Cadiz Inc.
Annual Report 2009

Plain-text annual report

Morningstar® Document Research℠ FORM 10-KCADIZ INC - CDZIFiled: March 15, 2010 (period: December 31, 2009)Annual report with a comprehensive overview of the companyThe information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The userassumes all risks for any damages or losses arising from any use of this information, except to the extent such damages or losses cannot belimited or excluded by applicable law. Past financial performance is no guarantee of future results.UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D. C. 20549FORM 10-K[√] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934for the fiscal year ended December 31, 2009 OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934for the transition period from ..... to ..... Commission File Number 0-12114 CADIZ INC.(Exact name of registrant specified in its charter)DELAWARE77-0313235(State or other jurisdiction of(I.R.S. Employerincorporation or organization)Identification No.)550 S. Hope Street, Suite 2850 Los Angeles, CA90071(Address of principal executive offices)(Zip Code)(213) 271-1600(Registrant’s telephone number, including area code)Securities Registered Pursuant to Section 12(b) of the Act:Common Stock, par value $0.01 per shareThe NASDAQ Stock Market LLC(Title of Each Class)(Name of Each Exchange on Which Registered)Securities Registered Pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the Registrant is a well-known seasoned issuer, as defined in rule 405 under the Securities Act of 1933.Yes No √ Indicate by a check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.Yes No √ Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during 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 filingrequirements for the past 90 days.Yes √ No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required tobe submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required tosubmit and post such files).Yes ___ No___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§220.405 of this chapter) is not contained herein, and willnot be contained to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K orany amendment of this Form 10-K. □ Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as definedin Exchange Act Rule 12b-2).Large accelerated filer Accelerated filer √ Non-accelerated filer Smaller Reporting Company Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2).Yes No √ The aggregate market value of the common stock held by nonaffiliates as of June 30, 2009, was approximately $113,281,869 based on 11,763,434 shares ofcommon stock outstanding held by nonaffiliates and the closing price on that date. Shares of common stock held by each executive officer and director andby each entity that owns more than 5% of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. ThisSource: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.determination of affiliate status is not necessarily a conclusive determination for other purposes. As of March 9, 2010, the Registrant had 13,677,772 shares of common stock outstanding.Documents Incorporated by ReferencePortions of the Registrant's definitive Proxy Statement to be filed for its 2010 Annual Meeting of Stockholders are incorporated by reference into Part III of thisReport. The Registrant is not incorporating by reference any other documents within this Annual Report on Form 10-K except those footnoted in Part IV underthe heading “Item 15. Exhibits, Financial Statement Schedules. Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. CADIZ INC.TABLE OF CONTENTSPART I Item 1.Business1 Item 1A.Risk Factors7 Item 1B.Unresolved Staff Comments9 Item 2.Properties9 Item 3.Legal Proceedings11 Item 4.(Removed and Reserved)11 PART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities12 Item 6.Selected Financial Data14 Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations15 Item 7A.Quantitative and Qualitative Disclosures about Market Risk25 Item 8.Financial Statements and Supplementary Data25 Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure26 Item 9A.Controls and Procedures26 Item 9B.Other Information27 PART III Item 10.Directors, Executive Officers and Corporate Governance28 Item 11.Executive Compensation28 Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters28 Item 13.Certain Relationships and Related Transactions, and Director Independence28 Item 14.Principal Accounting Fees and Services28 PART IV Item 15.Exhibits, Financial Statement Schedules29 ii Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. PART IITEM 1. Business This Form 10-K presents forward-looking statements with regard to financial projections, proposed transactions such as those concerning the furtherdevelopment of our land and water assets, information or expectations about our business strategies, results of operations, products or markets, or otherwisemakes statements about future events. Such forward-looking statements can be identified by the use of words such as “intends”, “anticipates”, “believes”,“estimates”, “projects”, “forecasts”, “expects”, “plans” and “proposes”. Although we believe that the expectations reflected in these forward-lookingstatements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from theseforward-looking statements. These include, among others, the cautionary statements under the caption “Risk Factors”, as well as other cautionary languagecontained in this Form 10-K. These cautionary statements identify important factors that could cause actual results to differ materially from those describedin the forward-looking statements. When considering forward-looking statements in this Form 10-K, you should keep in mind the cautionary statementsdescribed above. Overview Our primary assets consist of 45,000 acres of land in three areas of eastern San Bernardino County, California. Virtually all of this land isunderlain by high-quality groundwater resources that are suitable for a variety of water storage and supply programs. The advantages of underground waterstorage relative to surface storage include minimal surface environmental impacts, low capital investment, and minimal evaporative water loss. The propertiesare