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

A summary of equity activity for the nine months ended September 30, 2011 (in thousands, except share data) follows.

	NutraCea Shareholders
													Non-
										Accumulated			controlling
	Common Stock						Accumulated			Other Comp-			Interest in			Total
	Shares			Amount			Deficit			rehensive Loss			Rice Science			Equity
Balance, January 1, 2011		195,359,109		$	207,432		$	(184,812	)	$	(74	)	$	(156	)	$	22,390
Cancelled shares and options -settlements with former officers		(44,666	)		(267	)		-			-			-			(267	)
Share-based employee and director compensation - options		-			585			-			-			-			585
Share-based consultant compensation -options		-			9			-			-			-			9
Beneficial conversion feature of convertible note		-			165			-			-			-			165
Warrants issued for convertible note		-			279			-			-			-			279
Acquisition of additional interests in Rice Science		-			(254	)		-			-			156			(98	)
Warrants issued to Buyer (Note 6)		-			103			-			-			-			103
Common stock issued to Buyer (Note 6)		2,576,775			618			-			-			-			618
Common stock issued for vendor services		2,031,357			359			-			-			-			359
Common stock issued to directors		1,207,049			165			-			-			-			165
Foreign currency translation		-			-			-			(1,576	)		-			(1,576	)
Net loss		-			-			(5,573	)		-			-			(5,573	)
Balance, September 30, 2011		201,129,624		$	209,194		$	(190,385	)	$	(1,650	)	$	-		$	17,159

In lieu of paying cash to non-employee board members for board retainer fees for the last three quarters of 2011, we issued shares of common stock. The number of shares issued equaled the $0.2 million cash compensation to which the directors are entitled, divided by $0.20. We issued in the third quarter of 2011 a total of 1,207,049 shares for 2011 retainer fees. As of September 30, 2011, 336,250 of these shares were unvested. Directors will continue to be paid cash for meeting attendance fees.

A summary of stock option and warrant activity for the nine months ended September 30, 2011 follows.

	Options								Equity and Liability Warrants
	Shares Under Options			Weighted Average Exercise Price			Weighted Average Remaining Contractual Life (Years)		Shares Under Warrants			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
Outstanding, January 1, 2011		45,485,111		$	0.30			6.9		40,429,577		$	1.28		2.1
Granted		4,904,224			0.22					2,835,730			0.23
Impact of anti-dilution clauses		-								4,328,701
Exercised		-								-
Forfeited, expired or cancelled		(11,816,539	)		(0.34	)				(3,372,387	)		1.00
Outstanding, September 30, 2011		38,572,796		$	0.28			6.6		44,221,621		$	1.10		1.7

Exercisable, September 30, 2011		24,926,077		$	0.32			5.9		44,221,621		$	1.10		1.7

Options

In December 2010, we reached an agreement to settle all potential claims associated with the employment of Mr. Brad Edson, our former chief executive officer. The agreement was subject to the approval of the Bankruptcy Court and became effective upon court approval in January 2011. Mr. Edson agreed to return to NutraCea $0.4 million, representing a bonus earned in 2008. We recorded a receivable for the return of the bonus. The corresponding income reduced selling, general and administrative expenses in the first quarter of 2011. As partial payment of the receivable, Mr. Edson forfeited 6,000,000 options granted in 2004 and returned 35,000 shares of common stock in payment of $0.3 million of his obligation. The options had an exercise price of $0.30 per share and were outstanding and exercisable as of December 31, 2010. We reduced the receivable from Mr. Edson, reduced equity by $0.3 million, and cancelled the options in the first quarter of 2011, when the Bankruptcy Court approved the agreement. The remaining $0.1 million receivable remains unpaid and reserved for due to uncertainty with regard to the collectability of the receivable as of September 30, 2011.

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

On July 15, 2011, we entered into amendments to employment agreements with each of our four executive officers. Twenty percent of each officer's salary for the last six months of 2011 will be paid in stock options instead of in cash. The options will vest and become exercisable in twelve equal installments commencing on July 15, 2011 and ending on December 31, 2011. Under the amendments we issued options to purchase 2,116,726 shares of common stock, at an average exercise price of $0.20, and an average initial term of 1.6 years.

Warrants

We have outstanding warrants classified as equity (equity warrants) and as warrant liability (liability warrants).

	Equity Warrants							Liability Warrants
	Shares Under Equity Warrants			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Shares Under Liability Warrants			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
Outstanding, January 1, 2011		545,454		$	0.69		2.8		39,884,124		$	1.28		2.1
Granted		2,835,730			0.23				-
Impact of antidilution clauses		-							4,328,701
Exercised		-							-
Forfeited, expired or cancelled		(500,000	)		0.25				(2,872,387	)		1.13
Outstanding and Exercisable, September 30, 2011		2,881,184		$	0.32		3.6		41,340,438		$	1.16	$	1.6

As of September 30, 2011, we have outstanding liability warrants to purchase 21,591,715 shares of common stock that expire in August 2012.

We have certain warrant agreements in effect for outstanding liability warrants that contain antidilution clauses. Under the antidilution clauses, in the event of equity issuances, we may be required to lower the exercise price on liability warrants and increase the number of shares underlying liability warrants. Equity issuances may include issuances of our common stock, certain awards of options to employees, issuances of warrants and/or other convertible instruments below a certain exercise price.

The table below summarizes the equity issuances in 2011, through the date of this filing, which triggered the antidilution clauses in certain liability warrants.

Triggering Event			Shares Under Equity Warrants		Exercise Price of Warrants
Common stock issuance to Buyer and related warrant (Note 6):
Second quarter 2011				605,730	$	0.23
Convertible note issuances and related warrants (Note 10):
First quarter 2011	(1	)		500,000		0.25
Second quarter 2011	(2	)		730,000		0.23
Third quarter 2011, event A	(2	)		270,000		0.23
Third quarter 2011, event B	(2	)		730,000		0.23
				2,835,730	$	0.23
Convertible note issuances and related warrants (Note 10):
Fourth quarter 2011				2,323,186	$	0.22

(1)	The warrant to purchase 500,000 shares of common stock, issued to the holder of the convertible note in the first quarter of 2011, was cancelled in the second quarter of 2011.

(2)	Warrants to purchase 1,730,000 shares of common stock, issued to the holder of the convertible note in the second and third quarters of 2011, were cancelled in the fourth quarter of 2011.

The table below summarizes the impact of the equity issuances, listed above which triggered the antidilution clauses in certain liability warrants.

			Before Event				After Event				Increase in
Triggering Event			Shares Under Liability Warrants		Weighted Average Exercise Price		Shares Under Liability Warrants		Weighted Average Exercise Price		Shares Under Liability Warrants
Common stock issuance to Buyer and related warrant (Note 6):
Second quarter 2011	(1	)		40,735,768	$	1.25		41,707,143	$	1.22		971,375
Convertible note issuances and related warrants (Note 10):
First quarter 2011	(1	)		39,884,124		1.28		40,735,768		1.25		851,644
Second quarter 2011	(1	)		38,834,756		1.23		39,721,515		1.20		886,759
Third quarter 2011, event A				39,721,515		1.20		40,362,227		1.19		640,712
Third quarter 2011, event B				40,362,227		1.19		41,340,438		1.16		978,211
												4,328,701
Convertible note issuances and related warrants (Note 10):
Fourth quarter 2011				41,340,438		1.16		43,314,994		1.10		1,974,554

(1)	During the third quarter of 2011, the calculations of the impact of the triggering events were revised. The revised figures are reflected above. The impact was immaterial to the financial statements and less than $0.1 million.