December 6, 2005
Mr. Todd C. Crow, Chief Financial Officer
NutraCea
1261 Hawk`s Flight Court
El Dorado Hills, California
95762
Re: NutraCea
Form 10-KSB for Fiscal Year Ended December 31, 2004
Filed March 31, 2005
Forms 10-QSB for Fiscal Quarters Ended March 31, 2005
and June 30, 2005
Filed May 10, 2005 and August 15, 2005
Response Letter Dated November 10, 2005
File No. 0-32565
Dear Mr. Crow:
We have reviewed your response letter and have the following
comments. We have limited our review to only your financial
statements and related disclosures and do not intend to expand our
review to other portions of your documents. Where indicated, we
think you should revise your document in response to these
comments.
If you disagree, we will consider your explanation as to why our
comment is inapplicable or a revision is unnecessary. Please be
as
detailed as necessary in your explanation. In some of our
comments,
we may ask you to provide us with information so we may better
understand your disclosure. After reviewing this information, we
may
raise additional comments.
Form 10-KSB for the Fiscal Year Ended December 31, 2004
General
1. We note your Form 10-KSB/A filed November 18, 2005 contains
restated financial statements based on our prior comments. Any
restated financial statements you file should be marked as
restated.
In addition, they should include a footnote disclosing the amount
originally reported, the amount of the change, the restated amount
and the reason for such restatement in accordance with Accounting
Principles Board Opinion Number 20, paragraph 37 and SEC staff
policy.
Consolidated Statements of Cash Flows, page F-8
2. We have considered your response to our prior comment number
six
in our letter dated October 21, 2005. The reconciliation you
provided indicates other non-cash investing or financing
activities
that occurred during the 2004 fiscal year. In accordance with
paragraph 32 of SFAS 95, provide a disclosure of all noncash
investing and financing activities. The disclosure may be either
narrative or summarized in a schedule, and it shall clearly relate
the cash and noncash aspects of the transactions involving similar
items.
Note 9 - Commitments and Contingencies
Agreements, page F-15
3. We have considered your response to our prior comments number
11
and 12 in our letter dated October 21, 2005. It appears that you
have recognized the expense associated with these consulting
agreements in the period in which measurement was determined.
However, under the guidance of Emerging Issue Task Force Issue 00-
18,
paragraph 9, the measured cost of the transaction should be
recognized in the same periods and in the same manner as if you
had
paid cash for the goods or services. Thus, for your agreements in
which services are to be provided over a period of time, the
measured
cost of that agreement should be recognized in a manner consistent
with the terms of the agreement over the service period. It
appears
that you should amend your Forms 10-QSB and 10-KSB to reflect the
recognition of these costs in the proper periods according to the
terms of the agreements. In addition, provide to us a revised
schedule showing the revised amount of expense recognized for each
contract for each quarter.
4. We note your response to our prior comments number 11 and 12 in
our letter dated October 21, 2005, includes the 2,000,000 and
6,000,000 of warrants issued as part of your employment agreements
with your Chief Executive Officer and your President. Based on
the
terms of the agreements it would appear that these warrants were
issued for future services. As such, it appears you should revise
your accounting to recognize the compensation cost over the
period(s)
in which the related employee services are rendered. Contrarily,
if
you believe the warrant awards relate to past services, tell us
why
you believe this is the case and direct us to the terms of the
agreements which support your belief. Refer to SFAS 123,
paragraphs
26 through 33, for further guidance.
5. We have considered your response to our prior comment 13 in our
letter dated October 21, 2005. We do not agree with your
conclusions. SFAS 57, paragraph 2, excludes compensation
arrangements from related party disclosures. Further, disclosure
of
a contingent expense under SFAS 5 shall be made where there is a
least a reasonable possibility that a loss may have been incurred.
Based on your situation, this would appear to mean that you have
also
concluded the underlying additional revenue required to pay such
compensation is also a reasonable possibility, the disclosure of
which is under SFAS 5, paragraph 17(b). Given these requirements,
tell us why such disclosure is appropriate, or remove such
disclosure
in your amended filing.
Note 10 - Preferred and Common Stock
Common Stock, page F-21
6. We have considered your response to our prior comments 14 and
15
in our letter dated October 21, 2005. We do not agree with your
conclusions with regard to the recognition of this expense, given
the
repurchase option and vesting terms described in the agreement.
