign direct investment events concerning the equity participation previously held by Mr. David Zigart Resyng in IRGOVEL were registered in the Brazilian Central Bank Information System (the “Sisbacen”) in a timely manner and in accordance with the applicable laws and regulations; (ii) all obligations accessory to the foreign direct investments made in IRGOVEL by Mr. David Zigart Resyng, including the registration of the Annual Declarations of Economic and Financial Information and the Census of Foreign Capitals in Brazil, organized by the Brazilian Central Bank, were timely and duly registered in the Sisbacen, in accordance with the applicable laws and regulations; (iii) to the best knowledge of the SELLERS, the Brazilian Central Bank has not issued nor has it threatened to issue penalty assessment notifications in connection with any failure by IRGOVEL to comply with pertinent foreign direct investment related obligations, including those foreseen by Law 4,131, dated as of September 3, 1962 and correlate regulations; (iv) all exchange transactions entered into by IRGOVEL were completed in accordance with the applicable laws and regulations; (v) to the best knowledge of the SELLERS, the Brazilian Central Bank has not issued nor has it threatened to issue penalty assessment notifications in connection with any failure by IRGOVEL to comply with pertinent exchange related obligations; (vi)IRGOVEL is duly registered with Ministry of Development, Commerce and Foreign Trade and the Brazilian Federal Revenue Services as an importer and exporter; (vii) all import and export transactions entered into by IRGOVEL were completed in accordance with the applicable laws and regulations; (viii) to the best knowledge of the SELLERS, the Brazilian Central Bank has not issued nor has it threatened to issue penalty assessment notifications in connection with any failure by IRGOVEL to comply with pertinent foreign trade related obligations.

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4.7.Capital Stock. IRGOVEL’s total capital stock, as of the date hereof until the Closing Date(i) is in the amount of R$ 500.000,00 (five hundred thousand Brazilian Real), (ii) has been validly subscribed for and paid-in, (iii) and is allocated pursuant to Schedule C hereto. The Quotasheld by the SELLERS are free and clear of any claims, oppositions, in rem guarantee rights, encumbrances, liens, options, debts, pledges, usufruct, preemptive rights, rights of first refusal or agreements with third parties or charges of any kind whatsoever. There are no options, warrants, convertible bonds, subscription rights or other rights of third parties, including of former quotaholders, agreements or commitments of any kind obligating the SELLERS or IRGOVEL to issue or sell any participation, or any participation with special rights, new quotas or any class of any quotas convertible into or exchangeable for any of the quotas, or to repurchase or redeem any of the quotas.

4.8.Financial Statements.The Financial Statements(i) present fairly in all material respects the financial position and results of the operations of IRGOVEL for the periods then ended, and (ii) have been prepared in accordance with the Brazilian GAAP, consistently applied. Since the Balance Sheet Date up through the Closing Date, no Material Adverse Change has occurred or will occur which might impact in a material way the condition (financial or otherwise), business, operations, liquidity, property, assets, liabilities, obligations, or prospects of IRGOVEL or the Business.

4.9.Subsidiaries. IRGOVEL does not have any subsidiaries nor does it own any equity security or have any investment in loans or advances to, or other interests in, directly or indirectly, any joint venture, partnership, firm, corporation, consortium or other entity, including rights or obligations to acquire any such interest.

4.10.Spin-off and Excluded Assets. The assets indicated in Schedule K hereto object of a spin-off conducted by the SELLERS on December 10, 2007 and the Excluded Assets were not in any way related to the Business or to the Business activities developed at IRGOVEL’sfacilities and hence the assignment thereof from IRGOVEL to Etron - Empreendimentos e Participações Ltda., a company duly organized and in existence in accordance with the laws of the Federative Republic of Brazil, will not in any way cause a Material Adverse Change to IRGOVEL or the Business, after the Acquisition is complete. The spin-off has been approved under the amendment to IRGOVEL’s Articles of Association dated of December 10, 2007, duly filed with the Board of Trade of the State of Rio Grande do Sul under No. 2924943 and registered therewith on January 8, 2008, and completed in accordance with the applicable law, and so this operation will not in any way create a liability to IRGOVEL, including any liability which may be assessed in view of the applicable corporate, tax, labor, environmental or civil or commercial laws and regulations.

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4.11.Development of Business. Since the Balance Sheet Date and until the Closing Date, IRGOVEL has operated only in its ordinary course of business as it stands on the date hereof in a manner consistent with past practices and there has been no change in the sales, profits, business, operations, properties, assets, condition (financial or otherwise) of IRGOVEL that could result in any Material Adverse Change. For the purposes of this Agreement, “Material Adverse Change” means the occurrence of any event resulting in a loss of shareholders’ equity value greater than R$ 500.000,00 (five hundred thousand Brazilian Real). Without limiting the foregoing, since the Balance Sheet Date, IRGOVEL has not:

(i)mortgaged, pledged or subjected to any lien or granted any interest in or placed any encumbrance upon, the properties or assets of IRGOVEL;

(ii)sold, transferred, leased or otherwise disposed of any property or asset of IRGOVEL, including but not limited to trademarks, trade names, trade dress, copyrights, trade secrets, customer lists, phone numbers, domain addresses, websites and all intellectual property owned by IRGOVEL, except for the Excluded Assets and the assets involved in the spin-off, as per Schedule K hereto, or for the sale of inventories of finished goods or certain minor items effected in the ordinary course of business as it stands on the date hereof;

(iii)cancelled or compromised with any debt or claim, or waived or released any material rights of IRGOVEL, except as indicated in Schedule A, Schedule B and Schedule K hereto;

(iv)amended, modified or waived any provisions of or agreed to terminate any material contract;

(v)incurred the loss of any important customer or supplier or any change in the Business or any damage, destruction or loss (whether or not covered by insurance), which would cause a Material Adverse Change;

(vi)encountered any significant actual labor problems;

(vii)transferred or granted any rights under or entered into any settlement regarding the breach or infringement of any intellectual property;

(viii)instated, settled or agreed to settle any litigation or action before any court or government body, or waived or surrendered any rights, except as provided for in Schedule A and Schedule B hereto;

(ix)made any purchase commitment in excess of the ordinary and usual requirements or at any price substantially in excess of the then current market price, or made any change in its selling, pricing, advertising or personnel practices;

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(x)made any commitment to make any capital expenditures other than in the ordinary course of business as it stands on the date hereof;

(xi)incurred any liabilities other than in the ordinary course of business as it stands on the date hereof;

(xii)except for the settlement with former partner David Zigart Resyng and with Banco do Brasil S/A, as mentioned in Schedule A and Schedule B hereto, discharged or paid, or agreed to discharge or pay, any obligation or liability other than current liabilities in the Balance Sheet and current liabilities incurred since the Balance Sheet Date in the ordinary course of business as it stands on the date hereof;

(xiii)granted any guarantee to third parties with respect to any obligation or liability; or

(xiv)caused any revaluation of fixed assets.

4.11.1.The SELLERS and IRGOVEL agree not to give rise to, or cause any the occurrence of, any of the events mentioned in clause 4.11. above, as from the date hereof and the Closing Date. The SELLERS and IRGOVEL shall comply with any all restriction mentioned in this Agreement with respect to the development of Business as from date hereof and the Closing Date.

4.12.Profits. IRGOVEL is not committed to pay to any entity, including its quotaholders, any part of its profits (whether in the form of profits or advance on profits, director’s fees, profit sharing for promoters, broker’s fees or under any other profit sharing or incentive plan or similar) or to return any part of its capital.

4.13.No Brokers. No broker, finder, financial advisor or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the SELLERS.

4.13.1 The SELLERS acknowledge to be solely responsible for the payment of fees due to the law firm Lauvir de Quevedo Barboza e Advogados Associados, in connection with the Acquisition, as contemplated in this Agreement, and pursuant to Legal Services Agreement mentioned in Section 3 - “Services Agreement”, chart 4 - Legal Services Agreement - Lauvir de Quevedo Barboza e Advogados Associados, of Schedule L hereto.

4.14.Real Property. IRGOVEL has good and marketable title, as well as free possession to all of its real estate properties, which are free and clear of any liens, encumbrances or mortgages. Except as stated in Schedule H hereto, IRGOVEL’s interests in such properties have been properly recorded at the relevant registries and the present use thereof is in accordance with applicable regulation, including zoning requirements and Environmental Laws.

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4.15.Assets. All assets used by IRGOVEL in connection with the Business, including land, buildings, vehicles, installations and machinery, have been properly maintained and are in good physical and operating conditions, ready to operate, normal wear and tear excepted, and are suitable and adequate for the respective purposes for which they are intended, and shall remain in that condition for at least 90 (ninety) days after the Closing Date.

4.16.Contracts. Except as set forth in Schedule H, IRGOVEL is not a party to any contracts or agreements other than those executed in customary transactions in the ordinary course of business as it stands on the date hereof. All contracts and transactions with third parties were entered into on an arm’s length basis and in customary transactions in the ordinary course of business as it stands on the date hereof. Schedule L hereto contains a true and updated list of the contracts that are material for the businesses of IRGOVEL or establish a material obligation to IRGOVEL.

4.16.1. Except as disclosed in Schedule H hereto, IRGOVEL is not a party to any contract that (i) can be terminated by the other party as a result of a change in control of IRGOVEL; (ii) restricts the kinds of businesses in which IRGOVEL may engage or the geographical area in which IRGOVEL may conduct business; (iii) is a joint venture, partnership or similar agreement; (iv) is an agreement under which IRGOVEL has advanced or loaned any amount to the SELLERS or any of their Related Parties; or (v) is an agreement concerning confidentiality or non-competition.

4.16.2. No Related Party of any of the SELLERS (i) is a director, officer, stockholder or employee of, or consultant to or owns, directly or indirectly, any interest in, any competitor, franchisee, supplier or customer of IRGOVEL, or is in any way associated with or involved in the business of IRGOVEL; (ii) owns, directly or indirectly, in whole or in part, any property, asset or right, tangible or intangible, which is associated with any property, asset or right owned by IRGOVEL, or which IRGOVEL presently is operating or using or the use of which is contemplated for the businesses of IRGOVEL; or (iii) has any contractual relationship with IRGOVEL.

4.17.Customers, Suppliers, Commercial Agents and Distributors. No customer, supplier, commercial agent or distributor that has maintained a commercial relationship with IRGOVEL during each of the last three fiscal years is currently threatening any material modification or change in the business relationship maintained with IRGOVEL, nor has IRGOVEL received any notifications to that effect until the date hereof.

4.18.Inventory Levels. The inventory levels of raw materials, semi-manufactured and manufactured products, work in progress materials, raw materials, warehouse goods, packaging and industrial consumption materials shall not be lower than those indicated in the Balance Sheet.

IV.B. LABOR MATTERS

4.19.Except as set forth in Schedule H hereto, there are no labor lawsuits or cases pending against IRGOVEL relating to employees, commercial or self-employed representatives, and the SELLERS are not currently aware of any pending or threatening proceeding related to strikes, work stoppages, slave or child work or labor claims on the part of its employees; (ii) there are no collective bargaining or union agreements, and (iii) no labor extrajudicial practices are in contrast with the applicable Brazilian laws and no additional values than those indicated in the due diligence are due or will become due.

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4.20.Since the Balance Sheet Date, IRGOVEL has not adopted, entered into, amended, altered or terminated any employment contract, any collective employee benefit plan or agreement, nor has it raised salaries, benefits, bonus schemes, wages, remuneration, pension plans or any other benefits to which its employees are entitled now or in the future, except for merit-based increase in compensation consistent with past practice, or hiring and dismissal of employees other than in the ordinary course of business as it stands on the date hereof. Further, IRGOVEL has not entered into any agreements with any of its managers and/or employees hitherto, grating them any right to receive any compensation or benefits due the termination or the occasional termination of their employment or services agreement as a result of the Acquisition or after the completion of the Acquisition, including severance pay, cash bonuses or other.

4.21.Except as provided for in Schedule H hereto, all labor obligations and social security contributions have been duly paid by IRGOVEL and there are no additional outstanding debt or liabilities whatsoever related to any of its labor or social security obligations under the laws of the Federative Republic of Brazil. The SELLERS further represent and warrant that IRGOVEL has not created nor has it agreed to fund any pension plans.

IV.C. INTELLECTUAL PROPERTY

4.22.Schedule M hereto sets forth a correct and complete list of all domestic and foreign intellectual property (the “Intellectual Property”) owned by, licensed to, or otherwise held by, IRGOVEL which is material to the conduct of Business, consisting of all registered, or otherwise, trade names, brand names, trademarks, service marks, copyrights and, whether registered or unregistered where applicable, applications relating to each of the foregoing. Except as provided in Schedule H hereto, IRGOVEL is the title owner and has filed for registration with the National Industrial Property Institute (INPI) or other appropriate governmental or international authority each of the items of intellectual property listed in such Schedule M. The Intellectual Property comprises all intellectual property needed by IRGOVEL to carry out its activities as they are currently conducted, without violating any third-party rights.

4.22.1. Except as indicated in Schedule H hereto, there is no action pending that has been filed against the SELLERS or IRGOVEL as a result of the violation or alleged violation of any trademark, trade name, patent, patent license or any other form of intellectual property protection, and, to the best knowledge of the SELLERS, there has been no violation by third parties of any Intellectual Property owned by, licensed to, or otherwise held by, IRGOVEL which is material to the conduct of Business.

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IV.D. LITIGATION

4.23.Litigation. Except for the provisions of Schedule H hereto, IRGOVEL is not either a plaintiff or a defendant in any material pending litigation, arbitration, claim, suit, action or other proceeding (including any action, claim, suit or investigation filed by any federal, state or municipal government agencies in the Federative Republic of Brazil or abroad), relating to or affecting any of IRGOVEL’s equity securities, assets or properties.

IV.E. ENVIRONMENTAL MATTERS

4.24.IRGOVEL is in compliance, in all material aspects, with the applicable federal, state, local and foreign laws, regulations, court orders, permits and approvals relating to public health or the environment, pollution control, or hazardous substances, as established in the applicable laws and regulations (“Environmental Laws”).

4.25. Except as provided in Schedule H hereto, IRGOVEL has not received any claim, notice, complaint, court order, administrative order, or request for information from any governmental authority or private party (i) alleging violation of, or asserting any surpass or non-compliance with any Environmental Laws by it; (ii) asserting potential liability; (iii) requesting information; or (iv) requesting investigation or clean-up of any site pursuant to any Environmental Laws, in each case in connection with the conduct of the Business by IRGOVEL

4.26.All suppliers of raw materials to IRGOVEL, to the best knowledge of the SELLERS, are in compliance with the Environmental Laws, or otherwise their non-compliance with the Environmental Laws shall not cause any material adverse impact to IRGOVEL.

IV.F. TAX MATTERS

4.27.Taxes. Except as otherwise described in Schedule H hereto, IRGOVEL(i) has paid its tax obligations due and payable prior to the date hereof, (ii) has properly reserved, and allocated, resources for the payment of all taxes related to the operations of IRGOVEL prior to the Closing Date; (iii) has arranged the payment of its tax obligations due and payable until the Closing Date, and (iv) has performed all its material ancillary tax obligations (including the submission of income tax returns) in a timely manner as required by applicable law. All income tax returns are true, correct and complete in all their material aspects. Except as described in Schedule H, no fine or penalty imposed by the competent governmental authorities due to lack of payment, late payment of any taxes due by the date hereof, or arising from out the lack of, or delay in, the performance of ancillary tax obligations, or further arising out of any tax due diligence conducted by the tax authorities, was left outstanding or failed to be object of a timely submitted plea, whether in the judicial or extrajudicial sphere of the jurisdiction involved.

IV.G. FINAL REPRESENTATIONS AND WARRANTIES

4.28.By-laws and Articles of Association. There have been no amendments to the by-laws and articles of association of IRGOVEL since the Balance Sheet Date, except for the amendment to the articles of association of IRGOVEL approving its spin-off dated of December 10, 2007, duly filed with the Board of Trade of the State of Rio Grande do Sul under No. 2924943 and registered therewith on January 8, 2008.

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4.29.Bank Accounts. A complete and correct list of the bank accounts of IRGOVEL is attached as an integral part of this Agreement as Schedule N.

4.30.Powers of Attorney. A list of all powers of attorney currently in effect and granted by IRGOVEL to third parties, for any reason whatsoever, is attached hereto as Schedule O.

4.31.Recording of Transactions in Commercial and Accounting Books. All of IRGOVEL’s transactions were properly recorded in the respective commercial and tax accounting books.

4.32.No other representations and warranties. Except for the representations and warranties contained in this Agreement, the SELLERS make no other express or implied representations or warranties on behalf of or with respect to the SELLERS themselves or IRGOVEL.

V.REPRESENTATIONS AND WARRANTIES OF NUTRACEA

5.1.General. NUTRACEAundertakes that until the Closing Date all representations and warranties made under this Section V are true and correct in all material respects.

5.2.Organization. NUTRACEA is duly organized, validly existing and in good standing under the laws of the State of California, United States of America.

5.3.Authority to Sign and Perform Agreements. NUTRACEA has the full right, power and authority to enter into, sign and deliver this Agreement, and perform its obligations hereunder, in accordance with the provisions hereof.

5.4.Due Authorization; Enforceability. NUTRACEA has taken all actions necessary to authorize the execution of this Agreement and to perform its obligations hereunder. This Agreement is a legal, valid and binding obligation of NUTRACEA, enforceable against it in accordance with its respective terms.

5.5.No Conflict; No Violation; No Consents. Neither the execution and delivery of this Agreement, nor the performance by NUTRACEA of any and all of its obligations hereunder, nor the implementation of the transactions set forth herein will (with or without the giving of notice or lapse of time): (i) violate or conflict with any provision of the organizational documents of NUTRACEA; (ii) violate, breach or otherwise constitute or give rise to an acceleration of any obligations, or imposition of any lien, or a default or a penalty, under any contract, commitment or other obligation which is relevant for NUTRACEA, to or by which NUTRACEA is a party or is bound (including its corporate documents); (iii) violate or conflict with any statute, ordinance, law, rule, regulation, license or permit, judgment or order of any court or other governmental or regulatory authority to which NUTRACEA is subject; or (iv) require any consent, approval or authorization of, notice to, or filing or registration with any Person, entity, court or governmental or regulatory authority, except as otherwise provided for herein or as required by the laws of the Federative Republic of Brazil and/or the United States of America.

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5.6.No Adverse Litigation. NUTRACEA is not a party to any pending litigation or proceeding which seeks to enjoin or restrict it to perform its obligations hereunder, nor is any such litigation threatened against NUTRACEA. Furthermore, there is no litigation pending or, to the best knowledge of NUTRACEA, threatened against it, which, if decided adversely to NUTRACEA, could adversely affect its ability to conclude the transactions contemplated herein.

5.7.No Brokers. No broker, finder, financial advisor or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of NUTRACEA.

5.8.Purchase Price. NUTRACEA has sufficient cash or cash equivalents available to pay the Final Purchase Price and understands that the Final Purchase Price, as set forth herein, is the fair price for the Quotas.

VI.INDEMNIFICATION

6.1.Each PARTY shall indemnify and hold the other PARTY harmless from any Losses actually incurred, subject to the limitations provided in this Section VI.

6.2.The PARTIES’ obligation to indemnify under this Section VI shall remain valid for the same period of time as that of the statute of limitations applicable to the pertinent claim that might be brought against and IRGOVEL, due to an event originated prior to the Closing Date.

