Edgar Filing: NUTRACEA

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-QSB

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT FOR THE TRANSITION PERIOD FROM
_______________ to _______________

Commission File Number 0-32565
-------

NUTRACEA
--------
(Exact name of small business issuer as specified in its charter)

CALIFORNIA 87-0673375
---------------------------------------- --------------------------------------
(State of other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)

1261 Hawk's Flight Court 95762
El Dorado Hills, California
---------------------------------------- --------------------------------------
(Address of Principal Executive Offices) (Zip Code)

Issuer's telephone number: (916) 933-7000
--------------

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 issuer was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days: Yes X No
----- -----

The number of shares of the issuer's common stock outstanding as of March 31,
2005 was 36,214,611.

Transitional Small Business Disclosure Format (Check One): Yes No X
--- ---

INDEX

Page

PART I - FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . 2

ITEM 1. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . 2

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS . . . . . . . . . . . . . . . . . . . . . . 14

ITEM 3. CONTROLS AND PROCEDURES. . . . . . . . . . . . . . . . 16

PART II - OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . 17

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . 17

ITEM 5. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . 17

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . 20

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NUTRACEA
INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheet as of March 31, 2005 (Unaudited) . . . . . 3

Consolidated Statements of Operations for the three months ended
March 31, 2005 and 2004 (Unaudited) . . . . . . . . . . . . . . . . 4

Consolidated Statements of Comprehensive Loss for the three
Months ended March 31, 2005 and 2004 (Unaudited). . . . . . . . . . 5

Consolidated Statements of Cash Flows for the three months ended
March 31, 2005 and 2004 (Unaudited) . . . . . . . . . . . . . . . . 6

Notes to Unaudited Consolidated Financial Statements. . . . . . . . . 7

NUTRACEA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 2005
(unaudited)

ASSETS

CURRENT ASSETS
Cash $ 1,274,317
Marketable securities 182,248
Accounts receivable 258,433
Inventory 284,136
Prepaid expenses 28,844
-------------
Total current assets 2,027,978

RESTRICTED MARKETABLE SECURITIES 182,248
PROPERTY AND EQUIPMENT, net 116,592
PATENTS AND TRADEMARKS, net 326,431
GOODWILL 250,001
-------------

TOTAL ASSETS $ 2,903,250
=============

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable $ 374,805
Accrued expenses 210,753
Due to related parties 1,825
Notes payable 1,828,529
Convertible, mandatorily redeemable series A preferred stock,
no par value, $1 stated value
20,000,000 shares authorized
0 shares issued and outstanding 20,473
-------------
Total current liabilities 2,436,385
-------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, no par value
100,000,000 shares authorized
36,214 ,611 shares issued and outstanding 48,335,569
Deferred compensation (60,715)
Accumulated deficit (45,792,485)
Accumulated other comprehensive income,
unrealized loss on marketable securities (2,015,504)
-------------
Total shareholders' equity 466,865
-------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,903,250
=============

NUTRACEA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

For the three months ended
March 31,
2005 2004
------------ -------------

REVENUES
Net product sales $ 459,314 $ 122,069

COST OF GOODS SOLD 281,185 78,665
------------ -------------

GROSS PROFIT 178,129 43,404

OPERATING EXPENSES 807,477 17,846,459
------------ -------------

LOSS FROM OPERATIONS (631,748) (17,803,055)
------------ -------------

OTHER INCOME (EXPENSE)
Interest income 2,811 938
Interest expense (235,756) (495)
------------ -------------

Total other income (expense) (232,945) 443
------------ -------------

NET LOSS (864,693) (17,802,612)

CUMULATIVE PREFERRED DIVIDENDS - 8,373
------------ -------------

NET LOSS AVAILABLE TO COMMON SHAREHOLDERS $ (864,693) $(17,810,985)
============ =============

BASIC AND DILUTED LOSS AVAILABLE TO COMMON
SHAREHOLDERS PER SHARE $ (0.02) $ (1.29)
============ =============

BASIC AND DILUTED WEIGHTED-AVERAGE SHARES
OUTSTANDING 36,170,129 13,860,551
============ =============

NUTRACEA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(unaudited)