SFAS
123, paragraphs 26-27 provide guidance on the recognition of the
compensation cost. Amend your Form 10-QSBs and Form 10-KSB to
reflect this expense in the proper periods according to the terms
of
the agreements and the date such agreement was signed.
7. Revise your management discussion and analysis and footnote
disclosures as appropriate to consistently describe the nature of
the
restricted stock agreement.
Note 11 - Stock Options and Warrants, page F-22
8. We have considered your response to our prior comment 17 in our
letter dated October 21, 2005. Please amend your footnote to
provide
separate tables for options granted to employees under stock-based
compensation plans, and other options and warrants granted under
other plans. In addition, the table of outstanding options and
warrants outstanding should be separated in a similar manner, with
the range of exercise prices segregated into meaningful ranges.
Refer to SFAS 123 paragraphs 46 through 48, for further guidance.
Exhibits, page 31
9. We have considered your response to our prior comment 18 in our
letter dated October 21, 2005. Please file your December 17, 2004
employment agreement with your President, noted on page F-18, as
an
exhibit in your amended filing.
Form 10-QSB for the Fiscal Quarters Ended March 31, 2005, June 30,
2005 and September 30, 2005
10. We have considered your response to our prior comment 19 in
our
letter dated October 21, 2005. We do not agree with your
conclusions, as the reference you cite only addresses the form and
content of the interim statements to be provided. Regulation S-B
does not grant relief from the filing requirements of Regulation
S-X
Item 10-01(c). Please provide your latest audited balance sheet
in
your amended Form 10-QSBs for fiscal 2004 and 2005.
Note 4 - Commitments and Contingencies
Agreements, page 8
11. We note your employment contract with your Senior Vice
President.
If you have accounted for this contract in the same manner as that
of
your Chief Executive Officer, amend your filings to reflect the
recognition of these costs in the proper periods according to the
terms of the agreements in accordance with SFAS 123, paragraphs
26-
27. In addition, file this agreement as an exhibit in your
amended
filings.
12. Remove the reference to the contingent consideration
consistent
with our comment five above.
13. We note other various non-employee agreements signed
throughout
2005. If you have accounted for these agreements in the same
manner
as your 2004 agreements, amend your Forms 10-QSBs to reflect the
recognition of the costs of these agreements signed in 2005 in the
proper periods according to the terms of the agreements, and
provide
to us a schedule showing the amount of expense recognized for each
contract for each quarter.
Form 10-QSB for the Fiscal Quarters Ended March 31, 2005 and June
30,
2005
Consolidated Statements of Operations, page 4
14. Revise your statements of operations to disclose your
operating
expenses in sufficient detail to bring out more clearly the nature
and trends of current changes affecting the your business
consistent
with your disclosures in your Form 10-QSB for the quarter ended
September 30, 2005. This presentation should include a separate
line
item for each material expense category. Refer to Regulation S-X
Rule 10-01 for further guidance.
Management`s Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
15. Revise your filings to disclose and describe the significant
components of your non-cash operating expenses in order to provide
an
understanding of your results of operations, consistent with your
disclosures in your Form 10-QSB for the quarter ended September
30,
2005, as required by Regulation S-B Item 303(b)(1)(vi).
Closing Comments
As appropriate, please amend your filing and respond to
these
comments within 10 business days or tell us when you will provide
us
with a response. You may wish to provide us with marked copies of
the amendment to expedite our review. Please furnish a cover
letter
with your amendment that keys your responses to our comments and
provides any requested information. Detailed cover letters
greatly
facilitate our review. Please understand that we may have
additional
comments after reviewing your amendment and responses to our
comments.
You may contact Gary Newberry at (202) 551-3761 if you have
questions regarding comments on the financial statements and
related
matters. Please contact me at (202) 551- 3684 with any other
questions."
Sincerely,
April Sifford
Branch Chief
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Mr. Todd C. Crow
NutraCea
October 21, 2005
page 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
100 F Street, N.E.
WASHINGTON, D.C. 20549-7010
DIVISION OF
CORPORATION FINANCE
MAIL STOP 7010