VI.A INDEMNIFICATION AND REIMBURSEMENT BY THE SELLERS

6.3Except for the contingent liabilities identified by NUTRACEA and listed in the pertinent Schedules hereto, which amounts will be retained by NUTRACEA pursuant to this Agreement and the Escrow Agreement until the pertinent applicable statute of limitations has elapsed, or the contingent liability is eliminated by the SELLERS according to satisfactory evidence presented to NUTRACEA and without prejudice but in addition to SELLERS’ obligations and liabilities contemplated in the sole paragraph of article 1,003 of the Brazilian Civil Code, the SELLERS shall fully and without exception indemnify and hold NUTRACEA, its subsidiaries and affiliates, directors, offices and any and all personnel, as well as third parties contracted by NUTRACEA, proportionately to their equity participation in IRGOVEL, as indicated in Schedule C hereto, harmless from: (a) any and all claims, losses and damages arising out of or in connection with the non-fulfillment of corporate, foreign investment, exchange and foreign trade, labor, social security, tax, intellectual property, civil, commercial and environmentallaw obligations and any other of whatever nature, due to an event arising prior to the Closing Date; (b) any lawsuit which has not been resolved by judicial determination or settlement prior to the Closing Date or regardless of is filing date is related to facts occurred or rights partially or totally vested prior to the Closing Date, whether grounded in products liability, negligence, environmental liability, trademark or patent infringement, tax matters, employment and social security related matters, civil, commercial and corporate matters, or otherwise; and (c) any regulatory action of the Brazilian federal, state or municipal government authorities, including regulatory actions related to the failure of IRGOVEL to comply with environmental, zoning, foreign investment, exchange and foreign trade, health and safety regulations for any period prior to the Closing Date or arising from IRGOVEL’s acts or omissions prior to the Closing Date.

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6.3.1Without limiting the generality of the preceding paragraph, SELLER shall indemnify and hold NUTRACEA, its subsidiaries and affiliates, directors, offices and any and all personnel, or third parties contracted by NUTRACEA, harmless from the following:

(i) any liability for taxes, fines, penalties or other amounts attributable to the construction, remodeling and enlargement of, or any other actions taken by IRGOVEL in regard to, IRGOVEL’s facilities, arising prior to the Closing Date.

(ii) any liability relating to IRGOVEL’s obligations and compliance obligations as regards zoning and Environmental Laws, arising prior to the Closing Date.

(iii) any unaccounted or unpaid liabilities relating to IRGOVEL’s tax obligations for periods prior to the Closing Date.

(iv) any liabilities arising out of litigation pending as of the Closing Date, including: (a) civil and commercial litigation; (b) tax litigation; and (c) labor and social security litigations.

(vi) any liability for any failure by IRGOVEL to comply with the applicable foreign direct investment, exchange and foreign trade obligations due to an event prior to the Closing Date.

6.3.2Except as otherwise provided in this Section VI, the SELLERS shall indemnify and hold NUTRACEA, its subsidiaries and affiliates, directors, officers and any and all personnel, as well as third parties contracted by NUTRACEA, harmless from any Losses (i) with an individual value over R$ 5.000,00 (five thousand Brazilian Real) (adjusted for inflation in accordance with the positive variation of the Índice Geral de Preços - Mercado, computed by Fundação Getúlio Vargas (“IGP-M”) or (ii) where individual value of any Losses is lower than R$ 5.000,00 (five thousand Brazilian Real) (adjusted for inflation in accordance with the positive variation of the Índice Geral de Preços - Mercado, computed by Fundação Getúlio Vargas (“IGP-M”), accumulated Losses, regardless of the event from which they derive, are higher than R$ 100.000,00 (one hundred thousand Brazilian Real (adjusted for inflation in accordance with the positive variation of the Índice Geral de Preços - Mercado, computed by Fundação Getúlio Vargas (“IGP-M”)), cumulatively. In any event, the maximum indemnification value payable by the SELLERS to NUTRACEA shall always be limited to the overall amount of the Final Purchase Price.

6.3.2.1.For the avoidance of doubt, the PARTIES expressly acknowledge that the individual amount of Losses set forth in clause 6.3.2. above constitutes a threshold for the payment of the indemnifiable Losses hereunder.

6.3.2.2.In the events mentioned in clause 6.3.2., NUTRACEA shall cause to be delivered to the SELLERS a letter containing the claim in reasonable detail with respect to such claim, so that the SELLERS may decide whether they will answer the claim or request contained in such action, or prepare a defense, in accordance with this Section VI.

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6.3.3.In the event the SELLERS decide to recognize their default with respect to any such claim or request, they shall provide NUTRACEA with the funds required by the time they become due.

6.3.4.In the event the SELLERS, at their expense and risk, decide to file the proper defense, NUTRACEA and/or IRGOVEL shall, at SELLERS’ expense, grant the specific powers to a lawyer chosen by the SELLERS to handle the case. The SELLERS shall consequently assume all resulting risks, and supply the necessary assets and/or funds to secure and file such defense and pay the resulting costs thereof, including legal and accounting fees and loss of suit, by the time they become due. In any event, NUTRACEA may supervise and follow up the proceedings by means of assisting counsel, and shall promptly provide the SELLERS and SELLERS’counsel with the information necessary to conduct the case as reasonably required by the legal counsel in charge of the case.

6.3.5.In the event NUTRACEA and/or IRGOVEL, at their discretion, have reasons not to question the claim, action or proceeding, and the SELLERS agree with that, the SELLERS’ obligation to indemnify NUTRACEA and/or IRGOVEL for such specific claim, action or proceeding will be waived. On the other hand, should NUTRACEA, and/or IRGOVEL, at their discretion, have reasons to conduct the defense and the SELLERS do not intend to proceed with such defense, NUTRACEA and/or IRGOVEL may proceed with such defense still at SELLERS’ risk upon the result, but all legal expenses, including, but not exhausted to, lawyer’s payment, legal and accounting fees and loss of suit, shall be due by NUTRACEA and/or IRGOVEL themselves.

6.3.6.It is hereby expressly agreed and accepted by the PARTIES that, without prejudice to the Sections hereof, the SELLERS shall not have any obligation whatsoever to indemnify NUTRACEA and/or IRGOVEL for any Losses suffered (i) that results from any breach of the representations and warranties made hereunder by NUTRACEA; (ii) as a result of the adoption of a more conservative provisioning criteria by NUTRACEA and/or IRGOVEL after the date hereof, for any reason whatsoever; or (iii) that results from obligations that may be assumed by NUTRACEA and/or IRGOVEL as from the Financial Statements in their ordinary course of businesses.

6.3.7.The amount regarding a Loss under this Section VI shall be due by the SELLERS to NUTRACEA upon (i) the express decision of the SELLERS to recognize their default with respect to any such claim or request (as provided in Section 6.3.2 above); (ii) a judicial or out-of-court settlement approved by the SELLERS; or (iii) a final court decision, not subject to appeal.

6.3.8Any labor, tax and social security matters related Losses indemnifiable by the SELLERS hereunder concerning any of the current employees of IRGOVEL, as listed in Schedule Q hereto, will be limited to the potential contingent liabilities indicated in Schedule H of this Agreement. Labor, tax and social security matters concerning any Related Party employed by IRGOVEL will be supported solely by the SELLERS, irrespective of any restrictions of any kind provided for hereunder.

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6.3.8.1.For the avoidance of doubt, the PARTIES acknowledge and represent that any Losses with regard to any employees not listed in Schedule Q hereto, whether or not identified in Schedule H of this Agreement, shall be subject to the SELLERS full indemnification hereunder.

6.4.Any Losses and indemnification due by the SELLERS hereunder shall be borne proportionately to their participation in the IRGOVEL as indicated in Schedule C hereto.

6.5.Should the SELLERS be unable to close the Acquisition until the Closing Date, irrespective of the cause of such inability, including the failure to finally fulfill the conditions precedent indicated in the Commitment and in Schedule A hereto, NUTRACEA will be entitled to specific non-compliance indemnification in the amount USD 1,000,000.00 (one million US Dollars).

VI.B INDEMNIFICATION AND REIMBURSEMENT BY NUTRACEA

6.6.Except as otherwise provided in this Section VI, NUTRACEA shall indemnify and hold the SELLERS harmless and its successors and assigns from and against, and shall reimburse the SELLERS for, any Losses, including, any breach or failure to perform any covenant or obligation assumed by NUTRACEA in this Agreement. The amount regarding a Loss under this clause 6.6 shall be due by NUTRACEA at the same time as described in clause 6.7 below.

VI.C GENERAL INDEMNIFICATION PROVISIONS

6.7.Notice. Subject to the provisions of this Section VI, the Party entitled to indemnification (the “IndemnifiedParty”) shall notify the Party liable for indemnification (the “Indemnifying Party”) within 1/3 (one third) of the time required for the defense and shall provide to the Indemnifying Party as soon as practicable thereafter all information and documentation necessary to support and verify any Losses that the Indemnified Party shall have determined to have given or is reasonably likely to give rise to a claim for indemnification hereunder, and to the Indemnifying Party shall be given access to all books and records in the possession or under the control of the Indemnified Party reasonably determined by the PARTIES to be related to such claim. The failure to so notify the Indemnifying Party relieves the Indemnifying Party from any liability that it may have to any Indemnified Party.

6.8.Mitigation of Damages. If any event shall occur which would otherwise entitle an Indemnified Party to assert a claim for indemnification hereunder, no Losses shall be deemed to have been sustained by such Indemnified Party to the extent of any:

(a)net proceeds received by such Indemnified Party from any insurance policy of the SELLERS in effect at any time prior to the date hereof (less the costs of recovering such proceeds, retrospective premium adjustments, experience-based premium adjustments or other forms of self-insurance), with respect thereto, from which policies the PARTIES shall make claims for recovery, provided, however, that there shall be no obligation to remit any such proceeds or any Indemnified Party shall have received notice of any potential Losses as to which full indemnification has not occurred (e.g., because the amount of such Losses with respect thereto has not yet been finally determined); or

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(b)offsetting tax benefit actually received or to be received by the Indemnified Party.

6.9.Payments by an Indemnifying Party to an Indemnified Party pursuant to clause 6.6 shall be made within 10 (ten) days from the date of (i) receipt of any insurance proceeds by the Indemnifying Party or (ii) filing of the tax return by the Indemnifying Party on which the related tax benefit is realized, as the case may be. If at any time subsequent to such payment such tax benefit is reduced or increased on account of an audit adjustment or for any other reason, the Indemnifying Party shall so notify the Indemnified Party and the Indemnified Party shall repay to the Indemnifying Party or vice-versa, as the case may be, within 10 (ten) days of receipt of such notice the amount of such reduction, adjusted for inflation according to the variation of the IGP-M.

VII.ADDITIONAL COVENANTS

7.1.Brazilian Central Bank and Real Estate Property Matters. The SELLERS hereby undertake to, at no cost to NUTRACEA, timely supply NUTRACEA with any document or information necessary to regularize any and all issues pertaining to the Brazilian Central Bank and Real State Propery matters indicated in Schedule H. Without prejudice to SELLERS’ obligation to indemnify Losses incurred by NUTRACEA as provided in Section VI hereof, all costs, fees and expenses arising from the regularization of these matters shall be borne exclusively by NUTRACEA and each PARTY will bear the fees of its respective counsels or contracted third parties.

7.2.The SELLERS acknowledge that each and all of them, as consideration for the sale of the Quotas, shall receive a fair and adequate price for the Quotas, and that as a result, for 5 (five) years as of the Closing Date, shall not, directly or through a Related Party, be admitted or invest in, own, operate, finance, participate of, operate, manage, be employed by, associate with, render any services or consulting services to, businesses equal or equivalent to those carried out by IRGOVEL, or businesses that involve activities that directly or indirectly may compete with IRGOVEL, mainly with legal entities that notably are in the same or equivalent business or that develop activities equal to or similar to those that integrate the corporate purpose of IRGOVEL.

7.3.Further, for the same period mentioned in clause 7.2. above, the SELLERS shall not, on their account, for the benefit of a Related Party or any third parties, induce or try to induce the termination of any agreements executed with any employee or third parties contracted by IRGOVEL, interfere in the relationship maintained by IRGOVEL with its employees or third parties contracted by IRGOVEL, employ or hire any employee or third parties contracted by IRGOVEL, induce or try to induce any client, supplier, commercial agent, distributor, licensee or any third party conducting business with IRGOVEL to terminate their relationship with IRGOVEL, or, in any way, to interfere with the commercial relationship maintained by IRGOVEL with any client, supplier, commercial agent, distributor, licensee or any third party conducting business with IRGOVEL.

7.4.Non-compliance with the obligations undertaken under clauses 7.2 and 7.3 above shall subject the SELLERS to the payment of damages, without prejudice to the sanctions foreseen in the applicable laws.

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VIII.CONFIDENTIALITY

8.1.Confidentiality. The SELLERS and NUTRACEA hereby irrevocably and irreversibly undertake to, directly or indirectly through a Related Party: (i) keep under strict confidentiality all Confidential Information related to the activities of the SELLERS, NUTRACEA and IRGOVEL as well as any related transaction contemplated herein; (ii) refrain from disclosing the Confidential Information to third parties, except upon the prior written consent of the PARTY to which the Confidential Information relates, or if required by law, court order or administrative process; and (iii) directly or indirectly use the Confidential Information to its avail.

8.1.1NUTRACEA and the SELLERS will consult with each other before issuing any press releases, trade releases or otherwise making any statements which could become public with respect to the present sale and purchase of quotas, except as required by the applicable law. Notwithstanding the foregoing, NUTRACEA may issue press releases and other such public announcements after this Agreement becomes binding.

8.2.The confidentiality obligation set forth in Section 8.1 shall survive the expiration or termination of this Agreement.

IX.BINDING AGREEMENT

9.1.This Agreement is entered into on an irrevocable and irreversible basis, and shall be binding upon or inure to the benefit of the PARTIES and their respective successors and authorized assigns.

9.2.This Agreement may not be assigned by either PARTY to third parties without the prior written consent of the other PARTIES, provided, however, that NUTRACEA may assign this Agreement and its rights and obligations hereunder, without prior written consent of the other party, to any Person directly or indirectly controlled by it or that is a part of its economic group, including Nutra SA, LLC, a Delaware limited liability company formed in accordance with the laws of the State of Delaware. Any assignment shall be formalized in an addendum hereto and executed by all PARTIES.

9.3.Liability for and risk of loss or damage of any and all of IRGOVEL’s assets and property shall pass to NUTRACEA only upon the satisfaction of the terms of this Agreement by both parties on the Closing Date.

X.MISCELLANEOUS

10.1.Disclosures. All the Schedules attached to this Agreement constitute an integral part hereof.

10.2.Focal Points. The PARTIES shall use their best efforts to reach an out-of-court agreement to resolve any dispute which may arise, and will make such amendments as are in the spirit of this Agreement by mutual consent.

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10.3.Announcement. The SELLERS and NUTRACEA shall consult each other as to the terms, time and manner of any announcement to shareholders, employees, customers, suppliers, press or to any third parties of this Agreement, the closing or anything else related to the transaction contemplated herein. No announcement shall be made except in agreed terms save (in the absence of agreement) for any statement or disclosure which may be required by law or called for by or conforming with the requirements of any regulatory bodies, and any such statement or disclosure shall be no more extensive than is necessary to meet the minimum requirements imposed upon the PARTY making such a statement or disclosure.

10.4.Further Assurances. The PARTIES agree to execute and deliver or cause the execution and delivery of such other documents, certificates, agreements and other written materials and, subject to the terms and conditions herein, to take such other action as may be reasonably necessary or desirable to effect the transactions contemplated in this Agreement, the wording of which shall be agreed to by the PARTIES.

10.5.Amendment, Consent, Waiver. This Agreement may not be amended without the prior consent of all PARTIES, and any waiver or consent shall be granted in writing hereunder, duly signed on behalf of the PARTIES. Any amendment or modification shall be formalized in an addendum hereto and executed by all PARTIES.

10.6.Notices. Notices, communications and/or notifications regarding implementation hereof shall be made by letter against receipt, facsimile, e-mail or through registry or court channels, and must be addressed to the PARTIES at the following addresses:

To NUTRACEA:

NUTRACEA, a California Corporation

Attn : Bradley Edson

Address: 5090 N. 49^th Street, suite 400, Phoenix, AZ 85018

Fax: 602 840-3599

E-mail: bedson@nutracea.com

with copy to:

Felsberg, Pedretti, Mannrich e Aidar Advogados e Consultores Legais

Attn.: Thomas Felsberg

Address: Avenida Paulista, 1294 - 2 andar - Cerqueira César - São Paulo/SP

Fax: 55 11 3141-9150

E-mail: thomasfelsberg@felsberg.com.br

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To the SELLERS:

Etron -	Empreendimentos e Participações Ltda.
Attn :	Maria De Fatima Teixeira Do Amaral Brito
	Edílson Teixeira Do Amaral Brito
Address:	Avenida Fernando Osório, sala A, Bairro Três Vendas,
	Pelotas, Rio Grande do Sul, CEP 96065-000.
E-mail:	mftbrito@hotmail.com
	edilsonbrito5@hotmail.com
To IRGOVEL:
Address:	Avenida Presidente João Goulart, 7351, Distrito Industrial.
	City of Pelotas, State of Rio Grande do Sul, CEP 96.040-000
Fax:	55 53 3028-9695
E-mail:	irgovel@irgovel.com.br

10.6.1. Notices, communications and/or notifications shall be considered delivered on the date affixed to the receipt protocol, on the date of formalization of the judicial or extrajudicial notification, or on the date or at the time the facsimile or e-mail is received.

10.6.2. In the event of changes of address and/or facsimile number, one PARTY shall indicate in writing to the other PARTY its new address and/or facsimile number, and failure to do so shall mean that any notice, communication and/or notification sent to the address indicated hereinabove, or to any earlier address indicated in writing, shall be considered valid.

10.7.Lack of Validity or Enforceability. Should one or more provisions hereof be invalid or unenforceable in any respect, or in relation to any jurisdiction, instance or court, this lack of validity or enforceability shall not invalidate the other provisions hereof.

10.8.Entire Agreement. This Agreement and Schedules thereto constitute the entire agreement between the PARTIES as regards the transaction dealt with herein and supersedes all previous agreements, negotiations and documents produced by the PARTIES in connection with the Acquisition and the transactions contemplated herein. The PARTIES agree that this Agreement truly reflects all the negotiations previously held and the intentions of the PARTIES as to said negotiations, and to all effects only this Agreement and Schedules thereto shall govern the relationship between the PARTIES as regards this transaction for all due purposes.

10.9SELLERS’ Attorney-in-fact. The SELLERS, OSMAR TEIXEIRA DO AMARAL BRITO NEWMAN TEIXEIRA DO AMARAL BRITO, SAMUEL AMARAL BRITO JÚNIOR, DARLENE DO AMARAL BRITO COSTA, MARIA ZENIA AMARAL BRITO VILELA, MARIA HELENA AMARAL BRITO FERREIRA, CANDIDA MARIA TEIXEIRA DO AMARAL BRITO and DILMAR TEIXEIRA BRITO ALDOMIRO PEREIRA FALEIRO appoint on an irrevocable basis, under Article 684 of the Brazilian Civil Code, the SELLERS, Etron - Empreendimentos e Participações Ltda., a company organized and existence in accordance with the laws of the Federative Republic of Brazil, headquartered at Avenida Fernando Osório, sala A, Bairro Três Vendas, in the city of Pelotas, State of Rio Grande do Sul, CEP 96065-000 (the “Sellers’ Attorney”), as their attorneys-in-fact, for the purpose of acting, either jointly or individually, represent each of the SELLERS in connection with all matters contemplated in this Agreement, before NUTRACEA, IRGOVEL, and therefore any judicial or administrative authorities, including without limitation, the Central Bank of Brazil, the Federal Revenue Services, Commercial Registry, any court or arbitral tribunal, any banks and/or any third parties, with full powers to, on behalf of either one or all the SELLERS, receive any amounts owed to them hereunder, including without limitation for the payment the Final Purchase Price and grant the relevant releases, sign any amendments to this Agreement and to IRGOVEL’s Articles of Association any other documents related hereto or thereto and/or the transactions contemplated herein or therein, negotiate and agree with any terms and conditions to be set forth in any of these documents, transfer title to the Quotas to NUTRACEA, give releases, renouncements, compromises and receive any judicial or extrajudicial notices and service of process or any other legal summons and communications and perform any acts or sign any other documents, on behalf of either one or all the SELLERS, for the purposes above.