For the three months ended
March 31,

2005 2004
----------- -------------

NET LOSS $ (864,693) $(17,802,612)

OTHER COMPREHENSIVE LOSS
Unrealized loss on marketable
securities (3,106) -
----------- -------------

COMPREHENSIVE LOSS $ (867,799) $(17,802,612)
=========== =============

NUTRACEA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited)

For the three months ended
March 31,
2005 2004
-------------------------------

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (864,693) $ (17,802,612)
Adjustments to reconcile net loss to net cash used in operating
activities
Accretion of warrants used as a debt discount 193,355 -
Depreciation and amortization 35,820 40,860
Non-cash issuances of common stock 33,500 9,561,197
Non-cash issuances of stock options & warrants 113,355 7,271,060
(Increase) decrease in
Accounts receivable (250,752) 14,059
Inventory 19,928 (109,052)
Prepaid expenses 1,911 (12,884)
Increase (decrease) in
Advances from related parties (72,153) 176,127
Accounts payable 113,732 6,796
Accrued salaries and benefits (24,211) (22,067)
Deferred compensation - (47,842)
Accrued expenses 42,203 (2,523)
Customer deposits 12,712 64,664
-------------------------------
Net cash (used) in operating activities (645,243) (862,217)
-------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (5,901) (2,237)
Purchase of patents and trademarks (3,202) (42,622)
-------------------------------
Net cash used in investing activities (9,103) (44,859)
-------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options 432 2,744,507
Net cash provided by financing activities 432 2,744,507
-------------------------------
Net increase (decrease) in cash (653,964) 1,837,431
--------------- --------------
CASH, BEGINNING OF PERIOD 1,928,281 100,023
--------------- --------------
CASH, END OF PERIOD $ 1,274,317 $ 1,937,454
=============== ==============

NUTRACEA AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 BASIS OF PRESENTATION:

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

NOTE 2 STOCK-BASED COMPENSATION:

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

For the three months
ended March 31,
---------------------------
2005 2004
------------ -------------

Net loss available
to common shareholders
As reported $ (864,693) $(17,810,985)
Plus: compensation expense
charged to income 65,000 7,271,062
Less: proforma compensation
expense (502,278) (7,271,062)
------------ -------------
Proforma net loss available
to common shareholders $(1,301,971) $(17,810,985)
============ =============
Basic and diluted loss per common share
As reported $ (0.02) $ (1.29)
Proforma $ (0.04) $ (1.29)

NUTRACEA AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 MARKETABLE SECURITIES

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

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

As of March 31, 2005, the NutraCea shares have not lost any value. However, the
Langley shares are marked down to their fair market value of $364,496, with
one-half or $182,248 shown as a current asset because they may be sold at any
time, and the other one-half shown as long-term because they are held in escrow
pending the 2-year review of NutraCea's stock valuation.

Any unrealized holding gains and losses on the marketable securities are
excluded from operating results and are recognized as other comprehensive
income. The fair value of the securities is determined based on prevailing
market prices.

NOTE 4 COMMITMENTS AND CONTINGENCIES

Agreements
----------

For all agreements where stock is awarded as partial or full consideration, the
expense is valued at the fair value of the stock. Expense for stock options and
warrants issued to consultants is calculated at fair value using the
Black-Scholes valuation method.
Effective January 1, 2005, NutraCea entered into a four month consulting
agreement with an individual to act as the interim Chief Financial Officer of
NutraCea. Minimum monthly compensation is $6,250 payable in cash monthly.

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

NUTRACEA AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

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

On February 10, 2005 NutraCea entered into a one year consulting agreement with
Trilogy, a financial relations company. Compensation shall be $10,000 per month
and the issuance of 700,000 warrants to purchase shares of common stock at a
price of $.45 per share; 700,000 warrants to purchase shares of common stock at
a price of $.65 per share; and 700,000 warrants to purchase shares of common
stock at a price of $.85 per share. This agreement was subsequently terminated
(see Note 7). In conjunction with this agreement NutraCea agreed to pay a
finder's fee to a consulting company consisting of stock options to purchase
135,000 shares of common stock at a price of $0.45 per share.