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10.10Except as otherwise established in this Agreement, all taxes, fees, costs and expenses required for or related to the accomplishment, obtaining approvals and perfecting of: (i) the filing of the amendment to IRGOVEL’s Articles of Association substantially in the form of Schedule G thereto with the competent Board of Trade, (ii) the registration of this Agreement and any other documents related thereto with the competent public registries in Brazil, (iii) the approval of the transaction provided herein by any governmental authorities, and (iv) the accomplishment of any other formalities and actions as required under applicable laws and regulations for the full perfection of the transactions contemplated herewith , shall be borne by NUTRACEA.

XI.GOVERNING LAW AND JURISDICTION

XI.A. GOVERNING LAW

11.1.This Agreement shall be governed by and construed in accordance with the laws of the Federative Republic of Brazil. This Agreement shall be executed in both English and Portuguese languages and in case of a discrepancy between them, the Portuguese version shall prevail.

XI.B. ARBITRATION

11.2.Any dispute, claim or controversy in connection with the interpretation, fulfillment or execution of this Agreement shall be definitively settled through arbitration by, and in accordance with the rules of, the Mediation and Arbitration Chamber of São Paulo. The Arbitral Tribunal shall decide based on the substantive laws of the Federative Republic of Brazil.

11.3.The Arbitral Tribunal will be composed of three (3) arbitrators, all of them fluent in written and spoken Portuguese and English, necessarily skilled in Brazilian commercial and business matters, having each PARTY the right to appoint one, being the third one, the President of the Arbitral Tribunal, appointed by the first two.

11.4.The PARTY that wishes to establish the Arbitral Tribunal shall notify the other of its intention, giving the detailed reasons for establishing it and the scope of the dispute, claim or controversy and shall thereupon appoint its arbitrator.

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11.5.The Arbitral Tribunal shall have its seat in the City of Porto Alegre, State of Rio Grande do Sul, Brazil, and the procedures shall be conducted in Portuguese. A sworn translator Portuguese/English may be used as deemed necessary.

11.6.The arbitral award shall be written in Portuguese. The PARTIES shall bear the costs of the procedures, including the arbitrators’ fees, in the proportion to be determined by the Arbitral Tribunal or, in the absence of any such determination, each for fifty percent (50%). Nevertheless, the defeated PARTY shall reimburse the other PARTY of all and any amounts disbursed pursuant to such arbitration proceeding, including but not limited to the arbitrators’ fees and any other amounts, costs and expenses.

11.7.The arbitration shall be the exclusive method for resolution of any dispute, claim or controversy under this Agreement and the arbitration award shall be final, conclusive and binding, subject to the provisions of Law No. 9307 of September 23, 1996.

11.8.The PARTIES agree that either PARTY may have the need to obtain immediate relief from a court of law. Therefore, the filing for and obtaining of injunctive relief (or another type of remedy which cannot be obtained from an arbitration tribunal under Brazilian law) in connection with this Agreement shall be accepted, and shall not be considered a breach hereof. For the purposes of obtaining immediate relief, the Parties elect the jurisdiction of the courts of the City of Porto Alegre, State of Rio Grande do Sul, to the express exclusion of all others, no matter how privileged they may be.

IN WITNESS WHEREOF, the Parties hereto have caused this Quotas Purchase and Sale Agreement to be duly executed as of the day, month and year first above written above in 3 (three) original counterparts of equal form and content

PURCHASER:

NUTRACEA, a California Corporation

Por/ By : Bradley Edson

Cargo/ Title: Chief Executive Officer

SELLERS:

DARLAN TEIXEIRA DO AMARAL BRITO

EDILSON TEIXEIRA DO AMARAL BRITO

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[continued from the signature page of the Quotas Purchase and Sale Agreement dated as of 31st january 2008, executed between NUTRACEA, SELLERS and IRGOVEL]

BY POWER-OF-ATTORNEY OF:

OSMAR TEIXEIRA DO AMARAL BRITO

NEWMAN TEIXEIRA DO AMARAL BRITO

SAMUEL AMARAL BRITO JÚNIOR

DARLENE DO AMARAL BRITO COSTA

MARIA ZENIA AMARAL BRITO VILELA

MARIA HELENA AMARAL BRITO FERREIRA

CANDIDA MARIA TEIXEIRA DO AMARAL BRITO

HELENA TEIXEIRA BRITO

ALDOMIRO PEREIRA FALEIRO

SIGNS: MARIA DEFATIMA TEIXEIRA DO AMARAL BRITO

INTERVENING PARTY:

IRGOVEL - INDÚSTRIA DE ÓLEOS RIOGRANDENSE LTDA.

By: Edílson Teixeira Do Amaral Brito	By:Darlan Teixeira Do Amaral Brito
Title: Manager	Title: Manager

WITNESSES:

Name:	Name:
Id:	Id:
Taxpayer's registration:	Taxpayer's registration:

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EX-10.15

EXHIBIT 10.15

[*Designates portions of this document have been omitted pursuant to a request for confidential treatment filed separately with the Commission]

AMENDMENT OF LIMITED LIABILITY COMPANY AGREEMENT

FOR

GRAIN ENHANCEMENT, LLC

This Amendment of Limited Liability Company Agreement (“Amendment”) of Grain Enhancement, LLC, a Delaware limited liability company (“Company”), is entered into by and between NutraCea, a California corporation located at 5090 North 40^th Street, Suite 400, Phoenix, AZ 85018 (“NutraCea”), and Pacific Advisors Holdings Limited, a company incorporated under the laws of British Virgin Islands, located at 53 Cairnhill Road, Cairnhill Plaza #12-01, Singapore 229664 (“Pacific Advisors”), as of January 24, 2008 on the following terms and conditions:

1.Background and Purpose.

1.1Agreement. NutraCea, Pacific Advisors, Theorem Group, LLC, a California limited liability company, and Ho’okipa Capital Partners, Inc., a California corporation, entered into the Limited Liability Company Agreement for the Company effective as of June 22, 2007 (“Agreement”). The purpose of this Amendment is to amend certain provisions of the Agreement.

1.2Approval of Amendment. NutraCea and Pacific Advisors, constituting all of the Class A Members, have approved this Amendment pursuant to, and as permitted by, Section 15.5 of the Agreement and intend that it shall be binding on all the Members.

1.3Capitalized Terms. All capitalized terms used in this Amendment shall have the meanings set forth in the Agreement, unless otherwise defined herein.

2.Amendment of Agreement.The Agreement is hereby amended as follows:

2.1. Capital Contributions. The Class A Members agreed pursuant to Section 4.2.1 of the Agreement to make certain Initial Capital Contributions. The Class A Members subsequently determined that the amounts required to have been contributed on and after October 30, 2007 are not yet necessary for the operations of the Company as currently contemplated. Accordingly, Sections 4.2.1 and 4.2.2 of the Agreement are hereby amended and restated in their entirety to provide as follows:

“4.2.1.Schedule; Notice. The Class A Members shall make the Initial Capital Contributions as follows:

(a)One Million Five Hundred Thousand U.S. Dollars ($1,500,000) each (for a total of Three Million U.S. Dollars ($3,000,000)) on or before June 30, 2007;

1

(b)Up to an aggregate of Three Million Five Hundred U.S. Dollars ($3,500,000) each (for a total of up to Seven Million U.S. Dollars ($7,000,000)) shall be contributed by each of the Class A Members at such time, and in such increments, as the Finance Committee may hereafter determine to be necessary for the successful operation of the Company’s business, which determination shall be based on actual budgeted and anticipated costs of proceeding with the Project and acquiring, developing, and operating the Company’s Facilities. Upon a determination by the Finance Committee that all or any portion of such additional Initial Capital Contributions are necessary, a Finance Committee member shall provide written notice to the Members specifying the amount of the required Capital Contribution (“Call Notice”). Capital Contributions required pursuant to this Section 4.2.1(b) that are not received by the Company within thirty (30) calendar days of the date of the Call Notice shall be deemed delinquent for the purpose of Section 4.2.2.”

“4.2.2.Failure to make Initial Capital Contributions. In the event that (and on each occasion that) (i) a Class A Member (“Defaulting Member”) fails to make, and becomes delinquent in all or any portion of any Initial Capital Contribution payment as and when required to be made under Section 4.2.1, and (ii) the other Class A Member timely makes its Initial Capital Contribution payment, the Defaulting Member’s Percentage Interest shall be reduced as follows: For each One Million U.S. Dollars ($1,000,000) dollar Initial Capital Contribution payment that a Class A Member fails to make, as and when due pursuant to Section 4.2.1, the Percentage Interest of that Defaulting Member shall be immediately reduced to a Percentage Interest equal to (i) the number comprising the Defaulting Member’s Percentage Interest immediately prior to such default, minus (ii) eleven and 875/10,000 (11.875). If the Defaulting Member fails to contribute only a portion of such amount, the Defaulting Member’s Percentage Interest will be reduced by a portion of the foregoing amount equal to the portion of the One Million U.S. Dollar ($1,000,000) Initial Capital Contribution payment not timely made by the Defaulting Member. A separate and proportional reduction under this subsection shall apply for each failure of a Class A Member to make an Initial Capital Contribution payment pursuant to Section 4.2.1.

Upon a reduction of the Percentage Interest of a Defaulting Member, the Percentage Interests of the other Class A Member shall be increased by an amount equal to the reduction of the Defaulting Member. The Percentage Interest of each Member as of the Effective Date is set forth on Exhibit A hereto. The Percentage Interests of the Class A Members set forth on Exhibit A shall be adjusted as set forth in this Section 4.2.2 in the event of each and every failure by any Class A Member to make any Initial Capital Contribution payments. Each of the Class A Members agrees that the provisions of this Section 4.2.2 are fair and reasonable under the circumstances.”

2.2. Cancellation of Management Fee. The parties agree to amend the Management Fee payable pursuant to Section 5.4.1 of the Agreement as follows:

A.Concurrently with the execution of this Amendment, the Company is paying Pacific Advisors $[*], representing the monthly $[*] Facility Fee that has accrued, but not been paid, for the five-month period commencing on August 1, 2007 and ending on December 31, 2007.

2

B.Effective January 1, 2008, Section 5.4.1 is hereby deleted in its entirety, and all obligations of the Company under the Agreement to pay Pacific Advisors a Management Fee are hereby terminated.

2.3. Company Right of First Refusal to Purchase Additional Facilities; Option to Acquire New Additional Facilities. New Sections 3.7, 3.8 and 3.9 of the Agreement are hereby added as additional Sections of the Agreement as follows:

“3.7. Company Right of First Refusal to Purchase Additional Facilities. NutraCea and Pacific Advisors hereby agree that all Facilities and other aspects of the Project in the Territory are intended to be conducted by the Company. If either NutraCea or Pacific Advisors identifies a site in the Territory that it believes is suitable to become a Facility, the proposed Facility and all material terms with regard thereto shall be provided in writing to each of the Class A Members and to the Finance Committee, and the Company shall have the right to proceed with such proposed Facility. The Company may fail to pursue a Facility proposed by one of the Class A Members. Accordingly, the Members hereby agree that potential Facilities should hereafter be considered and pursued as follows:

3.7.1Facility Notice. In the event that either NutraCea or Pacific Advisors (the “Initiating Member”) identifies a site or opportunity that it believes is suitable for a Facility within the Territory and desires to pursue, the Initiating Member shall provide written notice to the Company of the opportunity (“Facility Notice”) and, in connection therewith, shall deliver to the Company and the Finance Committee all information in the possession of such party regarding such proposed Facility (including without limitation the potential size of the Facility, its expected output, its costs, its location, the parties involved, the financial commitments related to the Facility, the expected revenues/profits of such Facility, and the proposed purchaser or purchasers (the “Target Purchasers”) of the Product produced by the proposed Facility). The proposed Facility may be a facility for the production of either SRB or any other Product listed on Exhibit B. If any member of the Finance Committee believes that the proposed Facility might be suitable for the Company, the Finance Committee shall meet to consider the proposed Facility, and the Finance Committee and the Company shall thereafter evaluate and in good faith consider the proposed Facility as an investment by the Company. Provided that the Company is, in good faith, proceeding with its evaluation of the proposed Facility as an investment by the Company, the Company shall have the exclusive right to such proposed project for a period of 60 days after the date of delivery of the Facility Notice, and no Class A Member may, during such time, take any action to develop such proposed Facility for its own account. If the Finance Committee decides to pursue a proposed Facility, the Finance Committee shall advise the Initiating Member that the Company is proceeding. The Finance Committee shall thereafter establish a budget to construct and establish the proposed Facility and, based on that budget, may thereafter require the Class A Members to make one or more capital contributions to fund the development of the new Facility, which capital contribution shall first be requested under Section 4.2.1(b) and thereafter under Section 4.5. The Company shall be deemed to have rejected a proposed Facility if (i) any member of the Finance Committee votes against the proposed Facility, (ii) any member of the Finance Committee fails to vote for or against the proposed Facility within such 60 day period, or (iii) if after the Finance Committee approves the proposed Facility and makes a capital call for such project, any Class A Member fails to make the required additional Capital Contribution for the new Facility in full and on a timely basis (whether required pursuant to Section 4.2.1, or pursuant to Section 4.5). In the event that the Company does not elect to proceed with a proposed Facility within such 60 day time period (such Facility is herein referred to as the “Excluded Facility”) for any reason, then, as set forth below, the Class A Member affiliated with the Finance Committee member who (a) voted for Company’s acquisition/development the Excluded Facility and (b) made, or was willing to make, the required capital contribution, shall have the right to proceed with the proposed Facility for its own account in accordance with the provisions of this Section 3.7. (For example, if NutraCea identifies a proposed Facility and Brad Edson, NutraCea’s member on the Finance Committee, votes for the proposed Facility, but [*] votes against the proposed Facility, then NutraCea shall have the right to proceed with the Excluded Facility. However, NutraCea may not proceed with the development of the Excluded Facility for its own account if Brad Edson, as a member of the Finance Committee, voted against the Company’s acquisition/development of the proposed Facility of if he fails to vote within the 60-day period.) If the Excluded Facility is developed by a Class A Member, then the calls for Capital Contributions requested for such Facility will be withdrawn, and no Class A Member shall have the obligation or right to make the requested Capital Contribution.

3

3.7.2Development of Excluded Facility. If the Finance Committee elects not to pursue a proposed Facility and, as a result, one Class A Member (the “Electing Member”) obtains the right under Section 3.7(a) to develop the Excluded Facility, the Electing Member may thereafter elect to develop the Excluded Facility for its own account by delivering written notice to the Company and to the other Class A Member confirming the Electing Member’s bona fide desire to proceed with such proposed Facility. The Electing Member proposing the purchase of the Excluded Facility may proceed to complete the Excluded Facility described in the notice, provided that the Excluded Facility that is developed is substantially the same in size, location and functionality as the proposed Facility considered by the Finance Committee, and that the Excluded Facility is acquired/developed on substantially the same terms and conditions as considered by the Finance Committee.

3.8.Operation of The Excluded Facility. If the Company or Finance Committee rejects the opportunity to develop a proposed Facility and, as a result, the Electing Member obtains the right under Section 3.7 to develop the Excluded Facility, the Electing Member may thereafter acquire, develop and operate the Excluded Facility for its own account and benefit (and not for the account or benefit of the Company). The Electing Member shall bear all of the costs associated with acquiring, developing and operating the Excluded Facility, and the Electing Member shall have the right receive and retain all revenue and profits from the Excluded Facility. All revenues and profits derived from the Excluded Facility shall be for the Electing Member’s own account, and the Electing Member shall not be obligated to share any profits or revenues derived from such sales with the Company.

3.8.1.Excluded Facility Customers. The Excluded Facility shall initially be permitted to sell Products from the Excluded Facility only to the Target Purchasers. In the event that (i) the Company does not have excess capacity to produce more Product at all of its Facilities and there remains additional demand for Product in the Territory by other potential customers, and (ii) the Excluded Facility has the capability of producing extra Product to satisfy such unmet demand in the Territory, then the Excluded Facility shall have the right to sell its Products to such other customers during the period in which the Company is unable to meet demand for such Products. Notwithstanding the foregoing, without the Company’s consent, the Excluded Facility may not sell any Product to existing customers of the Company.

4

3.8.2Distribution Fee. The parties hereto agree that, as a condition for any Excluded Facility obtaining the right and license to produce, distribute and sell Product in the Territory, the Excluded Facility/Electing Member shall pay the Company a fee equal to 5% of gross sales, F.O.B, of such Excluded Facility.

3.8.3Amendment of License Agreement; New Equipment Lease. In the event NutraCea establishes and operates an Excluded Facility in accordance with the terms of Section 3.7, the Company and Pacific Advisors agree that the License Agreement, which granted it the exclusive right to operate Facilities in the Territory, without any further action required by any party, will be amended to grant NutraCea the limited right to establish and operate the Excluded Facility and to sell the Product produced by the Excluded Facility in accordance with this Section 3.8. In the event Pacific Advisors establishes and operates an Excluded Facility in accordance with the terms of Section 3.8, NutraCea agrees that it shall lease to the Excluded Facility the rice stabilization equipment required for the operation of the Excluded Facility. The terms under which the rice stabilization equipment is leased shall be substantially identical to the terms under which NutraCea otherwise leases such equipment to the Company.

3.9Option to Acquire Excluded Facility. Following the establishment and the commencement of operations of an Excluded Facility, the Electing Member who elects to develop an Excluded Facility shall grant the Company the right to acquire the Excluded Facility as follows:

3.9.1Election Period; Option Acquire. At any time during the period commencing on the date that the Electing Member delivers written notice pursuant to Section 3.7.2 to the Company and to the other Class A Member confirming the Electing Member’s bona fide desire to proceed with the Excluded Facility, and ending 90 calendar days after an Excluded Facility has been constructed and has commenced commercial production of Products (during the “Election Period”), the Company shall have the right to acquire the Excluded Facility. The Electing Member hereby grants the Company the right to acquire the Exclude Facility, and agrees to transfer the Excluded Facility to the Company, on the terms and conditions set forth below. During the Election Period, the Electing Member shall provide both the Company and the other Class A Member with access to all of the books and records related to the Excluded Facility, and shall provide all information reasonably requested regarding the development of the Excluded Facility, its marketing plans, its target customers, and such other information as they may reasonably request, all for the purposes of evaluating the possible acquisition by the Company of the Excluded Facility.