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

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

NUTRACEA AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

On March 23, 2005, NutraCea agreed to pay $15,000 of unpaid fees to a web design
consultant. NutraCea also agreed to issue 26,786 shares of common stock, valued
at $15,000, to the consultant as payment in full for all prior services.

NOTE 5 COMMON STOCK

Common and Preferred Stock
-----------------------------

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

During the quarter ended March 31, 2005, NutraCea issued 43,067 shares of common
stock to consultants for services rendered valued at $19,500.

During the quarter ended March 31, 2005, NutraCea issued 35,000 shares of common
stock to officers and directors totaling $14,000.

During the quarter ended March 31, 2005, NutraCea issued 6,000 shares of common
stock pursuant to the exercise of stock options and warrants for cash totaling
$432.

Stock Options & Warrants
------------------------

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

During the quarter ended March 31, 2005, NutraCea issued 145,000 warrants with
exercise prices between $0.43 and $0.46 per share to consultants. The warrants
expire three years from the date of issue. A total of $48,355 in non-cash
compensation expense was recorded relating to the issue of these warrants.

During the quarter ended March 31, 2005, NutraCea issued 1,000,000 warrants and
200,000 options with exercise prices between $0.43 and $0.46 per share to
employees. The warrants and options expire ten years from the date of issue. A
total of $65,000 in non-cash compensation expense was recorded relating to the
issue of these warrants and an additional $65,000 of deferred compensation is
being amortized over one year.

NOTE 6 BUSINESS SEGMENTS

For internal reporting purposes, management segregates NutraCea into operating
segments as follows for the three months ended March 31, 2005 and 2004:

NUTRACEA AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEGMENT INFORMATION
------------------------
INCOME (LOSS)
THREE MONTHS ENDED FROM INTEREST TOTAL DEPRECIATION/
MARCH 31, 2005 NET SALES OPERATIONS EXPENSE ASSETS AMORTIZATION
----------------------------------- -------------- ------------- --------- -------------- -------------

NutraStar Technologies Incorporated $ 107,545 $ (20,828) $235,756 $ 2,641,970 $ 15,582
NutraGlo Incorporated 351,769 154,905 - 261,280 -
Unallocated corporate overhead - (807,481) - - 20,238
-------------- ------------- --------- -------------- -------------
Total, NutraCea $ 459,314 $ (631,748) $235,756 $ 2,903,250 $ 15,582
============== ============= ========= ============== =============

THREE MONTHS ENDED (LOSS) FROM INTEREST TOTAL DEPRECIATION/
MARCH 31, 2004 NET SALES OPERATIONS EXPENSE ASSETS AMORTIZATION
----------------------------------- -------------- ------------- --------- -------------- -------------
NutraStar Technologies Incorporated $ 121,963 $ (194,514) $ (495) $ 2,396,525 $ 5,178
NutraGlo Incorporated 106 (25,740) - 139,544 -
Unallocated corporate overhead - (17,582,801) - - 35,682
-------------- ------------- --------- -------------- -------------
Total, NutraCea $ 122,069 $(17,803,055) $ (495) $ 2,536,069 $ 40,860
============== ============= ========= ============== =============

NOTE 7 SUBSEQUENT EVENTS

On April 4, 2005, NutraCea and The RiceX Company ("RiceX") announced the
execution of an Agreement and Plan of Merger and Reorganization, dated as of
April 4, 2005 ("Merger Agreement"), by and among NutraCea, Red Acquisition
Corporation, a wholly-owned subsidiary of NutraCea ("Merger Sub"), and RiceX,
pursuant to which, Merger Sub will merge with and into RiceX ("Merger"). As a
result of the Merger, RiceX will become a wholly-owned subsidiary of NutraCea.

At the effective time of the Merger, the stockholders of RiceX will receive
shares of NutraCea common stock in exchange for their shares of RiceX common
stock, and NutraCea will assume the outstanding options and warrants to purchase
RiceX common stock. NutraCea anticipates that the aggregate number of shares of
Nutracea common stock that will be issued to the holders of RiceX common stock
upon the Merger will be between approximately 28,000,000 and 36,000,000 shares.
In addition, after the Merger, NutraCea anticipates that the RiceX security
holders will hold between approximately 42% and 48% of the combined company on a
fully diluted basis, which includes shares underlying NutraCea and RiceX options
and warrants. The number of shares of NutraCea common stock issuable to RiceX
stockholders is subject to adjustment for certain events, including the market
price of NutraCea common stock and the number of outstanding RiceX options and
warrants on the effective date of the Merger.

On April 5, 2005 NutraCea entered into an agreement with a financial services
firm to assist in evaluating the proposed merger with RiceX and to provide a
fairness opinion. A fee of $50,000 for this work was paid upon execution of the
agreement.

NUTRACEA AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

On April 5, 2005 NutraCea entered into a royalty agreement with an information
technology firm to assist in the development of sales of NutraCea's products
over the Internet. Compensation shall be in the form of a royalty to be paid to
the firm of 50% of gross revenues received by NutraCea (excluding shipping and
handling charges and sales taxes). The term of the contract is for three years.
Additionally, options to purchase 360,000 shares of common stock of NutraCea at
a price $0.60 per share were issued at the effective date of the contract, with
45,000 options vesting at the signing of the contract and the remainder of the
options vesting at 15,000 options per month over the next 21 months.

On April 10, 2005 NutraCea terminated an existing consulting agreement with
Trilogy, a financial relations company that was entered into on February 10,
2005. As a result, NutraCea has no further financial obligation pursuant to this
contract and all warrants originally issued under the contract were cancelled.

On April 12, 2005 NutraCea signed various agreements with its principal equine
division products customer that specifically include:

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

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

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

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

On April 18, 2005 the Chairman and Chief Executive Officer of NutraCea signed a
talent and license agreement with a term of two years with a direct response
marketing company whereby she will receive a royalty of $1 per unit sold
resulting from infomercials that will demonstrate specific products of NutraCea.
Royalty payments will be made by the direct response marketing company.

On April 19, 2005 NutraCea signed an agreement with a direct response marketing
company to market and sell products through infomercials. The agreement is for
one year and may be extended for an additional year. The agreement covers
pricing of specific products at wholesale prices which will be private labeled
for direct sale by the marketing company. During the term

NUTRACEA AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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.

On May 5, 2005 NutraCea's Board of Directors approved an agreement with Utek
Corporation, a consulting company to provide patent and license analysis. The
agreement is for one year and may be terminated by either party with 30 days
written notice. Compensation shall be in the form of 448,980 shares of common
stock granted to the consulting company. 50% of the shares vest upon the signing
of the agreement; a minimum of 134,693shares vest within three months of certain
reporting requirements being made by the consulting company; and the remaining
shares vest upon NutraCea taking action on recommendations of the consulting
company.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS

CAUTION ABOUT FORWARD-LOOKING STATEMENTS

This Form 10-QSB includes "forward-looking" statements about future financial
results, future business changes and other events that have not yet occurred.
For example, statements like NutraCea "expects," "anticipates" or "believes" are
forward-looking statements. Investors should be aware that actual results may
differ materially from NutraCea's expressed expectations because of risks and
uncertainties about the future. NutraCea does not undertake to update the
information in this Form 10-QSB if any forward-looking statement later turns out
to be inaccurate. Details about risks affecting various aspects of NutraCea's
business are discussed throughout this Form 10-QSB and should be considered
carefully.