3.9.2Exercise. The option to acquire the Excluded Facility may be exercised on behalf of the Company at any time during the Election Period by the member who is not the Electing Member (the other Class A Member is herein referred to as the “Non-Electing Member”). The Non-Electing Member may exercise the Company’s option to purchase the Excluded Facility (i) by providing written notice to the Electing Member of the election to acquire the Facility and (ii) by making a capital contribution to the Company in an amount equal to [*]% of the actual out-of-pocket expenses incurred by the Electing Member in the development and establishment of the Excluded Facility (the dollar amount contributed by the Non-Electing Member is referred to as the “Option Payment”). Notwithstanding anything in this Agreement to the contrary, a capital contribution made by a Non-Electing Member for the purposes of acquiring an Excluded Facility shall not require the Electing Member to match the capital contribution, and the provisions of Section 4.2.2, to the extent applicable, shall not apply to such capital contribution. Upon the funding of the Option Payment, the Company will purchase the entire Excluded Facility from the Electing Member in consideration for a cash payment equal to Option Payment and a deemed capital contribution to the Company. Accordingly, upon the transfer of title of the entire Excluded Facility to the Company, the Electing Member shall (i) be credited with making a capital contribution equal to Option Payment, and (ii) shall receive a cash payment from the Company equal to the Option Payment. Following the acquisition of the Excluded Facility, that Facility shall thereafter become a Company owned Facility and shall cease being an Excluded Facility. Accordingly after the acquisition of the Excluded Facility by the Company, all profits, losses and other attributes of the transferred Facility shall accrue to the benefit of the Company.

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3.9.3The option granted under this Section 3.9 shall expire and no longer apply to any further Excluded Facilities developed by a Electing Member if that Electing Member owns two Excluded Facilities that are not acquired by the Company under this Section 3.9 during their Election Periods.

3.Amendment Controlling. In the event of any inconsistency between the terms of this Amendment and the terms of the Agreement, the terms of this Amendment shall control. Except to the extent expressly amended pursuant to this Amendment, the terms and provisions of the Agreement shall remain in full force and effect without modification.

4.Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be an original and all of which shall together constitute one and the same document. The execution by a Member of a written consent approving this Amendment shall constitute such Member’s execution of this Agreement.

5.Authorization. By his or her signature, each person executing this Amendment on behalf of a party hereto represents and warrants to the other party hereto that he or she is duly authorized.

6.Governing Law. This Amendment shall be governed by the laws of the State of Delaware, notwithstanding its conflict of law provisions.

NutraCea, a Californiacorporation
By:
	Brad Edson

Pacific Advisors Holdings Limited, a British Virgin Islands company
By:
	(___________________________)

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EX-10.18

EXHIBIT 10.18

[*Designates portions of this document have been omitted pursuant to a request for confidential treatment filed separately with the Commission]

AMENDMENT OF LICENSE AND DISTRIBUTION AGREEMENT

This Amendment of License and Distribution Agreement (“Amendment”), is entered into by and between NutraCea, a California corporation located at 5090 North 40^th Street, Suite 400, Phoenix, AZ 85018 (“NutraCea”), and Pacific Advisors Holdings Limited, a company incorporated under the laws of British Virgin Islands, located at 53 Cairnhill Road, Cairnhill Plaza #12-01, Singapore 229664 (“Pacific Advisors”), as of January ___, 2008 (“Effective Date”) on the following terms and conditions:

1.Background and Purpose.

1.1Agreement. Pursuant to that certain License and Distribution Agreement entered into as of June 22, 2007 by NutraCea and Pacific Advisors (“Agreement”), NutraCea granted a license and certain other rights to Pacific Advisors. NutraCea and Pacific Advisors are each members of Grain Enhancement, LLC, a limited liability company formed for the purpose of manufacturing and commercializing the stabilized rice bran Products that are subject to the Agreement throughout the Territory. This Amendment amends the Agreement as in effect immediately before the Effective Date.

1.2Approval of Amendment. NutraCea and Pacific Advisors, constituting all of the parties to the Agreement, have approved this Amendment and intend that it shall be binding pursuant to the terms set forth in Section 12.4 of the Agreement.

1.3Capitalized Terms. All capitalized terms used in this Amendment shall have the meanings set forth in the Agreement, unless otherwise defined herein.

2.Amendment of Agreement.The parties hereby amend the Agreement as follows:

2.1 License Fee. Pursuant to Section 8.1 of the Agreement, Pacific Advisors agreed to pay NutraCea a $5,000,000 License Fee, together with interest accruing thereon from the June 22, 2007 effective date of the Agreement until the License Fee is paid in full. NutraCea hereby agrees to foregive Pacific Advisors’ obligation to pay interest on the License Fee if and subject to Pacific Advisors paying the $5,000,000 License Fee in full and in U.S. dollars by no later than [*]. Accordingly, in the event that Pacific Advisors pays NutraCea $5,000,000 in U.S. dollars by no later than [*], the License Fee under Section 8.1 of the Agreement shall be deemed paid in full, and Pacific Advisors shall thereafter not be obligated to make any further payments under Section 8.1. In addition, the parties hereby agree that upon the full payment of the $5,000,000 License Fee by [*], the Guaranty issued by PT Panganmas Inti Persada to NutraCea will be terminated and all obligations of PT Panganmas Inti Persada under the Guaranty shall immediately cease, and NutraCea shall return the executed Guaranty to PT Panganmas Inti Persada.

3.Amendment Controlling. In the event of any inconsistency between the terms of this Amendment and the terms of the Agreement, the terms of this Amendment shall control. Except to the extent expressly amended pursuant to this Amendment, the terms and provisions of the Agreement shall remain in full force and effect without modification.

4.Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be an original and all of which shall together constitute one and the same document. The execution by a party of a written consent approving this Amendment shall constitute such party’s execution of this Agreement.

5.Authorization. By his or her signature, each person executing this Amendment on behalf of a party hereto represents and warrants to the other party hereto that he or she is duly authorized.

6.Governing Law. This Amendment shall be governed by the laws of the State of California, notwithstanding its conflict of law provisions.

NutraCea, a Californiacorporation

By:

Brad Edson

Pacific Advisors Holdings Limited, a British Virgin Islands company

By:

(_____________________________)

EX-10.25

EXHIBIT 10.25

STOCK PURCHASE AGREEMENT

THIS STOCK PURCHASE AGREEMENT, dated as of the 24th day of January 2008 (the “Agreement”), is by and among Fortune Finance Overseas Ltd., a British Virgin Islands company (the “Seller”), and Medan, LLC, a limited liability company formed under the laws of the State of Delaware (the “Purchaser”).

WITNESSETH:

WHEREAS, the Seller desires to sell to the Purchaser, and the Purchaser desires to purchase 9,700 shares of capital stock (the “Company Shares”) of PT Panganmas Inti Nusantara, an Indonesian company (the “Company”), on the terms and conditions set forth below; and

WHEREAS, the Seller is in the process of completing the transfer of certain Company shares from PT. Citra Jaya Makmur a limited liability company incorporated under Indonesian law ( “CJM”);

WHEREAS, the Seller, upon completion of the transfer of Company shares from CJM is the majority shareholder of the Company.

WHEREAS, the Seller and the Purchaser have established an escrow account (the “Escrow Account”) at U.S. Bank, N.A. in San Francisco, California, U.S.A. (the “Escrow Agent”) for the purposes of effecting the payment of the sale contemplated hereby.

WHEREAS, the Purchaser has deposited into the Escrow Account a total of U.S. $10,675,000, a portion of which represents the purchase price of the Company Shares.

WHEREAS, under the laws of Indonesia, before the sale of the Company Shares can be effected, the Investment Coordinating Board of Indonesia (the Badan Koordinasi Penanaman Modal) must approve the Company’s Foreign Investment Application (the Izin atas Permohonan Penanaman Modal Asing), which approval is evidenced by the issuance of a Surat Persetujuan Penanaman Modal Asing (the “Certificate”).

NOW, THEREFORE, in consideration of the premises and of the mutual representations, warranties and agreements set forth herein, the parties hereto agree as follows:

ARTICLE I

SALE AND PURCHASE OF SHARES

1.1 Transfer of Shares. Subject to the terms and conditions set forth in this Agreement and in reliance upon the representations and warranties of the Seller and the Purchaser herein set forth, at the Closing, the Seller shall sell, transfer, convey, assign and deliver to the Purchaser, and the Purchaser shall purchase from the Seller, by appropriate bills of sale, assignments and other instruments satisfactory the Purchaser and its counsel, good and marketable title in and to the Company Shares.

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ARTICLE II

PURCHASE PRICE, PAYMENT AND RELATED MATTERS

2.1 Purchase Price. At the Closing, the Purchasers shall, through release from Escrow Account, pay to the Seller for the Company Shares the aggregate sum of U.S. $8,175,000 (the “Purchase Price”) by wire transfer from the Escrow Agent of immediately available funds into a bank account designated in writing by the Seller on or prior to the Closing.

2.2 Transfer Taxes. The Seller shall be solely responsible for the payment of any and all application fees and costs payable in Indonesia incident to the sale and transfer of the Company Shares contemplated herein.

ARTICLE III

THE CLOSING

3.1 Time and Place of Closing. The closing of the transactions contemplated hereby shall take place as follows:

(a)Upon the receipt of the Certificate, the Seller shall cause the Company to cancel and replace the stock certificate representing the 13,750 shares currently owned by the Seller with two certificates, one representing the 9,700 Company Shares registered in the Purchaser’s name (the “Stock Certificate”), and the second registered in the Seller’s name representing the remaining 4,050 shares.

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(b)The Seller shall deliver the original Stock Certificate and the original Certificate to the Escrow Agent.

(c)At lease three days prior to the Closing, the Seller shall deliver to each of Weintraub Genshlea and Chediak Law Corporation, the Purchaser’s U.S. counsel, and to Hanafiah Ponggawa & Partners, the Purchaser’s counsel in Indonesia, (i) a copy of both the Stock Certificate and the Certificate (ii) evidence of announcement of the plan of acquisition of the Company in a daily newspaper as required under the Indonesian Company Law; (iii) a copy of the resolution of the shareholders of the Company approving the transfer of shares from the Seller to the Purchaser as required by the Articles of Association of the Company and the Indonesian Company Law; (iv) (v) reasonable evidence of the announcement to the employees of the Company of the acquisition plan; and (vi)the deed of transfer of shares between CJM and Seller.

(d)In accordance with the terms of the agreement governing the disbursement of funds from the Escrow Account, upon the receipt by Escrow Agent of the Certificate and the original Stock Certificate, the Escrow Agent shall promptly release (but in no event later than by noon the first business day after the receipt by the Escrow Agent of the foregoing Certificate and Stock Certificate) the Purchase Price from the Escrow Account and transfer that Purchase Price payment to the Seller in accordance with Section 2.2 above. The “Closing” shall be deemed to have occurred on the date that Purchase Price payment is sent to the Seller by the Escrow Agent.

3.2 Expiration of this Agreement. In the event that the Closing has not occurred by the close of business in San Francisco, California, on April 30, 2008, this Agreement shall automatically terminate and the Escrow Agent shall, as set forth in the escrow agreement, return the funds held in the Escrow Account to the Purchaser.

3.3 Additional Conditions to Close. At least three business days prior to Closing, Seller shall deliver to Purchaser the following documents, with a copy of each delivered to Hanafiah, Ponggawa & Partners, the Purchaser’s counsel in Indonesia:

(a)the approval of the Board of Directors of the Company for the transfer of shares from CJM to Seller;

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(b)the resolution of the shareholders of the Company approving the transfer of 13,750 Company shares of CJM to Seller as required by the Articles of Association of the Company and the Indonesian Company Law;

(c)the Approval from the Investment Coordinating Board of Indonesia approving Seller as a shareholder of the Company and therefore the change of status of the Company from domestic investment company to foreign investment company;

(d)the deed of transfer of shares between CJM and Seller that is already effective;

(e)the evidence of the announcement to the employees of the Company of the acquisition plan as required by the Indonesian Company Law;

(f)the evidence of announcement of the plan of acquisition of the Company in daily newspaper as required by the Articles of Association of the Company and the Indonesian Company Law;

(g)the Company Shareholders Registration Book (Daftar Pemegang Saham) stating Seller as a shareholder of the Company; and

(h)the Company’s shares certificate under the name of Seller.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE

SELLER REGARDING THE COMPANY AND THE COMPANY SHARES

The Seller hereby represents and warrants to the Purchaser that:

4.1 Title to Company Shares. Subject only to the completion of the transfer from CJM (which Seller represents and warrants will be promptly completed, and in all events completed prior to the Closing), the Seller is the sole legal and beneficial owner of all of the Company Shares, and upon consummation of the purchase contemplated herein, the Purchaser will acquire from the Seller good and marketable title to the Company Shares, free and clear of all liens, claims, encumbrances or restrictions. The Company Shares have been duly authorized, are validly issued, fully paid and nonassessable, and are not subject to, nor issued in violation of, any preemptive rights or rights of first refusal. Upon completion of the transactions contemplated herein and the stock purchase pursuant to Section 7.4, the Purchaser will own 51% of the outstanding stock of the Company.

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4.2  Organization; Authority to Execute and Perform Agreements. The Seller is a corporation duly organized, validly existing and in good standing under the laws of the British Virgin Islands and is qualified to do business in every jurisdiction in which it is required to be qualified, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. The Seller has full power and authority and all licenses, permits, authorizations, agreements, consents and exemptions, and has satisfied all conditions and terms relating or attaching thereto, as necessary to own and operate its properties and to carry on its business as now conducted, and all such licenses, permits, authorizations, agreements, consents and exemptions are in full force and effect and have been fully complied with. There are no circumstances, facts or matters which indicate that any of the licenses, permits, authorizations, agreements, consents and exemptions will or are likely to be revoked or not renewed, in whole or in part, in the ordinary course of events (whether as a result of the purchase by the Purchaser of the Company Shares or otherwise). Correct and complete copies of the Company’s charter documents have been provided to Purchaser. The Company is not in default under or in violation of any provision of its charter documents. The Seller has the full right, power and authority to enter into, execute and deliver this Agreement and, subject to the receipt of the Certificate, to transfer, convey and sell to the Purchaser at the Closing the Company Shares.

4.3 Enforceability. This Agreement has been duly and validly executed by the Seller and (assuming the due authorization, execution and delivery by the Purchaser) constitutes the legal, valid and binding obligation of the Seller, enforceable in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally or by general equitable principles affecting the enforcement of contracts.

4.4 No Violation. The execution or delivery by the Seller of this Agreement does not (i) violate in any material respect any applicable law or any judgment, order or decree of any court, and will not result in the creation or imposition of any lien, charge or other encumbrance upon the Company Shares, or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which the Company is a party or by which it is bound or to which any of its assets is subject (or result in the imposition of any encumbrance upon any of its assets). For purposes of this Section 4.4, “encumbrance” means any encumbrance, claim, lien, charge, mortgage, security interest, equity, option, pledge, restriction on transferability (including, without limitation, any voting agreement, voting trust, any restriction on voting rights or right of disposition), defect of title, attachments, preliminary attachments or adverse claims (whether or not made, known or contingent) or other claims or third party rights of whatever nature on any property or property interest.

4.5 Compliance with Laws. The Company has complied in all respects with, is not in violation in any material respect of, and has not received any notices of violation with respect to all laws, ordinances, regulations, interpretations, judgments, decrees, injunctions, permits, licenses, certificates, governmental requirements, orders, guidelines and other similar items of any court or other governmental entity. Without in any manner limiting the foregoing: (i) the Company Shares were issued in full compliance with all applicable laws of Indonesia relating to the issuance or sale of securities, (ii) there has been no storage, disposal, generation, manufacture, refinement, transportation, handling, release or treatment of waste or hazardous substances by the Company at, upon, or from any of the property now or previously owned or leased by the Company in violation of any applicable law, ordinance, rule, regulation, order, judgment, decree or permit or which could reasonably be expected to require remedial action under any applicable law, ordinance, rule, regulation, order, judgment, decree or permit, and (iii) the Company will at the Closing have no obligations with regard to current or past employees or agents.

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4.6 No Adverse Litigation. The Seller is not a party to any pending litigation which seeks to enjoin or restrict the Seller’s ability to sell or transfer the Company Shares hereunder, nor is any such litigation threatened against the Seller. Furthermore, there is no litigation pending or threatened against the Seller which, if decided adversely to the Seller, could adversely affect the Seller’s ability to consummate the transactions contemplated herein or the Purchaser’s ownership of the Company shares.

4.7 Organization and Qualification of the Company. The Company is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of Indonesia, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. The Company is not in violation or default of any of the provisions of its Articles of Association or other organizational or charter documents.

4.8 Capitalization. The Company’s authorized capital currently consists of 21,950 shares of capital stock, all of which have been issued and are outstanding. As of the date of this Agreement, CJM owns the 13,750 shares that will be transferred to the Seller before the Closing, and Yayasan Bina Sejahtera Warga BULOG (“BULOG”) owns 8,200 shares. The Company has not issued any other series or class of capital stock, and except as set forth in Schedule 4.8, there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any person any right to subscribe for or acquire, any of the Company’s shares. All of the outstanding shares of capital stock of the Company are validly issued, fully paid and nonassessable. Except as set forth in Schedule 4.8, there are no shareholder agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company or any of its shareholders is a party. The Company is not subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of its capital stock. All Company option plans or other incentive plans, have been terminated.

4.9 Title to Assets; Permits. The Company has good and marketable title to that certain parcel of land located at Kuala Tanjung, Medan, North Sumatra, Indonesia and more specifically described on Schedule 4.9 hereto (the “Land”) and good and marketable title to all permits, licenses, approvals, and governmental authorizations (“Permits”) required for the development and operation of the Land as a wheat mill, free and clear of any encumbrances. The Permits are sufficient to construct and operate the wheat facility as currently contemplated by the parties. The Land is owned by the Company free and clear of all liens and encumbrances. In addition to the Land, the Company owns real estate in Jakarta, Indonesia,which real estate the Company will transfer and dispose of following the Closing. As set forth in Section 5.3, all proceeds from the sale of the Jakarta real estate shall belong to the Seller.

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4.10Company Indebtedness. All of the indebtedness and obligations of the Company of any kind will be discharged by no later than the Closing, and the Company shall have no outstanding indebtedness or liabilities as of the Closing. The Company has promptly and properly notified its insurance carriers of any and all claims known to it with respect to its operations or products for which it is insured. The Company is not a guarantor of, nor is it otherwise liable for, any liability or obligation (including indebtedness) of any other person or entity.

4.11 Absence of Litigation; No Dissolution. There is no action, suit, claim, proceeding, inquiry, or investigation before or by any court, public board, or government agency or body pending or, to the knowledge of the Seller, threatened against or affecting the Shares, other shares of the Company, the Company or the Land. There is no judgment, decree or order against the Company, or to the knowledge of the Seller, against its commissioners, managers, officers or directors (in their capacities as such). No order has been made, petition presented or meeting convened for the purpose of considering a resolution for the winding up of the Company or for the appointment of any provisional liquidator. No petition has been presented for an administration order to be made in relation to the Company, and no receiver (including any administrative receiver) has been appointed in respect of the whole or any part of any of the assets and/or undertaking of the Company.

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4.12 Tax Returns and Payments. Except for those taxes that are not yet due or required to be paid, the Company has made or filed all federal, state, local income and other tax returns, reports and declarations required by Indonesia and any jurisdiction to which it is subject, and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations. As more specifically set forth in Section 7.5, the Seller agrees that it shall be responsible for, and shall pay all unpaid taxes of the Company relating to any period prior to the Closing, and, if any additional taxes accrue to the Company as a result of the disposition of the Jakarta building after the Closing, all of the taxes related to the Jakarta building.

4.13 No Broker. No broker, finder, agent or similar intermediary has acted for or on behalf of Seller or is entitled to a fee or commission in connection with this Agreement or the transactions contemplated hereby.