RESULTS OF OPERATIONS

Three-Month Period Ended March 31, 2005 versus 2004
---------------------------------------------------

Revenues of NutraCea increased by $337,245, to $459,314 for the quarter ended
March 31, 2005 from $122,069 for the quarter ended March 31, 2004. In March 2005
the NutraGlo subsidiary recorded a sale of approximately $351,400; the
corresponding sale in 2004 in the amount of $199,300 was not recorded until
April 2004.

Cost of goods sold increased by $202,520, to $281,185 for the quarter ended
March 31, 2005 from $78,665 for the quarter ended March 31, 2004. The increase
relates directly to the increase in sales.

Operating expenses decreased by $17,038,982, to $807,847 for the quarter ended
March 31, 2005 from $17,846,459 for the quarter ended March 31, 2004. Most of
the decrease is due to decreased non-cash stock and option awards in the amount
of $16,844,444 recorded in the first quarter of 2004. Other decreases include
commissions and finders fees in the amount of $170,438 and marketing expense of
$44,443. In addition, salaries and wages decreased by approximately $143,318 due
to one-time cash bonuses paid in 2004 to the CEO and previous President.
Professional fees increased by $153,271 due to costs associated with the
proposed merger with The RiceX Company.

Interest expense increased by $235,261, to $235,756 for the quarter ended March
31, 2005 from $495 for the quarter ended March 31, 2004. The increase is due to
$42,075 of interest expense on notes payable that were funded in December 2004
and amortization of debt discount of $193,355 related to the same notes payable.

The net loss for the quarter ended March 31, 2005 was $864,693 compared to a net
loss of $17,803,055 recorded for the quarter ended March 31, 2004. The
significantly lower net loss for the first quarter of 2005 was due primarily to
the non-cash stock and option awards expensed during the first quarter of 2004.
Increased revenue during the quarter ended March 31, 2005 also contributed to
the lower net loss.

Off-Balance Sheet Arrangements
------------------------------

During the quarter ended March 31, 2005, NutraCea did not engage in any
off-balance sheet arrangements as defined in Item 303 (c) of the SEC's
Regulation S-B

LIQUIDITY AND SOURCES OF CAPITAL

NutraCea has incurred significant operating losses since its inception, and, as
of March 31, 2005 NutraCea had an accumulated deficit of $45,792,485. At March
31, 2005, NutraCea had cash and cash equivalents of $1,274,317 and working
capital deficit of $408,407. While we believe this amount is sufficient to fund
current business requirements it is not deemed sufficient to cover our expanded
business plan and growth, nor the repayment of debt obligations.

To date, NutraCea has funded its operations, in addition to sales revenues,
through a combination of short-term debt and the issuance of common and
preferred stock. During the three months ended March 31, 2005, NutraCea has
issued a total of 84,067 shares of common stock of which 78,067 shares were
issued as compensation to officers and consultants of NutraCea. NutraCea
continues to pursue cost cutting or expense deferral strategies in order to
conserve working capital.

Due to NutraCea's limited cash flow and operating losses, it is unlikely that
NutraCea could obtain financing through commercial or banking sources.
Consequently, NutraCea is dependent on continuous cash infusions from major
investors and the exercise of outstanding warrants and options in order to fund
its current operations. If these sources of capital were unwilling or unable to
provide additional working capital to NutraCea, NutraCea would probably not be
able to sustain its full range of operations. There is no written agreement or
contractual obligation which would require NutraCea's past funding sources to
fund NutraCea's future operations up to certain amounts or indeed continue to
finance NutraCea's operations at all.

As of March 31, 2005, NutraCea's principal commitments include a lease
commitment that expires in September 2006 of $ 6,366 per month for NutraCea's
corporate offices.

Management of NutraCea believes that it will need to raise additional capital to
continue to develop, promote and conduct its operations. Such additional
capital may be raised through public or private financing as well as borrowing
from other sources. Although NutraCea believes that current and/or future
investors will continue to fund NutraCea's expenses, there is no assurance that
such investors will continue to fund NutraCea's ongoing operations or the terms
upon which such investments will be made.