4.14Disclosure. The representations and warranties contained in this Section 4 do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements and information contained in this Section 4 not misleading.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

The Purchaser represents and warrants to the Seller that:

5.1 Organization; Authority; Due Authorization. The Purchaser is duly organized, validly existing and in good standing under the laws of Delaware, and has all requisite power, authority and approvals required to enter into, execute and deliver this Agreement and to perform fully its obligations hereunder. The Purchaser has taken all actions necessary to authorize it to enter into and perform fully its obligations under this Agreement and to consummate the transactions contemplated herein. This Agreement is the legal, valid and binding obligation of Purchaser, enforceable in accordance with its terms.

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5.2 No Violation. The execution and delivery of this Agreement and the consummation of the transactions contemplated herein will not (a) violate, conflict with, or constitute a default under any contract or other instrument to which the Purchaser is a party or by which it or its property is bound, (b) require the consent of any party to any material contract or other agreement to which Purchaser is a party or by which it or its property is bound, or (c) violate any laws or orders to which Purchaser is subject.

5.3 Reorganization of the Company. The Purchaser is aware that, prior to the date of this Agreement, the Company was engaged in certain other business activities (including the distribution of wheat flour) (“Prior Activities”) and that the Company owned other assets that are not related to the Land or to the wheat flour mill that the Company proposes to develop on the Land (all such assets other than the Land and rights, permits and interest that are not directly related to the proposed wheat mill are herein collectively referred to as the “Unrelated Assets”). The Unrelated Assets include a building in Jakarta, Indonesia, and several automobiles kept in Jakarta. The Purchaser hereby agrees and acknowledges that the Company shall dispose of, or has disposed of, the Unrelated Assets prior to and, with respect to the building in Jakarta, after the Closing, and that the Unrelated Assets and all proceeds received from the disposal of such Unrelated Assets shall be the property of the Seller and not of the Company. The Purchaser further acknowledges that the Unrelated Assets may be transferred to affiliates of the Seller. In addition to the Unrelated Assets, the Company may use any cash that it may have in its bank accounts prior to the Closing (i) for the payment by the Company of its outstanding debts and liabilities, and (ii) to make distributions to its shareholders (including the Seller). The Purchaser acknowledges that, after the reorganization and the disposal of the Unrelated Assets, the Company shall, therefore, own the Land and various Permits, licenses and other intangible assets related to the proposed development of a wheat mill facility on the Land, but that it will not otherwise own any real or personal assets.

5.4 No Broker. No broker, finder, agent or similar intermediary has acted for or on behalf of the Purchaser or is entitled to a fee or commission in connection with this Agreement or the transactions contemplated hereby.

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ARTICLE VI

INDEMNIFICATION

6.1 Indemnity of the Seller. In addition to its obligations under Section 6.4 below, the Seller agrees to indemnify, defend and hold harmless and reimburse the Purchaser and Purchaser’s member, and the officers, directors, agents and employees of Purchaser’s member (“Purchaser Indemnitees”) from and against, and to reimburse the Purchaser with respect to, all liabilities, losses, costs and expenses, including, without limitation, reasonable attorneys’ fees and disbursements, asserted against or incurred by any Purchaser Party by reason of, arising out of, or in connection with (i) any material breach of any representation, warranty or covenant contained in this Agreement or made by the Seller or in any document or certificate delivered by the Seller pursuant to the provisions of this Agreement or in connection with the transactions contemplated thereby (ii) the Company’s operations prior to the Closing, including without limitation any acts or omissions by the Company or Seller, or any affiliate or agent of either, occurring prior to the Closing, or any obligations of the Company arising prior to the Closing, or (iii) the Unrelated Assets and/or Prior Activities..

6.2 Indemnity of the Purchaser. The Purchaser agrees to indemnify, defend and hold harmless the Seller from and against, and to reimburse the Seller with respect to, all liabilities, losses, costs and expenses, including, without limitation, reasonable attorneys’ fees and disbursements, asserted against or incurred by the Seller by reason of, arising out of, or in connection with any material breach of any representation, warranty or covenant contained in this Agreement or made by the Purchaser or in any document or certificate delivered by the Purchaser pursuant to the provisions of this Agreement or in connection with the transactions contemplated thereby.

6.3 Indemnification Procedure. A party (an “Indemnified Party”) seeking indemnification shall give prompt notice to the other party (the “Indemnifying Party”) of any claim for indemnification arising under this Article VI. The Indemnifying Party shall have the right to assume and to control the defense of any such claim with counsel reasonably acceptable to such Indemnified Party, at the Indemnifying Party’s own cost and expense, including the cost and expense of attorneys’ fees and disbursements in connection with such defense, in which event the Indemnifying Party shall not be obligated to pay the fees and disbursements of separate counsel for such in such action. In the event, however, that such Indemnified Party’s legal counsel shall determine that defenses may be available to such Indemnified Party that are different from or in addition to those available to the Indemnifying Party, in that there could reasonably be expected to be a conflict of interest if such Indemnifying Party and the Indemnified Party have common counsel in any such proceeding, or if the Indemnified Party has not assumed the defense of the action or proceedings, then such Indemnifying Party may employ separate counsel to represent or defend such Indemnified Party, and the Indemnifying Party shall pay the reasonable fees and disbursements of counsel for such Indemnified Party. No settlement of any such claim or payment in connection with any such settlement shall be made without the prior consent of the Indemnifying Party which consent shall not be unreasonably withheld.

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6.4 Company Reimbursement. In the event of a breach of any representation or warranty made by the Seller under Sections 4.10 through 4.13, the Seller hereby agrees to reimburse and compensate the Company for any debts, costs, expenses or payments that it incurs that are in excess of the obligations and liabilities disclosed in such Sections 4.10 through 4.13. For example, in the event that all indebtedness of the Company is not discharged before the Closing and, as a result, the Company is obligated to pay any pre-closing indebtedness of the Company after the Closing, the Seller shall promptly reimburse the Company for any such payments made by the Company.

ARTICLE VII

COVENANTS

7.1 Shareholders/Voting Agreement. The Seller and Purchaser acknowledge that, following the Closing, they will not own and equal number of the Company’s shares. Nevertheless, the parties hereto agree that it is their intention at all times to exercise their rights as shareholders, and to vote their shares, in a manner as if each of them owned 50% of the issued and outstanding shares to the Company. Accordingly, promptly following the execution of this Agreement, the parties hereto shall commence negotiating and preparing a shareholders/voting agreement pursuant to which the Seller and the Purchaser shall agree (i) to vote all of their Company shares in a manner that the Company’s Board of Directors and Board of Commissioners shall consist of an even number of persons, one half of which shall be designated by each of the Seller and the Purchaser, and (ii) that they will not vote in favor of a Fundamental Change unless they jointly agree to the Fundamental Change. A “Fundamental Change” means the occurrence of a transaction or series of related transactions the results in (i) the sale, lease or other disposition of all or substantially all of the Company’s assets, (ii) the liquidation or dissolution of the Company, (iii) the merger or consolidation of the Company with a third party, (iv) a reclassification of the Company’s capital, or (v) the initiation of bankruptcy proceedings by the Company.

7.2Purchase of BULOG Shares. The Seller agrees to complete its purchase of the 8,200 shares of the Company’s stock from BULOG by no later than the Closing.

7.3Post-Closing Proceedings. The Seller agrees to cause the Company to promptly and efficiently take any and all action after the Closing that may be required to be completed in connection with the sale by the Seller of the Company Shares to the Purchaser, including without limitation the notarization of documents, the filing of all instruments and deeds with the appropriate Indonesian governmental agencies, and the recordation of the transfer of the Company Shares in the Company’s corporate records. The Purchaser is hereby authorized by the Seller, following the Closing, to give notification of the transfer of the Company Shares to the Board of Directors of the Company, and to cause the registration of the Company Shares in the Share Register of the Company in the name of the Purchaser. For the purpose hereof, the Sellers irrevocably authorize the Purchaser- with right of substitution, after the Closing to act on behalf of and in the name of the Seller to appear whenever and wherever necessary, to sign any and all instruments, deeds and documents required and to perform all matters considered proper and beneficial for the registration of the Company Shares in the Purchaser's name, without exception. This power of attorney as stated above constitute an important and inseparable part of this Agreement, without which this Agreement would not have been consummated, and accordingly this power of attorney shall not be held void or cancelled for any reason whatsoever, including but not limited to the reasons set forth in Articles 1813, 1814 and 1816 of the Indonesian Civil Code.

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7.4Sale of 3,050 Shares to the Purchaser. The Seller hereby agrees to take all action necessary or appropriate on its part, and as reasonably requested by Purchaser’s counsel, and agrees to cooperate with the Company and its counsel, in order to complete as promptly as possible after the Closing the subscription by the Purchaser of 3,050 shares of the Company’s shares from the Company at the value of U.S. $2,500,000. The Seller hereby agrees to use its best efforts to cause the Company to prepare and file all applications with the BKPM, and the Indonesian Ministry of Law & Human Rights, and to take all such other action as may be necessary to complete the subscription by the Purchaser of such additional 3,050 shares of the Company.

7.5 Payment of the Company’s Pre-Closing Taxes. The parties hereto acknowledge that the Company may owe taxes to one or more governmental agencies in Indonesia relating to its activities prior to the Closing, which unpaid taxes may be payable before or after the Closing (all unpaid taxes and governmental levies assessed for all periods prior to the Closing, including any penalties related thereto, are herein referred to as the “Pre-Closing Taxes”). The Seller hereby agrees that it shall reimburse the Company for all Pre-Closing Taxes assessed against the Company that the Company is required to pay, and does pay. The Seller agrees that it will reimburse the Company in full for all Pre-Closing taxes that it pays within 30 calendar days after its receipt of documents evidencing the assessment and payment of an Pre-Closing Taxes.

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ARTICLE VIII

MISCELLANEOUS

8.1 Survival of Representations, Warranties and Agreements. All representations and warranties made by a party to this Agreement or in any document or certificate delivered pursuant hereto shall survive the Closing for two years; provided, that the provisions of Sections 4.8, 4.10, and 4,12 shall survive until the expiration of all applicable statutes of limitation with regard to matters arising thereunder . Each of the parties hereto is executing and carrying out the provisions of this Agreement in reliance upon the representations, warranties and covenants and agreements contained in this Agreement or at the closing of the transactions herein provided for and not upon any investigation which it might have made or any representations, warranty, agreement, promise or information, written or oral, made by the other party or any other person other than as specifically set forth herein. All covenants and obligations contained in this Agreement shall survive the Closing until all obligations with respect thereto have been performed or until they have expired in accordance with their respective terms.

8.2 Further Assurances. If, at any time after the Closing, the parties shall consider or be advised that any further deeds, assignments or assurances in law or any other things are necessary, desirable or proper to complete the transactions contemplated herein or to vest, perfect or confirm, of record or otherwise, the title to any property or rights of the parties hereto, the parties agree that their proper officers and directors shall execute and deliver all such proper deeds, assignments and assurances in law and do all things necessary, desirable or proper to vest, perfect or confirm title to such property or rights and otherwise to carry out the purpose of this Agreement, and that the proper officers and directors of the parties are fully authorized to take any and all such action.

8.3Notice. All communications, notices, requests, consents or demands given or required under this Agreement shall be in writing and shall be deemed to have been duly given when delivered to, or received by prepaid registered or certified mail or recognized overnight courier addressed to, or upon receipt of a facsimile sent to, the party for whom intended, as follows, or to such other address or facsimile number as may be furnished by such party by notice in the manner provided herein:

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If to the Purchaser:

c/o NutraCea

5090 North 40^th Street, Suite 400

Phoenix, AZ 85018

Attn: Brad Edson

With a copy to:

Weintraub Genshlea Chediak Law Corporation

400 Capitol Mall, Suite 1100

Sacramento, CA 95818

Attn: Chris Chediak

If to Licensee:

Fortune Finance Overseas Ltd.

53 Cairnhill Road,

Cairnhill Plaza #12-01,

Singapore 229664

Attn:_____________

With copy to:

Troy & Gould

1801 Century Park East, 26th Floor

Los Angeles, California 90067

Attn: Istvan Benko

8.4 Successors and Assigns. This Agreement shall be binding upon, enforceable against and inure to the benefit of, the parties hereto and their respective heirs, administrators, executors, personal representatives, successors and assigns, and nothing herein is intended to confer any right, remedy or benefit upon any other person. This Agreement may not be assigned by any party hereto except with the prior written consent of the other parties, which consent shall not be unreasonably withheld.

8.5 Governing Law. This Agreement shall in all respects be governed by and construed in accordance with the laws of the State of California applicable to agreements made and fully to be performed in the state, without giving effect to any conflicts of law principles thereof

8.6 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

8.7 Construction. Headings contained in this Agreement are for convenience only and shall not be used in the interpretation of this Agreement. References herein to Articles, Sections and Exhibits are to the articles, sections and exhibits, respectively, of this Agreement. As used herein, the singular includes the plural, and the masculine, feminine and neuter gender each includes the others where the context so indicates.

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8.8 Severability. If any provision of this Agreement is held to be invalid or unenforceable by a court of competent jurisdiction, this Agreement shall be interpreted and enforceable as if such provision were severed or limited, but only to the extent necessary to render such provision and this Agreement enforceable.

8.9Attorneys’ 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 shall be entitled to reasonable attorneys’ fees, costs and other expenses, in addition to any other relief to which such party may be entitled.

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IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement as of the date first set forth above.

SELLER:

FORTUNE FINANCE OVERSEAS LTD.

By:  

PURCHASER:

NUTRACEA

By:  

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Schedules

The following are the schedules to the representations and warranties of Fortune Finance Overseas Ltd. (the "Seller") set forth in Article IV of the Stock Purchase Agreement dated as of January 28, 2008 (the "Agreement") to which this Schedule is attached. All capitalized terms used and not otherwise defined herein shall have the meanings given them in the Agreement. Nothing in this Schedule of Exceptions constitutes an admission of any liability or obligation of the Seller or the Company to any party, nor an admission against the Seller’s or the Company's interests.

4.8Capitalization.

A.The Purchaser has agreed to purchase 3,050 shares from the Company for US $2,500,000 following the Closing as soon as the Company’s Articles of Association are amended to increase the Company’s authorized capitalization and the requisite approval of the Ministry of Justice is received.

B.The Seller has agreed to purchase from BULOG all 8,200 shares currently by BULOG, which transaction is expected to be completed shortly after the Closing.

C.The Purchaser and the Seller intend to enter into a shareholder/voting agreement following the Closing.

4.9Title to Assets.

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EX-10.26

EXHIBIT 10.26

[*Designates portions of this document have been omitted pursuant to a request for confidential treatment filed separately with the Commission]

WHEAT BRAN STABILIZATION

EQUIPMENT LEASE

This Wheat Bran Stabilization Equipment Lease (“Lease”) is made and entered into as of January 24, 2008 between PT Panganmas Inti Nusantara, an Indonesian company (“PIN”), and NutraCea, a California corporation (“NutraCea”) on the following terms and conditions:

RECITALS

A.NutraCea is currently completing the development of certain technology and related equipment for the stabilization of wheat bran to increase the effective yield of wheat flour produced from the wheat flour milling process.

B.PIN is currently developing a wheat flour mill (the “Facility”) to be located at Kuala Tanjung, Medan, North Sumatra, Indonesia (the “Location”).

C.It is the intention of both NutraCea and PIN that NutraCea lease to PIN and PIN lease from NutraCea wheat stabilization equipment developed by NutraCea for use at PIN’s Facility at the Location if the equipment is satisfactory to PIN.

D.The shareholders of PIN consist of an affiliate of NutraCea and Fortune Finance Overseas Ltd.

AGREEMENT

1.Lease of Equipment; Location; Installation.

1.1Commercial Viability; Lease Election. NutraCea agrees to provide to PIN all such information that PIN shall reasonably request during the development and testing of the Equipment regarding the performance, operation and production capabilities of the Equipment. At any time prior to the shipment of the Equipment for installation at the Facility (“Effective Date”, PIN shall elect whether or not to lease the Equipment. PIN may elect not to lease the Equipment for any reason in its sole discretion. If PIN elects not to lease the Equipment, this Lease shall terminate at such time as NutraCea is notified of the election not to lease. NutraCea agrees that PIN shall not be obligated to lease the Equipment if Fortune Finance Overseas Ltd., or any director of PIN appointed by Fortune Finance Overseas Ltd., objects to the use of the Equipment at the Facility. In the event that PIN accepts the Equipment, the provisions of this Lease shall apply to the Equipment.

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1.2Lease.In the event that PIN accepts the Equipment, on the Effective Date, NutraCea hereby leases to PIN and PIN hereby leases from NutraCea the Equipment specified in Section 2 on the terms and conditions set forth herein. The Equipment shall be installed, maintained, and operated by NutraCea at the Location, and may not be moved or modified by PIN or by NutraCea from the Location. All costs and expenses related to the installation, maintenance, and operation of the Equipment at the Facility shall be borne by PIN.

1.3Installation. The Equipment will be installed at the Facility such time as (i) NutraCea has completed the development of the Equipment and the related technology, and (ii) the construction of the Facility has been sufficiently completed to accommodate the installation of the Equipment.

2.Equipment; No Transfer of Ownership.

2.1.Equipment. The “Equipment” subject to this Lease consists of the equipment, including various components thereof, being developed by Nutracea and required for producing stabilized wheat bran (“SWB”) and for increasing the yield of wheat flour produced by the milling process. A list of the Equipment to be leased as of the Effective Date (as defined in Section 3) shall be listed on Exhibit A attached hereto. With the written consent of PIN, in order to improve the performance or reliability of the Equipment, NutraCea may, from time to time, and at the expense of PIN, replace one or more components of the equipment listed on Exhibit A, or may supplement the equipment listed on Exhibit A with additional components or machinery. All new equipment hereafter installed to improve the Equipment or the operation of PIN’s wheat stabilization operations at the Facility shall also be leased to PIN and shall after such installation become “Equipment” for the purposes of this Lease. Exhibit A shall be amended from time to time to reflect any additions or deletions of equipment under this Section 2.

2.2.Ownership. PIN acknowledges and agrees that NutraCea will retain legal title in and to the Equipment and all proprietary rights and intellectual property manifested or disclosed therein and shall control access to and use of the Equipment, and that, except for its rights under this Lease, PIN will have no right, title or interest in or to the Equipment or the proprietary rights and intellectual property manifested or disclosed therein.

3.Term. The term of this Lease shall be for [*] commencing on the Effective Date. In the event that at the end of the foregoing [*] term (i) the Facility is fully operational, and (ii) the Equipment is still located at the Facility and is still being used in the operations of the Facility, the [*] term of this Lease shall automatically be extended for an additional [*] term. The term of this Lease may be extended with the mutual agreement of the parties.

4.Rent.

4.1.Single Payment. PIN hereby agrees that the rental payment of the Equipment listed on Exhibit A for the full [*] term of this Lease shall be the actual cost incurred by NutraCea for manufacturing the Equipment and for installing the Equipment at the Facility (the “Rent”). The entire amount of the Rent shall be payable [*], due and payable within [*] following the Effective Date.

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4.2.Additional Equipment. Any additional Equipment leased under Section 2.1 after the Equipment has been installed shall also be leased for a [*] lease payment equal to NutraCea’s [*]. Any such additional rental payment shall be payable within [*] after the installation of the new equipment.

4.2.U.S. Dollars. All payments under this Lease shall be paid in U.S. Dollars to NutraCea at NutraCea’s address set forth below or at such other address as NutraCea may designate.