CRITICAL ACCOUNTING POLICIES

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

NutraCea has adopted the fair value based method of accounting prescribed in
Financial Accounting Standards Board ("FASB") Statement No. 123, "Accounting for
Stock-Based Compensation," for its employee stock option plans.

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

ITEM 3. CONTROLS AND PROCEDURES

NutraCea carried out an evaluation, under the supervision and with the
participation of NutraCea's management, including NutraCea's President and Chief
Executive Officer along with NutraCea's Chief Financial Officer, of the
effectiveness of the design and operation of NutraCea's disclosure controls and
procedures pursuant to Exchange Act Rule 13a-15(b) as of the end of the period
covered by this report. Based upon that evaluation, NutraCea's President and
Chief Executive Officer along with NutraCea's Chief Financial Officer concluded
that NutraCea's disclosure controls and procedures are effective to ensure the
information required to be disclosed by NutraCea in reports filed or submitted
under the Exchange Act were timely recorded, processed and reported within the
time periods specified in the Securities and Exchange Commission rules and
forms.

There have been no significant changes in NutraCea's internal controls over
financial reporting or in other factors which occurred during the quarter
covered by this report, which could materially affect or are reasonably likely
to materially affect NutraCea's internal controls over financial reporting.

PART II - OTHER INFORMATION

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS

SALES OF UNREGISTERED SECURITIES DURING THE QUARTER

During the quarter ended March 31, 2005, NutraCea issued 43,067 shares of common
stock to consultants for services rendered valued at $19,500.

During the quarter ended March 31, 2005, NutraCea issued 35,000 shares of
restricted common stock to officers and directors for services rendered valued
at $14,000.

During the first quarter, NutraCea issued options to consultants to purchase
145,000 shares of NutraCea's common stock. The options were valued at $48,355.

During the first quarter, NutraCea issued options to employees to purchase
1,200,000 shares of NutraCea's common stock. The options were valued at
$65,000.

During the quarter-ended March 31, 2005, NutraCea issued 6,000 shares of common
stock pursuant to the exercise of stock options and warrants for cash totaling
$432.

All of the above issuances were made without any public solicitation, to a
limited number of investors or related individuals or entities and were acquired
for investment purposes only. Each of the individuals or entities had access to
information about NutraCea and was deemed capable of protecting their own
interests. The securities were issued pursuant to the private placement
exemption provided by Section 4(2) of the Securities Act of 1933 ("1933 Act").
These are deemed to be "restricted securities" as defined in Rule 144 under the
1933 Act and bear a legend stating the restrictions on resale.

ITEM 5. OTHER INFORMATION

On April 4, 2005, NutraCea entered into an Agreement and Plan of Merger and
Reorganization ("Merger Agreement") with The RiceX Company, a publicly held
manufacturer and distributor of foods and ingredients made from stabilized rice
bran whose stock is traded on the OTC Bulletin Board ("RiceX"). The signing of
the Merger Agreement was announced on April 4,

2005 in a press release and a report on Form 8-K that NutraCea filed with the
Securities and Exchange Commission. The Merger Agreement provides that, subject
to the satisfaction of certain conditions, a wholly owned subsidiary of NutraCea
will merge with and into RiceX, which will result in RiceX becoming a
wholly-owned subsidiary of NutraCea ("Merger").

At the effective time of the Merger, the stockholders of RiceX will receive
shares of NutraCea common stock in exchange for their shares of RiceX common
stock, and NutraCea will assume the outstanding options and warrants to purchase
RiceX common stock. NutraCea anticipates that the aggregate number of shares of
NutraCea common stock that will be issued to the holders of RiceX common stock
upon the effective date of the Merger will be between approximately 28,000,000
and 36,000,000 shares. In addition, after the Merger, NutraCea anticipates that
the RiceX security holders will hold between approximately 42% and 48% of the
combined company on a fully diluted basis, which includes shares underlying
NutraCea and RiceX options and warrants. The number of shares of NutraCea
common stock issuable to RiceX stockholders is subject to adjustment based upon
the market price of NutraCea common stock and the number of outstanding RiceX
options and warrants on the effective date of the Merger.