5.Net Lease. This Lease shall be a “net lease,” it being understood that NutraCea shall receive the Rent free and clear of any taxes, liens, charges or expenses of any nature whatsoever in connection with the ownership, maintenance, and operation of the Equipment pursuant hereto. In addition to the Rent payable pursuant hereto, PIN shall pay all insurance premiums, operating charges, and any other charges, costs and expenses that may arise during the term of this Lease arising from the operation of the Equipment at the Facility. Upon any failure of PIN to pay any of the foregoing taxes and other expenses that materially and adversely affects NutraCea’s (i) title to the Equipment (including without limitation NutraCea’s ownership or protection of its proprietary rights or intellectual property rights), or (ii) ability to have such Equipment returned to NutraCea in accordance with this Lease, NutraCea shall have the same rights and remedies as otherwise provided in this Lease for the failure of PIN to pay Rent. The foregoing shall not limit any other rights of NutraCea hereunder, including without limitation the rights of NutraCea under Sections 11 and 12.

6.Equipment Installation and Maintenance.

6.1.Installation. NutraCea shall properly install, [*], the Equipment at the Facility being developed and constructed by PIN in Kuala Tanjung, Medan, North Sumatra, Indonesia (the “Location”). PIN shall provide sufficient space and access to NutraCea personnel as necessary or useful for the proper installation of the Equipment at the Location. PIN shall arrange, at PIN’s expense and with the reasonable cooperation of NutraCea, make such utilities available at the Location to enable the Equipment to be installed adjacent to the Facility and to thereafter to be operated in accordance with the specifications of the Equipment. PIN agrees to take all action necessary to provide NutraCea and its agents with unrestricted access to the Facility, the Location and the Equipment for the purpose of installing, maintaining, and operating the Equipment (including any additions to the Equipment subsequently installed under Section 2.1).

6.2.Maintenance and Repairs. The parties hereto agree and acknowledge that the failure of the Equipment to operate in the manner represented in Exhibit A will materially and adversely affect PIN’s operations. Accordingly, NutraCea agrees to service and maintain the Equipment on an ongoing basis in a manner that will enable the Equipment to operate at the maximum capacity specified on Exhibit A during the term of this Agreement. In order to maintain and repair the Equipment, the parties hereby agree as follows:

(a)NutraCea further agrees that it will initiate repairs of the Equipment within [*] after receiving notification from PIN of a need to repair the Equipment or to correct any deficiencies in the operation of the Equipment. NutraCea agrees to use its commercially reasonable and good faith efforts to promptly make any required repairs.

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(b)In order to enable the Equipment to be maintained and promptly repaired, NutraCea agrees to either provide [*] at the Location who is trained to operate, maintain or repair the Equipment, or, at PIN’s election, to train one or more of PIN’s employees in the proper maintenance and repair of the Equipment. The cost of the foregoing maintenance employees shall be borne by [*].

(c)PIN agrees to provide NutraCea’s employees with reasonable access to the Equipment during all business hours and will provide any other assistance reasonably required by NutraCea to provide such maintenance and repair services. PIN further agrees to use its best efforts to ensure that the Equipment will not be accessible by any persons not specifically authorized by Nutracea without the express prior consent of NutraCea.

(d)NutraCea or its agents may, from time to time, make reasonable modifications and/or improvements to the Equipment in order to improve the efficiency or cost-effectiveness of cleaning, sanitizing, operating, maintaining or repairing the Equipment. NutraCea, or at its sole election, PIN, will provide the personnel to properly clean and operate the Equipment.

(e)In order to enable the Equipment and the Location to be maintained and repaired, PIN shall keep all such spare parts as Nutracea reasonably requests at a secure place at the Location. In addition, PIN shall promptly replace all spare parts that are used for repairs.

(f)NutraCea agrees that it will provide all of the foregoing services at a price to PIN [*]. In addition, all spare parts necessary to repair or maintain the Equipment shall be purchased or produced by [*]; PIN will be billed for all such spare parts at the amount [*] for such parts, or at [*], if applicable.

7.No Use of other Stabilization Equipment or Technologies. As of the Effective Date, PIN agrees not to use any other wheat bran stabilization technologies or equipment for the purposes of producing SWB other than the Equipment. PIN agrees from and after such date that all SWB produced at the Location by PIN shall be produced with the Equipment.

8.Taxes. PIN shall pay any taxes, assessments, fees, and charges arising or related to the presence, use, or operation of the Equipment at the Location, whether assessed against NutraCea or PIN, during the term of this Lease.

9.Possession. PIN assumes full responsibility for the safekeeping of the Equipment and access to the Equipment during the term. PIN shall not misuse, sublet, transfer, or otherwise dispose of the Equipment or any portion thereof.

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10.[*].

11.Indemnity and Insurance.

11.1.Indemnity. PIN shall defend, indemnify and save NutraCea harmless from any and all claims brought by or on behalf of any third party relating to PIN’s use of the Equipment, including but not limited to strict product liability and negligent acts or omissions of PIN or any of its agents. Notwithstanding the foregoing, PIN will not be required to indemnify and hold NutraCea harmless for any claims made against NutraCea relating to the ownership of the Equipment, claims alleging infringement of the Equipment on such third party’s rights, or claims arising primarily from any improper acts by NutraCea or its agents. NutraCea shall indemnify and save PIN harmless from any and all third party claims made against PIN (i) relating to the ownership of, or title to, the Equipment, or (ii) alleging infringement of the Equipment on such third party’s rights, except (iii) to the extent arising primarily from any improper acts by PIN that are not acts of NutraCea or its employees.

11.2.Insurance. PIN shall keep the Equipment and PIN’s operations insured as reasonably appropriate by an insurance company or companies authorized to do business in the Location. If PIN shall fail to procure and maintain such insurance, NutraCea may, but shall not be required to, procure and maintain the same at PIN’s expense.

12.Confidentiality.

12.1.Definition. “Confidential Information” means any information or compilation of information which is disclosed by one party hereto (“Disclosing Party”) to another party (“Receiving Party”) hereunder, which is proprietary to the Disclosing Party and which relates to technical specifications of the Equipment, the design, functionality and operations of the Equipment, trade secrets and information contained in or relating to product designs, manufacturing methods, processes, techniques, tooling, and maintenance procedures. Information shall be treated as Confidential Information irrespective of its source and all information which the Disclosing Party identifies as being “confidential” or “trade secret” shall be presumed to be Confidential Information. Notwithstanding the above, the term Confidential Information shall not include information:

(a)which was in the public domain at the time of disclosure by the Disclosing Party to the Receiving Party;

(b)which is published or otherwise comes into the public domain after its disclosure to the Receiving Party through no violation of this Lease, by the Receiving Party;

(c)which is disclosed to the Receiving Party by a third party not under an obligation of confidence;

(d)which is already known by the Receiving Party at the time of its disclosure to the Receiving Party by the Disclosing Party as evidenced by written documentation of the Receiving Party existing prior to such disclosure;

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(e)which is independently developed by the Receiving Party through persons who have not had, either directly or indirectly, access to or knowledge of the Confidential Information of the Disclosing Party, as evidenced by written documentation of the Receiving Party; or

(f)which is required to be disclosed by any law or governmental regulation or produced under order of a court of competent jurisdiction; provided, however, that the Receiving Party provide the Disclosing Party written notice of such request or order and Disclosing Party is provided with an opportunity to attempt to limit such disclosure.

12.2.Nondisclosure. During the term of this Lease and at all times thereafter, the Receiving Party agrees to hold in strictest confidence and to never disclose, furnish, communicate, make accessible to any person or use in any way for the Receiving Party’s own or another’s benefit any Confidential Information or permit the same to be used in competition with the Disclosing Party. The Receiving Party agrees to use prudent and reasonable means to protect the Confidential Information.

12.3.Injunctive Relief. In the event of any breach of this Section 12, the parties agree that the non-breaching party will suffer irreparable harm for which money damages would be an inadequate remedy. Accordingly, the non-breaching party shall be entitled to seek injunctive relief, in addition to any other available remedies at law or in equity.

13.Default; Effect of Termination.

13.1.Default. Upon an Event of Default, this Lease shall terminate and all rights of PIN to the Equipment shall immediately terminate. Upon an Event Default NutraCea shall be entitled to all remedies provided by law including the right to take possession of the Equipment, to retain all Rent previously paid, and to convey or lease the Equipment or portions thereof for such periods, at such rentals, and to such persons as NutraCea shall elect, and to recover from PIN all damages and other recovery permitted under applicable law. An “Event of Default” shall mean, and be limited to, any of the following events:

(a)The failure of PIN to pay the Rent within 30 days following the Effective Date;

(b)A default by PIN in the performance of any of the material terms and conditions of this Lease that either is not capable of being cured or is not cured within 30 days after notice thereof is provided in writing to PIN, and if such a default either materially and adversely affects NutraCea’s (x) legal title to the Equipment, (y) proprietary rights or intellectual property rights, or (z) ability to repossess the Equipment upon the expiration of this Lease. Except as set forth above, any other breach of this Lease shall not result in the return of the Equipment to NutraCea or the termination of this Lease, and shall only entitle NutraCea to seek monetary damages or injunctive relief.

13.2Effect of Termination.Upon expiration of the [*] or the termination of this Lease following and Event of Default, PIN will return to NutraCea, and/or will provide evidence satisfactory to NutraCea of the destruction of all information or records evidencing or embodying any confidential information or intellectual proprietary rights of NutraCea, or with respect to the Equipment, and all copies, extracts, summaries and abstracts thereof, and thereafter will not use or disclose any such information or records for its own benefit or to the detriment of NutraCea.

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13.3.Removal of Equipment; Equipment Recapture Payment.Upon expiration of the Lease term or the termination of this Lease following an Event of Default, NutraCea may, [*], remove the Equipment from the Location, and shall repair any material damage to such premises as a result of such removal. In addition, if the Equipment is removed during the [*] following the Effective Date, upon the removal of the Equipment from the Facility by NutraCea, NutraCea shall pay PIN an amount equal to (i) [*]. NutraCea shall not have to pay any amounts to PIN for the Equipment after the [*] of the Effective Date. The term “Equipment Cost” means the sum of the Rent plus all up-front lease payments PIN has paid under Section 4 for additional equipment installed at the Location.

13.4.Survival of Covenants.The obligations of the parties under Sections 8, 9, 11, 12 and 13 shall survive any expiration or termination of the Lease.

14.Miscellaneous.

14.1.Assignment. Subject to the limitations set forth in Section 14, this Lease may be assigned only with the prior written consent of NutraCea.

14.2.Notices. All notices required hereunder shall be sent by certified mail return receipt requested, express courier with a nationally recognized courier service or by telex confirmed by such certified mail, to the party to be notified at its following address or at such other address as shall have been specified in written notice from the party to be notified.

If to NutraCea:

NutraCea

5090 North 40^th Street, Suite 400

Phoenix, AZ 85018

Attn: Brad Edson

With a copy to:

Weintraub Genshlea Chediak Law Corporation

400 Capitol Mall, Suite 1100

Sacramento, CA 95818

Attn: Chris Chediak

If to PIN:

PT Panganmas Inti Nusantara

53 Cairnhill Road,

Cairnhill Plaza #12-01,

Singapore 229664

Attn: _____________

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With a copy to:

TroyGould

1801 Century Park East, 26th Floor

Los Angeles, California 90067

Attn: Istvan Benko

14.3.Entire Agreement. The foregoing (including the exhibits referenced herein) is the parties’ entire agreement, superseding all prior oral or written agreements and understandings with respect to the subject matter hereof. The terms set forth herein shall be severable and the failure of any distinct part will not void the remainder.

14.4.Modification and Amendment. This Lease may be modified or amended only in writing and signed by both parties.

14.5.Survival. The provisions of this Lease that by their terms or context are intended to survive termination of this Lease, shall so survive the termination of this Lease.

14.6.Governing Law. The parties agree that this Lease shall be governed by the laws of the State of California. PIN and NutraCea expressly agree that any action at law or in equity arising under this Lease shall be filed only in the Courts of the State of California in a county of competent jurisdiction or the United States District Court in a California district of competent jurisdiction. The parties hereby consent and submit to the personal jurisdiction of such courts for the purposes of litigating any such action.

14.7.Recovery of Legal Fees and Costs. In the event any litigation is brought by either party in connection with this Lease, the prevailing party in such litigation shall be entitled to recover from the other party all the costs, attorneys' fees and other expenses incurred by such prevailing party in the litigation.

14.8.Counterparts. This Lease may be signed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Lease.

14.9.Binding Agreement. This Lease shall be binding upon and inure to the benefit of each of the parties hereto, and their respective legal successors and assigns.

14.10.Waiver. Performance of any obligation required of a party hereunder may be waived only by a written waiver signed by the other party, which waiver shall be effective only with respect to the specific obligation described therein. The acceptance of rent hereunder by NutraCea shall not be a waiver of any preceding breach by PIN that is not fully cured thereby.

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14.11.Severability. If one or more provisions of this Lease are held to be unenforceable under applicable law, such provision shall be excluded from this Lease and the balance of the Lease shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

14.12.Publicity. Neither party shall the terms of this Lease or make any public announcement regarding this Lease or the subject matter contained herein without the prior written consent of the other party, except as may be required by applicable law, in which event, the disclosing party shall endeavor to give the non-disclosing party prompt notice in order to allow the non-disclosing party the opportunity to seek a protective order. Notwithstanding any of the foregoing to the contrary, the terms and conditions of this Lease may be disclosed by a party to bona fide potential investors, acquirors or partners of such party in the course of such person’s due diligence investigation of such party, where such person has entered into a written non-disclosure agreement with such party that includes terms no less restrictive than those included herein.

14.13.No Joint Venture or Partnership; No Reference to Agreement or Relationship. Nothing in this Lease shall be construed to create a partnership or joint venture of any kind or for any purpose between the parties hereto, or to constitute either party a special or general agent of the other, and neither party will act or represent otherwise to any third party. Neither party shall refer to this Lease, to the other party or the relationship between the parties in any communication with any third party without the prior written consent of the other party.

14.14.Disclaimer of Warranties. NOTWITHSTANDING ANYTHING CONTAINED IN THIS LEASE, NEITHER PARTY MAKES ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND TO THE OTHER, WHETHER EXPRESS OR IMPLIED (INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE), WITH RESPECT TO ANY ITEMS OR EQUIPMENT LEASED UNDER THIS LEASE, EXCEPT AS EXPRESSLY PROVIDED HEREIN.

14.15.Limitation of Liability. Notwithstanding anything contained in this Lease, neither party shall be liable to the other, whether in tort, in contract or otherwise, and whether directly or by way of indemnification, contribution or otherwise, for any incidental, consequential, punitive or exemplary damages, (including without limitation lost profits or revenues or injury to business or business reputation), whether of the other party or of any third party, relating to or arising out of the subject matter of this Lease.

[SIGNATURE PAGE TO FOLLOW]

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The authorized representatives of the parties have executed this Lease as of the date first set forth above.

NutraCea:	PT Panganmas Inti Nusantara:
By:	By:
Title:	Title:

[SIGNATURE PAGE TO EQUIPMENT LEASE]

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Exhibit A

Equipment Description

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Exhibit B

Location

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EX-10.28

EXHIBIT 10.28

FIRST AMENDMENT TO EMPLOYMENT AGREEMENT

Brad Edson

This First Amendment to Employment Agreement (the “Amendment”) by and between NutraCea, a California corporation (the “Employer”) and Brad Edson (the “Employee’), entered into as of the 10^th day of December, 2004 (the “Agreement”), is made and effective as of the 8^th day of January 2008. Capitalized terms not specifically defined hereunder shall have the meanings assigned to them under the Agreement.

1.Term. Section 2.2 of the Agreement is hereby amended to provide an extended Term of three years, beginning January 1, 2008, and ending December 31, 2010. Section 2.2 of the Agreement is replaced and amended to read in its entirety as follows:

“2.2Renewal Term: The term of this Agreement is renewed for a three year term, beginning on January 1, 2008, and ending on December 31, 2010. Thereafter, this Agreement shall automatically be extended for two additional one (1) year renewal terms unless either party give written notice to terminate this Agreement at least one hundred and eighty (180) days prior to the end of the preceding term. ”

2.Automobile Expense. Section 4.3 of the Agreement is hereby amended to increase the automobile allowance provided to Employee to $850 per month. Section 4.3 of the Agreement is replaced and amended to read in its entirety as follows:

“4.3Automobile Expenses: Employer shall provide Employee with an automobile allowance in the amount of $850 per month.”

3.Employee Incentive Compensation Plan. Section 3 of Addendum A to the Agreement, is hereby amended to remove the final sentence of that Section regarding the maximum incentive bonus payable in any calendar year pursuant to that Section. Section 3 of Addendum A to the Agreement is replaced and amended to read in its entirety as follows:

“3.Employee Incentive Bonus: Employee Incentive bonuses granted pursuant to this Agreement shall be paid annually, within ten (10) days of the completion of the annual independent audit of Employer. Such bonuses shall be one percent (1%) of Employer’s “Gross Sales over $25,000,000.” However, in no event shall such bonus be paid or earned unless the Employer reports a positive EBITDA for the period. For the purposes of this section, no non-cash charges will be included in the calculation of EBITDA.”

All other terms and conditions of the Agreement remain unchanged and shall continue in full force and effect, except as may be required to effect the forgoing amendments.

EMPLOYER:	EMPLOYER:
Nutracea, by ___________________________________	Brad Edson
Its _________________________________

EX-10.31

EXHIBIT 10.31

EMPLOYMENT AGREEMENT

This Employment Agreement (“Agreement”) is entered into by and between NutraCea, a California corporation with with principal offices at 5090 40^th North Street, Suite 400, Phoenix, Arizona 85018 (“NutraCea”) and Leo Gingras, an individual residing at _________ (“Employee”) effective as of January 8, 2008 (“Effective Date”), as follows:

RECITALS

A.NutraCea previously employed Employee pursuant to the terms of an employment letter dated February 7, 2007 and executed by Employee February 8, 2007 (“Letter Agreement”). Employee commenced employment with NutraCea March 15, 2007.

B. The parties desire to set forth more fully the terms and conditions of Employee’s employment. The terms of this Agreement supersede and replace in its entirety the terms of the Letter Agreement.

AGREEMENT

1.Employment. NutraCea wishes to employ Employee and Employee agrees to provide services for NutraCea on the terms and conditions set forth below.

2.Employment; Scope of Employment. Employee shall act as the Chief Operating Officer of NutraCea. NutraCea reserves the exclusive right to modify and designate Employee’s specific duties from time to time in any manner consistent with Employee’s status as Chief Operating Officer. No modification or change of Employee’s responsibilities and/or duties shall modify, change or revoke any provision of this Agreement.

2.1Best Efforts; Full Working Time.Employee agrees to devote his best efforts, attention, skill and experience to the performance of Employee’s duties all in accordance with the provisions of this Agreement. Employee shall apply his entire full working time to performing these services.

2.2Supervision and Direction of Services. All of Employee’s services shall be under the supervision and direction of the Chief Executive Officer of NutraCea and the Board of Directors of NutraCea.

2.3Rules.Employee shall be bound by all the policies, rules and regulations of NutraCea now in force and by all such other policies, rules and regulations as may be hereafter implemented and shall faithfully observe and abide by the same. No such policy, rule or regulation shall alter, modify or revoke Employee’s status as an at-will employee or any other provision of this Agreement.

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2.4Exclusive Services. During the term of this Agreement and any extension of this Agreement, Employee shall not, directly or indirectly, whether as a partner, employee, creditor, shareholder, independent contractor or otherwise, promote, participate or engage in any activity or other business which NutraCea deems in its sole discretion to be competitive in any way with NutraCea’s current or future business operations. Employee agrees that Employee shall not enter into an agreement to establish, form, contract with or become employed by a competing business of NutraCea while Employee is employed by NutraCea.

2.5Non-Solicitation. To the fullest extent permissible under applicable law, Employee agrees that both during the term of this Agreement and for a period of two (2) year following termination of this Agreement, Employee shall not take any action to induce employees or independent contractors of NutraCea to sever their relationship with NutraCea and accept an employment or an independent contractor relationship with any other business.

2.6Office Location. Employee shall primarily perform his duties under this Agreement at NutraCea’s offices, and at such other locations as the Chief Executive Officer may designate from time-to-time.

3.Term and Termination; Payments upon Termination.

3.1Term and Termination. Unless earlier terminated for Cause (as defined below), Nutracea hereby employees the Employee for a period commencing upon the Effective Date and ending on ________, 2010 (the “Term”). The Term may be extended by mutual agreement of the parties on a month to month basis.

3.1.1Termination for Cause. “Cause” for termination of Employee’s employment shall mean the occurrence of any of the following:

(a)Employee has materially breached the terms hereof;

(b)Employee, in the reasonable determination of the Board of Directors of NutraCea has been grossly negligent or engaged in material willful or gross misconduct in the performance of his duties;

(c)has failed to meet written standards established by NutraCea for the performance of duties hereunder;

(d)Employee has committed, as determined by the Board of Directors of NutraCea, or has been convicted of fraud, moral turpitude, embezzlement, theft, or dishonesty or other criminal conduct;

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(e)Employee has taken other actions or omitted to take any actions such that such action or omissions constitute legal cause for termination under California law, as then in effect; or

(f)Habitual misuse of alcohol or any non prescribed drug.

3.2Payments Upon Termination.

3.2.1 For Cause. Following any termination by the Company for Cause, Employee shall be entitled to receive in cash payment an amount equal to all previously accrued but unpaid or unused compensation, including but not limited to, salary, vacation pay and Employee may retain the vested portion of any stock and stock options properly and duly granted to Employee as of such date, subject and pursuant to the terms of the stock option agreements or stock purchase agreements entered into between NutraCea and Employee, which grant NutraCea certain repurchase rights.

3.2.2Without Cause. Following any termination by the Company without Cause, Employee (or Employee’s estate) shall be entitled to receive in cash payment an amount equal to all previously accrued but unpaid or unused compensation, including but not limited to, salary, vacation pay and Employee may retain the vested portion of any stock and stock options properly and duly granted to Employee as of such date, subject and pursuant to the terms of the stock option agreements or stock purchase agreements entered into between NutraCea and Employee, which grant NutraCea certain repurchase rights. In addition, Employee shall be entitled to receive severance payments equal in the aggregate to twelve (12) months of Employee’s salary, reduced only by disability payments received by Employee from long term disability insurance maintained by the Company, which payments shall be made at regular payroll intervals.

Employee’s Initials ___________

4.Compensation; Benefits.

4.1Salary. Employee shall be paid at a rate, which if annualized, equals two hundred twenty thousand dollars ($220,000) per year subject to normal payroll withholdings and NutraCea’s standard payroll practices. Commencing on the second anniversary of the Effective Date of this Agreement, Employee’s salary shall be increased annually by a cost of living factor equal to the percentage of such salary that is equal to the percentage increase in the published Consumer Price Index selected by NutraCea (“CPI”) for such year over the same CPI for the previous year of the term.

4.2Bonus. Employee shall be eligible to participate in any NutraCea bonus program that is applicable to officers of NutraCea as may be adopted and in effect from time to time (subject to the terms and conditions of any such program). In addition, Employee shall be eligible for an annual discretionary bonus as approved by the Chief Executive Officer of NutraCea after review and approval by the NutraCea compensation committee and/or its Board of Directors.

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4.3Stock Options. NutraCea previously granted to Employee, as of Employee’s February 8, 2007 initial employment date, a nonqualified stock option to purchase 250,000 shares of NutraCea’s common stock pursuant to the terms and conditions of the NutraCea Equity Incentive Plan and an associated Nonqualified Stock Option Agreement. Such option is subject to the vesting schedule set forth therein. Employee may, from time to time and at NutraCea’s sole discretion, be granted additional stock options. All option grants shall be subject to Board of Directors (and/or its compensation committee) approval and to the terms and conditions of the corresponding Option Agreements.

4.4Car Allowance. Employer will provide Employee with an automobile allowance in the amount of $850 per month. Notwithstanding the foregoing, Employer shall not be obligated to make any down payments for the purchase of any automobile by or on behalf of Employee.

4.5.Vacation and other Standard Benefits. Employee shall be entitled to four (4) weeks of paid vacation time per year of Employee’s employment. Employee may not accrue vacation time in excess of such four (4) week maximum. Accrual of vacation time shall be subject to the terms and conditions of NutraCea’s vacation policy. Employee shall be entitled to health benefits in accordance with NutraCea’s standard policies. In addition, Employee is entitled to paid holidays, sick leave and other benefits in accordance with NutraCea’s standard policies. Employee shall be reimbursed for reasonable business expenses, subject to prior approval by NutraCea in accordance with NutraCea’s standard policies for employees and conditioned upon Employee’s prior presentation to NutraCea’s accounting department of appropriate receipts or such other verification of expenses as NutraCea may require from time to time.

5.Employment Information. Employee represents and warrants to NutraCea that information provided by Employee in connection with Employee’s employment and any supplemental information provided to NutraCea is complete, true and materially correct in all respects. Employee has not omitted any information that is or may reasonably be considered necessary or useful to evaluate the information provided by Employee to NutraCea. Employee shall immediately notify NutraCea in writing of any change in the accuracy or completeness of all such information.

6.Trade Secrets. Employee acknowledges that NutraCea has gone to great time and expense to develop customers and to develop procedures and processes for development of products and services and the sales of products and services. Such procedures and processes in addition to various other types of proprietary information are included as part of the “confidential information” described in the “Proprietary Information Agreement” attached hereto as Exhibit B. Employee has previously executed the Proprietary Information Agreement or agrees to execute NutraCea’s Proprietary Information Agreement contemporaneously with the execution of this Agreement and employment.

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7.Remedies for Breach of Covenant Regarding Confidentiality. The parties agree that the breach by Employee of any covenants contained in Sections 2.4, 2.5, 5 and 6 will result in immediate and irreparable injury to NutraCea. In the event of any breach by Employee of the covenants contained in Sections 2.4, 2.5, 5 or 6, NutraCea shall be entitled to seek recourse through all available legal and equitable remedies necessary or useful to prevent any likelihood of immediate or irreparable injury to NutraCea. The parties agree that, in the case of such a breach or threat of breach by Employee of any of the provisions of such Sections, NutraCea may take any appropriate legal action, including without limitation action for injunctive relief, consisting of orders temporarily restraining and preliminarily and permanently enjoining such actual or threatened breach.

8.Miscellaneous.

8.1Choice of Law, Jurisdiction, Venue. The rights and obligations of the parties and the interpretation and performance of this Agreement shall be governed by the laws of California, excluding its conflict of laws rules. The exclusive jurisdiction and venue of any legal action brought by either party under this Agreement shall be in the County of Sacramento, California.

8.2.Entire Agreement. This Agreement, the Proprietary Information Agreement dated ____________ described in Section 6 and the Option Agreement referenced in Section 4.2 contain the entire Agreement among the parties and supersede the Letter Agreement and all prior and contemporaneous oral and written agreements, understandings and representations among the parties, including without limitation any offer letter. There are no representations, agreements, arrangements, or understandings, whether oral or written, between or among the parties relating to the subject matter of this Agreement that are not fully expressed herein and therein.

8.3Notices. Any notice under this Agreement shall be in writing, and any written notice or other document shall be deemed to have been duly given (i) on the date of personal service on the parties, (ii) on the third business day after mailing, if the document is mailed by registered or certified mail, (iii) one day after being sent by professional or overnight courier or messenger service guaranteeing one-day delivery, with receipt confirmed by the courier, or (iv) on the date of transmission if sent by telegram, telex, telecopy or other means of electronic transmission resulting in written copies, with receipt confirmed. Any such notice shall be delivered or addressed to the parties at the addresses set forth above or at the most recent address specified by the addressee through written notice under this provision. Failure to conform to the requirement that mailings be done by registered or certified mail shall not defeat the effectiveness of notice actually received by the addressee.

8.4Severability. NutraCea and Employee agree that should any provision of this Agreement be declared or be determined by any court of competent jurisdiction to be illegal, invalid or unenforceable, the legality, validity and enforceability of the remaining parts, terms and provisions shall not be affected thereby, and said illegal, unenforceable or invalid part, term or provision shall be deemed not to be part of this Agreement.

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8.5Attorneys’ 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 of any person in relation thereto, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and other expenses, in addition to any other relief to which such party may be entitled. Any award of damages by any court or arbitration as a result of the breach of this Agreement or any of its provisions shall include an award of prejudgment interest from the date of the breach at the maximum amount of interest allowed by law.

8.6Amendment. The provisions of this Agreement may be modified at any time by agreement of the parties. Any such agreement hereafter made shall be ineffective to modify this Agreement in any respect unless in writing and signed by the party against whom enforcement of the modification or discharge is sought.

8.7No Transfer or Assignment; No Third-Party Beneficiaries. The rights of Employee hereunder have been granted by NutraCea with the understanding that this Agreement is personal to, and shall be performed by Employee individually. This Agreement is not transferable or assignable by Employee in any manner. No person or entity other than NutraCea and Employee shall have any rights whatsoever under this Agreement. No person or entity other than NutraCea or Employee shall have any right to enforce any provision of this Agreement, or to recover damages on account of the breach of this Agreement. No heir, successor or assign of Employee, whether voluntarily or by operation of law, shall have or succeed to any rights of NutraCea or Employee hereunder.

8.8Waiver. 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 of that term or condition as it applies on a subsequent occasion or of any other term or condition.

8.9Resolution of Disputes.

8.9.1Resolution of Disputes. NutraCea and Employee agree that any claim or controversy arising out of or pertaining to this Agreement or the termination of Employee's employment, including but not limited to, claims of wrongful treatment or termination allegedly resulting from discrimination, harassment or retaliation on the basis of race, sex, age, national origin, ancestry, color, religion, marital status, status as a veteran of the Vietnam era, physical or mental disability, medical condition, or any other basis prohibited by law ("Dispute") shall be resolved by binding arbitration as provided in this paragraph. The parties agree that no party shall have the right to sue any other party regarding a Dispute except as provided in this paragraph.

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8.9.2  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 the California Arbitration Act. (California Code of Civil Procedure section 1280, et seq., including the provision of California Code of Civil Procedure section 1283.05.)

8.9.3Appointment of Arbitrator. The arbitrator shall be a neutral arbitrator selected by NutraCea and Employee. 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 the presiding judge for the Superior Court, Sacramento County, California. 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 California Code of Civil Procedure section 1281.6.

8.9.4Initiation 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 within the statutory time period from the date the Dispute first arose.

8.9.5  Location of Arbitration. Any arbitration hearing shall be conducted in Sacramento County, California.

8.9.6  Applicable Law. The law applicable to the arbitration of any Dispute shall be the law of the State of California, excluding its conflicts of law rules.

8.9.7  Arbitration Procedures. Except as otherwise provided in this paragraph, the arbitration shall be governed by the California Arbitration Act (Code Civ. Proc., § 1280 et seq.). The parties shall be entitled to conduct discovery sufficient to adequately arbitrate their claims or defenses, including access to essential documents and witnesses, as determined by the arbitrator and subject to limited judicial review. 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 pursuant to Code of Civil Procedure section 437c or resolution of a special defense as provided for at Code of Civil Procedure section 597. 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.

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8.9.8  Scope of Arbitrators' Award or Decision. NutraCea and Employee agree that if the arbitrators find any Disputed claim to be meritorious, the arbitrators shall have the authority to order all forms of legal and/or equitable relief that would otherwise be available in court and that is appropriate to the claim. Any decision or award by the arbitrators shall be in writing and shall be specific enough to permit limited judicial review if necessary.

8.9.9Costs of Arbitration; Attorneys’ Fees. NutraCea shall bear any costs of arbitration that are over and above costs that would be incurred by Employee had he/she not been required to arbitrate the Dispute, but instead had been free to bring the action in court. Each party shall bear its own attorneys’ fees. However, NutraCea and Employee agree that the arbitrators, in their discretion and consistent with applicable law, may award to the prevailing party the costs and attorneys’ fees incurred by that party in participating in the arbitration process as long as they do not exceed those that would be incurred by Employee in a court action.

8.9.10Acknowledgment of Consent to Arbitration. NOTICE: BY EXECUTING THIS AGREEMENT EMPLOYEE AGREES TO HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE "RESOLUTION OF DISPUTES" PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND EMPLOYEE WAIVES ANY RIGHTS EMPLOYEE MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL. BY EXECUTING THIS AGREEMENT EMPLOYEE WAIVES EMPLOYEE’S JUDICIAL RIGHTS TO APPEAL. IF EMPLOYEE REFUSES TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, EMPLOYEE MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. EMPLOYEES AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY. BY EXECUTING THIS AGREEMENT EMPLOYEE IS INDICATING THAT EMPLOYEE HAS READ AND UNDERSTOOD THE FOREGOING AND AGREES TO SUBMIT DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THIS ARBITRATION OF DISPUTES PROVISION TO NEUTRAL ARBITRATION.

8.10Exhibits. All exhibits to which reference is made are deemed incorporated in this Agreement whether or not actually attached.

NutraCea

 ___________________________________

By:  

Title: 

Employee: Leo Gingras

____________________________________

[SIGNATURE PAGE TO EMPLOYMENT AGREEMENT]

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EXHIBIT A

OPTION AGREEMENT

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EXHIBIT B

PROPRIETARY RIGHTS AGREEMENT

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EX-10.33

EXHIBIT 10.33

FIRST AMENDMENT TO EMPLOYMENT AGREEMENT

Kody Newland

This First Amendment to Employment Agreement (the “Amendment”) by and between NutraCea, a California corporation (the “NutraCea”) and Kody Newland (the “Employee’), entered into February 27, 2006 (the “Agreement”), is made and effective as of the 8th day of January 2008. Capitalized terms not specifically defined hereunder shall have the meanings assigned to them under the Agreement.

1.Term. Section 3.1 of the Agreement is hereby amended to provide an extended term of two years, beginning February 28, 2008, and ending February 27, 2010. Section 3.1 of the Agreement is replaced, amended and restated to read in its entirety as follows:

“3.1Term and Termination.Unless earlier terminated for Cause (as defined below), Nutracea employs the Employee under the terms of this Agreement for a term continuing from the date of this Amendment through the end of business on February 27, 2010. The term may be further extended by mutual agreement of the parties on a month to month basis.”

2.Automobile Expense. Section 4.5 of the Agreement is hereby amended to increase the automobile allowance provided to Employee to $850 per month. Section 4.5 of the Agreement is replaced, amended, and restated to read in its entirety as follows:

“4.5Car Allowance.Employer shall provide Employee with an automobile allowance in the amount of $850 per month. Notwithstanding the foregoing, Employer shallnot be obligated to make any down payments for the purchase of any automobile by or on behalf of Employee.”

All other terms and conditions of the Agreement remain unchanged, except as specifically amended by this Amendment, and shall continue in full force and effect, except as may be required to effect the forgoing Amendment.

EMPLOYER:	EMPLOYEE:
NutraCea, by _________________________	Kody Newland
Its _________________________________

EX-10.38.6

EXHIBIT 10.38.6

NUTRACEA

2005 EQUITY INCENTIVE PLAN

DIRECTOR STOCK OPTION AGREEMENT

(For Non-Employee Directors)

This Director Stock Option Agreement (this “Agreement”) is made and entered into as of the date of grant set forth below (the “Date of Grant”) by and between NutraCea, a California corporation (the “Company”), and the participant named below (“Participant”). Capitalized terms not defined herein shall have the meaning ascribed to them in the Company’s 2005 Equity Incentive Plan, as amended (the “2005 Plan”).

Participant:

Social Security Number:

Participant’s Address:

Total Option Shares:

Exercise Price Per Share:

Date of Grant:

Vesting Start Date:

Expiration Date:

1. Grant of Option.  The Company hereby grants to Participant an option (this “Option”) to purchase up to the total number of shares of Common Stock of the Company set forth above (collectively, the “Shares”) at the Exercise Price Per Share set forth above (the “Exercise Price”), subject to all of the terms and conditions of this Agreement and the 2005 Plan, including without limitation Section 5.11 of the 2005 Plan. This Option is granted pursuant to Section 5.11 of the 2005 Plan and is not intended to qualify as an “incentive stock option” (“ISO”) within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”). Capitalized terms not defined in this Agreement will have the meanings given to them in the 2005 Plan.

2. Vesting; Exercise Period.

2.1 Vesting of Right to Exercise Option.   Subject to the terms and conditions of the 2005 Plan and this Grant, and so long as the Optionee continuously remains a member of the Board of Directors of the Company (a “Board Member”), this Option shall vest and become exercisable as to one-twelfth (¹/12) of the Shares monthly following the Date of Grant.

2.2  Expiration.  This Option shall expire on the Expiration Date set forth above and must be exercised, if at all, on or before the earlier of the Expiration Date or the date on which this Option is earlier terminated in accordance with the provisions of Section 3.   

3. Termination.

3.1  Termination.  The Option shall cease to vest if the Participant ceases to be a Board Member (the “Termination Date”). If Participant is terminated for any reason, then this Option, to the extent (and only to the extent) that it would have been exercisable by Participant on the Termination Date, may be exercised by Participant (or the Participant’s legal representative) within ninety (90) days after the Termination Date, but in no event later than the Expiration Date.

3.2 No Right to Remain a Director.  Nothing in the 2005 Plan or this Agreement shall confer on Participant any right to remain a Board Member or limit in any way the right of the Company to terminate Participant’s relationship with the Company at any time.

4. Manner of Exercise.

4.1  Stock Option Exercise Agreement.  To exercise this Option, Participant (or in the case of exercise after Participant’s death, Participant’s executor, administrator, heir, legatee or authorized assignee, as the case may be) must deliver to the Company an executed stock option exercise agreement in such form as may be approved by the Company from time to time (the “Exercise Agreement”), which shall set forth, inter alia, Participant’s election to exercise this Option, the number of Shares being purchased, any restrictions imposed on the Shares and any representations, warranties and agreements regarding Participant’s investment intent and access to information as may be required by the Company to comply with applicable securities laws. If someone other than Participant exercises this Option, then such person must submit documentation reasonably acceptable to the Company that such person has the right to exercise this Option.

4.2  Limitations on Exercise.  This Option may not be exercised unless such exercise is in compliance with all applicable federal and state securities laws, as they are in effect on the date of exercise. This Option may not be exercised as to fewer than 100 Shares unless it is exercised as to all Shares as to which this Option is then exercisable.

4.3  Payment.  The Exercise Agreement shall be accompanied by full payment of the Exercise Price for the Shares being purchased in cash (by check), or, if the Company in its discretion agrees in writing and where permitted by law:

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

(b) by waiver of compensation due or accrued to Participant for services rendered;

(c) provided that a public market for the Company’s stock exists: (1) through a “same day sale” commitment from Participant and an NASD Dealer whereby Participant irrevocably elects to exercise this Option and to sell a portion of the Shares so purchased to pay for the Exercise Price and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the exercise price directly to the Company; or (2) through a “margin” commitment from the Participant and a NASD Dealer whereby the Participant irrevocably elects to exercise this Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the exercise price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the exercise price directly to the Company; or

(d) by any combination of the foregoing.