The Merger Agreement calls for certain changes in NutraCea's corporate
structure. First, it calls for NutraCea to increase the size of its board of
directors from five to seven directors upon the effectiveness of the Merger,
with NutraCea's board of directors immediately after consummation of the merger
to consist of three representatives from NutraCea, three representatives from
RiceX and one representative mutually designated by NutraCea and RiceX. In
addition, it is currently a condition to consummation of the Merger that
NutraCea's articles of incorporation be amended to increase the authorized
number of NutraCea's common shares from 100,000,000 to 150,000,000 shares.

The closing of the transactions contemplated by the Merger Agreement is also
subject to (i) approval by the respective stockholders of NutraCea and RiceX,
(ii) a determination of the fairness of the terms and conditions of the Merger
at a hearing before the Commissioner of Corporations for the State of California
(iii) holders of no more than 17% of the outstanding shares of NutraCea common
stock having exercised dissenters' rights with respect to their shares by virtue
of the Merger, and (iv) holders of no more than 5% of the outstanding shares of
RiceX common stock having exercised dissenters' rights with respect to their
shares by virtue of the Merger, and (v) other customary closing conditions.

As disclosed in previous filings made by NutraCea with the Securities and
Exchange Commission ("SEC"), RiceX is NutraCea's principal supplier of
stabilized rice bran, and NutraCea subleases its principal executive offices
from RiceX. In addition, RiceX's Chairman of the Board and the Former Chief
Executive Officer, Daniel L. McPeak, Sr., is the spouse of Patricia McPeak,
RiceX's former director and President, and current Chief Executive Officer for
and director of NutraCea. Mr. McPeak recused himself from the vote taken by the
board of directors of RiceX to approve the Merger. Additional information
regarding these relationships can be found in NutraCea's Annual Report on Form
10-KSB for the year ended December 31, 2004 filed with the SEC on March 31,
2005.

On February 10, 2005 NutraCea entered into a one year consulting agreement with
Trilogy, a financial relations company. Compensation was to be $10,000 per month
and the issuance of 700,000 warrants to purchase shares of common stock at a
price of $.45 per share; 700,000 warrants to purchase shares of common stock at
a price of $.65 per share; and 700,000 warrants to purchase shares of common
stock at a price of $.85 per share. In conjunction with this agreement NutraCea
agreed to pay a finder's fee to a consulting company consisting of stock options
to purchase 135,000 shares of common stock at a price of $0.45 per share.
Subsequent to the quarter ended March 31, 2005, NutraCea terminated this
consulting agreement and cancelled the warrants originally issued under the
contract.

On March 14, 2005 NutraCea appointed Dr. Harold Stein to its Scientific Advisory
Board. Pursuant to the Scentific Advisory member Agreement, Dr. Stein's
appointment is for a three year term with annual compenstation of 15,000
warrants to purchase shares of common stock at the market price on each
anniversary date. The option price for the first year of service is a price of
$.50 per share. Dr. Stein is a professor in the University of Toronto's
Department of Ophthalmology and Vision Sciences and the author or co-author of
several ophthalmology textbooks. Dr. Stein joins Dr. Barbara Levin, Dr. Eliot
Drell and Dr. Eric Pecha on the Scientific Advisory Board.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) The following documents are filed as exhibits to this report:

31.1 Certification by CEO pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
31.2 Certification by CFO pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
32.1 Certification by CEO and CFO pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K:

(i) Form 8-K filed on February 18, 2005 reporting under Item 1.01
the issuance of 35,000 shares of common stock to each director
of NutraCea.

(ii) Form 8-K filed on March 8, 2005 reporting under Item 3.02 the
appointment of David S. Bensol, R. Ph. to the board of
directors.

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

NUTRACEA

Dated: May 6, 2005 /s/Patricia McPeak
------------------
Patricia McPeak
Chief Executive Officer

Dated: May 6, 2005 /s/ James W. Kluber
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James W. Kluber,
Chief Financial Officer
(Principal Accounting Officer)