EX-10.40

EXHIBIT 10.40

NUTRACEA STOCK OPTION AGREEMENT SOP07002            

I. NOTICE OF STOCK OPTION GRANT

Leo Gingras

You have been granted a Nonstatutory Stock Option to purchase Common Stock of the Company, subject to the terms and conditions of this Agreement, as follows:

Date of Grant	February 8, 2007
Exercise Price per Share	$2.63
Total Number of Shares Granted	250,000
Term/Expiration Date	February 8, 2017

Vesting Schedule:

This Option shall vest and may be exercised, in whole or in part, in accordance with the following schedule: This option will vest at the rate of 6,944.45 option shares per month during the next 36 months, subject to the Optionee continuing to be a Service Provider on each such dates.

Acceleration of Vesting. If within twelve (12) months following a Change in Control, the Company or the successor corporation terminates the Optionee’s status as a Service Provider for other than Cause, death or Disability, then the Optionee shall fully vest in and have the right to exercise the Option as to 100% of the Optioned Stock as of the date of such termination. For purposes of this provision, “Change of Control” shall mean (i) the consummation of a merger or consolidation of the Company with any other corporation which results in the voting securities of the Company outstanding immediately prior thereto failing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation or (ii) the consummation of the sale or disposition by the Company of all or substantially all of the Company's assets. The Optionee acknowledges that the provisions of this paragraph shall have no effect on the any resale restriction provisions relating to the shares underlying the Option.

No right to any stock is earned or accrued until such time that vesting occurs, nor does the grant confer any right to continue vesting or employment.

Termination Period

This Option may be exercised for three (3) months after Optionee ceases to be a Service Provider in accordance with Section 8 of this Agreement. Upon the death or Disability of the Optionee, this Option may be exercised for one (1) yearafter the Optionee ceases to be a Service Provider in accordance with Sections 9 and 10 of this Agreement. In no event shall this Option be exercised later that the Term/Expiration Date provided above.

II. AGREEMENT

1.Definitions. As used herein, the following definitions shall apply:

(a)“Agreement” means this stock option agreement between the Company and Optionee evidencing the terms and conditions of this Option.

(b)“Applicable Laws” means the requirements relating to the administration of stock options under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction that may apply to this Option.

(c)“Board” means the Board of Directors of the Company or any committee of the Board that has been designated by the Board to administer this Agreement.

(d)“Cause” shall mean (i) the Optionee’s failure to perform the Optionee’s assigned duties or responsibilities as a Service Provider (other than a failure resulting from the Optionee’s Disability) after notice thereof from the Company describing the Optionee’s failure to perform such duties or responsibilities; (ii) the Optionee engaging in any act of dishonesty, fraud or misrepresentation; (iii) the Optionee’s violation of any federal or state law or regulation applicable to the Company’s business; (iv) the Optionee’s breach of any confidentiality agreement or invention assignment agreement between the Optionee and the Company; or (v) the Optionee being convicted of, or entering a plea of nolo contendere to, any crime or committing any act of moral turpitude.

(e)“Code” means the Internal Revenue Code of 1986, as amended.

(f)“Common Stock” means the common stock of the Company.

(g)“Company” means NutraCea, a Californiacorporation.

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

(i)“Director” means a member of the Board.

(j)“Disability” means total and permanent disability as defined in Section 22(e)(3) of the Code.

(k)“Employee” means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. A Service Provider shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. Neither service as a Director nor payment of a director’s fee by the Company shall be sufficient to constitute “employment” by the Company.

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

(m)“Nonstatutory Stock Option” means an Option not intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.

(n)“Notice of Grant” means a written notice, in Part I of this Agreement, evidencing certain the terms and conditions of this Option grant. The Notice of Grant is part of this Option Agreement.

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

(p)“Option” means this stock option.

(q)“Optioned Stock” means the Common Stock subject to this Option.

(r)“Optionee” means the person named in the Notice of Grant or such person’s successor.

(s)“Parent” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code.

(t)“Securities Act” means the Securities Act of 1933, as amended.

(u)“Service Provider” means an Employee, Director or Consultant.

(v)“Share” means a share of the Common Stock, as adjusted in accordance with Section 11 of this Agreement.

(w)“Subsidiary” means a “subsidiary corporation”, whether now or hereafter existing, as defined in Section 424(f) of the Code.

2.Grant of Option. The Board has granted to the Optionee named in the Notice of Grant attached as Part I of this Agreement the Option to purchase the number of Shares, as set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the “Exercise Price”), subject to the terms and conditions of this Agreement.

3.Exercise of Option.

(a)Right to Exercise. This Option is exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Grant and the applicable provisions of this Agreement.

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(b)Method of Exercise. This Option is exercisable by delivery of an exercise notice, in the form attached as Exhibit A (the “Exercise Notice”), which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the “Exercised Shares”), and such other representations and agreements as may be required by the Company. The Exercise Notice shall be completed by the Optionee and delivered to Secretary of the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares together with any taxes required to be withheld. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by such aggregate Exercise Price and the applicable amounts to be withheld by the Company for taxes.

(c)Legal Compliance. No Shares shall be issued pursuant to the exercise of this Option unless such issuance and exercise complies with Applicable Laws. Assuming such compliance, for income tax purposes the Exercised Shares shall be considered transferred to the Optionee on the date the Option is exercised with respect to such Exercised Shares.

4.Optionee’s Representations. In the event that at the time this Option is exercised (i) the Shares have not been registered under the Securities Act or (ii) the Common Stock is not listed on a national securities exchange, the Optionee shall, if required by the Company, concurrently with the exercise of all or any portion of this Option, deliver to the Company his or her Investment Representation Statement in the form attached hereto as Exhibit B.

5.Method of Payment. Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee:

(a)cash or check; or

(b)any other form of consideration allowed in writing by the Company in the Company’s sole discretion.

6.Lock-Up Period. Optionee hereby agrees that Optionee shall not offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any Common Stock (or other securities) of the Company or enter into any swap, hedging or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership on ay Common Stock (or other securities) of the Company held by Optionee for a period of two years from your employment agreement hire date (“Restriction Period”)

Optionee agrees to execute and deliver such other agreements as may be reasonably requested by the Company which are consistent with the foregoing or which are necessary to give further effect thereto. The Company may impose stop-transfer instructions with respect to the shares of Common Stock (or other securities) subject to the foregoing restriction until the end of the Restriction Period. Optionee agrees that any transferee of any Option shall be bound by this Section.

7.Term of Option. This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the terms of this Agreement.

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8.Termination of Relationship as a Service Provider. If the Optionee ceases to be a Service Provider (other than for death or Disability), this Option may be exercised for a period of three (3) months after the date of such termination (but in no event later than the expiration date of this Option as set forth in the Notice of Grant) to the extent that the Option is vested on the date of such termination. To the extent that the Optionee does not exercise this Option within the time specified herein, the Option shall terminate.

9.Disability of Optionee. If the Optionee ceases to be a Service Provider as a result of the Optionee’s Disability, this Option may be exercised for a period of twelve (12) months after the date of such termination (but in no event later than the expiration date of this Option as set forth in the Notice of Grant) to the extent that the Option is vested on the date of such termination. To the extent that Optionee does not exercise this Option within the time specified herein, the Option shall terminate.

10.Death of Optionee. If the Optionee dies while a Service Provider, the Option may be exercised at any time within twelve (12) months following the date of death (but in no event later than the expiration date of this Option as set forth in the Notice of Grant), by the Optionee’s estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent that the Optionee was entitled to exercise the Option at the date of death. If, after death, the Optionee’s estate or a person who acquired the right to exercise the Option by bequest or inheritance does not exercise the Option within the time specified herein, the Option shall terminate.

11.Adjustments Upon Changes in Capitalization, Dissolution, Merger or Asset Sale.

(a)Changes in Capitalization. Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by this Option, as well as the price per share of Common Stock covered by this Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.” Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to this Option.

(b)Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Board shall notify Optionee as soon as practicable prior to the effective date of such proposed transaction. The Board in its discretion may provide for the Optionee to have the right to exercise his or her Option until fifteen (15) days prior to such transaction as to all of the Optioned Stock covered thereby, including Shares as to which the Option would not otherwise be exercisable. To the extent it has not been previously exercised, the Option will terminate immediately prior to the consummation of such proposed action.

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(c)Merger or Asset Sale. In the event of a merger of the Company with or into another corporation, or the sale of substantially all of the assets of the Company, this Option shall be assumed or an equivalent option substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. If, in such event, this Option is not assumed or substituted, the Board shall notify the Optionee in writing or electronically as to the number of Shares underlying this Option that are vested and exercisable and this Option shall be exercisable to the extent vested (unless the Board allows the Optionee to exercise with respect to additional unvested Shares) for a period of fifteen (15) days from the date of such notice, and this Option shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option shall be considered assumed if, following the merger or sale of assets, the option confers the right to purchase or receive, for each Share of Optioned Stock subject to this Option immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets is not solely common stock of the successor corporation or its Parent, the Board may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option, for each Share of Optioned Stock subject to the Option, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets.

12.Notices. Any notice to be given to the Company hereunder shall be in writing and shall be addressed to the Company. at its then current principal executive office or to such other address as the Company may hereafter designate to the Optionee by notice as provided in this Section. Any notice to be given to the Optionee hereunder shall be addressed to the Optionee at the address set forth beneath Optionee’s signature hereto, or at such other address as the Optionee may hereafter designate to the Company by notice as provided herein. A notice shall be deemed to have been duly given when personally delivered or mailed by registered or certified mail to the party entitled to receive it.

13.Withholding Taxes. The Optionee agrees to make appropriate arrangements with the Company (or the Parent or Subsidiary employing or retaining the Optionee) for the satisfaction of all federal, state, local and foreign income and employment tax withholding requirements applicable to the Option exercise. The Optionee acknowledges and agrees that the Company may refuse to honor the exercise and refuse to deliver the Shares if such withholding amounts are not delivered at the time of exercise.

14.Entire Agreement; Governing Law. This Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee’s interest except by means of a writing signed by the Company and Optionee. This Agreement is governed by the internal substantive laws, but not the choice of law rules, of California.

15.Investment Representations. In connection with the issuance of the Option, the Optionee specifically represents to the Company as follows:

(a)The Optionee is aware of the Company's business affairs and financial condition, and has acquired information about the Company sufficient to reach an informed and knowledgeable decision to acquire this Option. The holder is acquiring this Option for its own account for investment purposes only and not with a view to, or for the resale in connection with, any distribution thereof.

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(b)The Optionee understands that this Option has not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the Optionee’s investment intent as expressed herein.

(c)The Optionee further understands that this Option must be held indefinitely unless subsequently registered under the Securities Act and qualified under any applicable state securities laws, or unless exemptions from registration and qualification are otherwise available.

16.Tax Consultation. The Optionee understands that the Optionee may suffer adverse tax consequences as a result of the Optionee’s receipt of this Option. The Optionee represents that the Optionee has consulted with any tax consultants the Optionee deems advisable in connection with the Optionee’s receipt of this Option and that the Optionee is not relying on the Company for any tax advice.

17.NO GUARANTEE OF CONTINUED SERVICE. THE OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). THE OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUES ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE’S RIGHT OR THE COMPANY’S RIGHT TO TERMINATE THE OPTIONEE’S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.

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By the Optionee’s signature and the signature of the Company’s representative below, Optionee and the Company agree that this Option is granted under and governed by the terms and conditions of this Agreement. The Optionee has reviewed this Agreement in its entirety, has had an opportunity to obtain the advice of counsel prior to executing this Agreement and fully understands all provisions of this Agreement. The Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions relating to this Agreement. Optionee further agrees to notify the Company upon any change in the residence address indicated below.

OPTIONEE	NUTRACEA
Signature	By
Print Name	Title
Residence Address

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EXHIBIT A

NUTRACEA

EXERCISE NOTICE

NutraCea

1261 Hawk’s Flight Court

El Dorado Hills, CA 95762

Attention: President

1.Exercise of Option. Effective as of today, ________________, 200__, the undersigned (“Purchaser”) hereby elects to purchase ______________ shares (the “Shares”) of the Common Stock of NutraCea (the “Company”) under and pursuant to the Stock Option Agreement dated [_____________] (the “Option Agreement”). The purchase price for the Shares shall be [$_______], as required by the Option Agreement.

2.Delivery of Payment. Purchaser herewith delivers to the Company the full purchase price of the Shares, as set forth in the Option Agreement, and any and all taxes that must be withheld in connection with the exercise of the Option.

3.Representations of Purchaser. Purchaser acknowledges that Purchaser has received, read and understood the Option Agreement and agrees to abide by and be bound by its terms and conditions.

4.Rights as Shareholder. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Shares, notwithstanding the exercise of the Option. The Shares so acquired shall be issued to the Purchaser as soon as practicable after exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date of issuance, except as provided in Section 11 of the Option Agreement.

5.Tax Consultation. Purchaser understands that Purchaser may suffer adverse tax consequences as a result of Purchaser’s purchase or disposition of the Shares. Purchaser represents that Purchaser has consulted with any tax consultants Purchaser deems advisable in connection with the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice.

6.Restrictive Legends and Stop-Transfer Orders.

(a)Legends. Purchaser understands and agrees that the Company shall cause the legends set forth below or legends substantially equivalent thereto, to be placed upon any certificate(s) evidencing ownership of the Shares together with any other legends that may be required by the Company or by state or federal securities laws:

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”) OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT AND QUALIFIED UNDER THE APPROPRIATE STATE SECURITIES LAWS OR, IN THE OPINION OF COMPANY COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE, TRANSFER, PLEDGE OR HYPO-THECATION IS IN COMPLIANCE THEREWITH.

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH IN A STOCK OPTION AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL PURCHASER OF THE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS ARE BINDING ON TRANSFEREES OF THESE SHARES.

(b)Stop-Transfer Notices. Purchaser agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate “stop transfer” instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.

(c)Refusal to Transfer. The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Exercise Notice or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred.

7.Successors and Assigns. The Company may assign any of its rights under this Exercise Notice to single or multiple assignees, and this Exercise Notice shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Exercise Notice shall be binding upon Purchaser and Purchaser’s heirs, executors, administrators, successors and assigns.

8.Interpretation. Any dispute regarding the interpretation of this Exercise Notice shall be submitted by Purchaser or by the Company forthwith to the Board, which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Board shall be final and binding on all parties.

9.Entire Agreement; Governing Law. The Option Agreement is incorporated herein by reference. This Agreement, and the Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Purchaser with respect to the subject matter hereof, and may not be modified adversely to the Purchaser’s interest except by means of a writing signed by the Company and Purchaser. This agreement is governed by the internal substantive laws, but not the choice of law rules, of California.

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Submitted by:	Accepted by:
OPTIONEE	NUTRACEA
Signature
Print Name
Address	Address
	Date Received:__________________________

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EXHIBIT B

INVESTMENT REPRESENTATION STATEMENT

OPTIONEE:
COMPANY:	NUTRACEA
SECURITY:	COMMON STOCK
AMOUNT:
DATE:

In connection with the purchase of the above-listed Securities, the undersigned Optionee represents to the Company the following:

(a)Optionee is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities. Optionee is acquiring these Securities for investment for Optionee’s own account only and not with a view to, or for resale in connection with, any “distribution” thereof within the meaning of the Securities Act of 1933, as amended (the “Securities Act”).

(b)Optionee acknowledges and understands that the Securities constitute “restricted securities” under the Securities Act and have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Optionee’s investment intent as expressed herein. In this connection, Optionee understands that, in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable if Optionee’s representation was predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities, or for a period of one year or any other fixed period in the future. Optionee further understands that the Securities must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such regis-tration is available. Optionee further acknowledges and understands that the Company is under no obligation to register the Securities. Optionee understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities unless they are registered or such regis-tra-tion is not required in the opinion of counsel satisfactory to the Company, and any other legend required under applicable state securities laws.

(c)Subject to restrictions on transfer contained in the stock option agreement between the Company and Optionee, the Securities may be resold in certain limited circumstances subject to the provisions of Rule 144 promulgated under the Securities Act (“Rule 144”), which requires the resale to occur not less than one year after the later of the date the Securities were sold by the Company or the date the Securities were sold by an affiliate of the Company, within the meaning of Rule 144; and, in the case of acquisition of the Securities by an affiliate, or by a non-affiliate who subsequently holds the Securities less than two years, the satisfaction of the following conditions: (1) the resale being made through a broker in an unsolicited “broker’s transaction” or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of certain public information about the Company, (3) the amount of Securities being sold during any three month period not exceeding the limitations specified in Rule 144(e), and (4) the timely filing of a Form 144, if applicable.

(d)Optionee further understands that in the event all of the applicable requirements of Rule 144 is not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rule 144 is not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. Optionee understands that no assurances can be given that any such other registration exemption will be available in such event.

(e)In the event the purchase of the Securities by Optionee from the Company is not registered under the Securities Act, Optionee shall not sell, pledge, agree to sell or otherwise transfer the Securities (a “Transfer”) unless Optionee first (i) delivers to the Company a written notice to Optionor and Optionee describing the Transfer and (ii) provides to the Company evidence satisfactory to the Company that the Transfer will be made pursuant to an exemption from registration under federal and state securities laws, including, if requested by the Company, an opinion of counsel reasonably satisfactory to the Company that such exemption will allow Optionee to complete the Transfer without registration under federal and state securities laws.

Signature of Optionee:

Date:

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EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to incorporation by reference into Registration Statements (333-110585 and 333-135814) on Form S-8 and Registration Statement (333-148929) on Form S-3 of NutraCea of our report dated March 15, 2006 relating to our audit of the consolidated financial statements for year ended December 31, 2005, which appears in the Annual Report on Form 10-K of NutraCea for the year ended December 31, 2007.

/s/ Malone & Bailey, PC

MALONE & BAILEY, PC

www.malone-bailey.com

Houston, Texas

March 15, 2008

EX-23.2

Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to incorporation by reference into Registration Statements (333-110585 and 333-135814) on Form S-8 and Registration Statement (333-148929) on Form S-3 of NutraCea of our report dated March 17, 2008 relating to our audits of the consolidated financial statements, management's assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in the Annual Report on Form 10-K of NutraCea for the year ended December 31, 2007.

/s/ Perry-Smith LLP

Perry-Smith LLP

Sacramento, California

March 17, 2008

EX-31.1

Exhibit 31.1

CERTIFICATION FOR ANNUAL REPORT ON FORM 10-K

I, Bradley Edson, 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 officers 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 is being 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 officers 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 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: March 17, 2008

/s/ Bradley Edson

Name: Bradley Edson

Title: Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION FOR ANNUAL REPORT ON FORM 10-K

I, Todd C. Crow, 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 officers 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 is being 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 officers 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 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: March 17, 2008

/s/ Todd C. Crow

Name: Todd C. Crow

Title: Chief Financial Officer

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)

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, Bradley Edson, chief executive officer of NutraCea, do hereby certify with respect to the Annual Report of NutraCea on Form 10-K for the year ended December 31, 2007 as filed with the Securities and Exchange Commission (the "10-K Report") that:

(1)the 10-K Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)the information contained in the 10-K Report fairly presents, in all material respects, the financial condition and results of operations of NutraCea.

Dated: March 17, 2008	NUTRACEA
	/s/ Bradley Edson
	Bradley Edson
	Chief Executive Officer

EX-32.2

Exhibit 32.2

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)

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, Todd C. Crow, chief financial officer of NutraCea, do hereby certify with respect to the Annual Report of NutraCea on Form 10-K for the year ended December 31, 2007 as filed with the Securities and Exchange Commission (the "10-K Report") that:

(1)the 10-K Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)the information contained in the 10-K Report fairly presents, in all material respects, the financial condition and results of operations of NutraCea.

Dated: March 17, 2008	NUTRACEA
	/s/ Todd C. Crow
	Todd C. Crow