located in proximity to the Colorado River and the Colorado River Aqueduct, the major source of imported water for Southern California. The value of these assets derives from a combination of increasing pressure on water and renewable energy supplies in California. California ispresently facing a dire water crisis. Water agencies throughout California imposed mandatory rationing in 2009 in order to meet anticipateddemand. Additionally, through a series of policy initiatives, the State of California and the United States government have issued compelling calls forincreased renewable energy production in order to meet future national energy needs. This includes California’s mandate to acquire 33% of the state’s electricityfrom renewable sources by 2020. As a result, we believe that a competitive advantage exists for companies that can provide high-quality, reliable, andaffordable water to major population centers as well as for companies that can site renewable energy facilities. Our objective is to realize the highest and best use for these assets in an environmentally responsible way. We believe this can best be achievedthrough a combination of water supply and storage programs, sustainable agricultural development and the production of renewable energy at our properties. 1 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (a) General Development of Business We are a Delaware corporation formed in 1992 to act as the surviving corporation in a Delaware reincorporation merger with Pacific AgriculturalHoldings, Inc., a California corporation formed in 1983. As part of our historical business strategy, we have conducted our land acquisition, water development activities, agricultural operations, search forinternational water and agricultural opportunities and real estate development initiatives to maximize the long-term value of our properties and futureprospects. See “Narrative Description of Business” below. Our initial focus was on the acquisition of land and the assembly of contiguous land holdings through property exchanges to prove the quantity andquality of water resources in the region. We subsequently established agricultural operations on our properties in the Cadiz Valley and sought to develop thewater resources underlying that site. In 1993, we secured permits for up to 9,600 acres of agricultural development in the Cadiz Valley and the withdrawal of more than 1 million acre-feet of groundwater from the underlying aquifer system. Once the agricultural development was underway, we also identified that the location, geology, andhydrology of this property is uniquely suited for both agricultural development and the development of an aquifer storage, recovery, and dry-year supplyproject to augment the water supplies available to Southern California. In 1997, we entered into the first of a series of agreements with the Metropolitan Water District of Southern California (“Metropolitan”) to jointlydesign, permit, and build such a project (the “Cadiz Project” or “Project”). In general, several elements are needed to complete the development: (1) Federal andstate environmental permits; (2) a pipeline right-of-way from the Colorado River Aqueduct to the project area; (3) a storage and supply agreement with one ormore public water agencies or private water utilities; and (4) construction and working capital financing. Between 1997 and 2002, we and Metropolitanreceived substantially all of the state and federal approvals required for the permits necessary to construct and operate the Project, including a Record ofDecision (“ROD”) from the U.S. Department of the Interior, which endorsed the Cadiz Project and offered a right-of-way for construction of Project facilities. In October 2002, Metropolitan’s staff brought the right-of-way matter before the Metropolitan Board of Directors. By a very narrow margin, theMetropolitan Board voted not to accept the right-of-way grant and not to proceed with the Project. In April 2003, we filed a claim against Metropolitan seeking compensatory damages. When settlement negotiations failed to produce a resolution, wefiled a lawsuit against Metropolitan in Los Angeles Superior Court in November 2005 seeking compensatory damages for a breach of various contractual andfiduciary obligations to us, and interference with the economic advantage we would have obtained from the Cadiz Project. In October 2008, the presidingSuperior Court Judge held that any breach of duty that may have been committed by Metropolitan is subject to the bar of Government immunity and thusthere would be no liability. Following the ruling, we were granted leave to amend our claim against Metropolitan. On February 11, 2009, we and Metropolitanagreed to settle our differences and dismissed all outstanding claims remaining against each other. 2 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In September 2008, we secured a new right-of-way for the Project’s water conveyance pipeline by entering into a lease agreement with the Arizona &California Railroad Company. The agreement allows Cadiz to utilize a portion of the railroad’s right-of-way for the Cadiz Project water conveyance pipeline fora period up to 99 years. In May 2009, we entered into a Memorandum of Understanding with the Natural Heritage Institute (“NHI”), a leading global environmentalorganization committed to protecting aquatic ecosystems, to assist with our efforts to sustainably manage the development of our Cadiz Valley property. Aspart of this “Green Compact”, we will follow stringent plans for groundwater management and habitat conservation, and create a groundwater managementplan for the Project. In June 2009, we executed Letters of Intent (“LOI”) with five Southern California water providers. As part of the LOIs, Cadiz and the water providerswill develop a cost-sharing agreement, finalize terms of pricing, design and capital allocation, and work towards implementation of the Project. Theseproviders serve more than three million customers in California’s San Bernardino, Riverside, Los Angeles, Orange and Ventura Counties. We expect to addadditional participants for other aspects of the project as the environmental review proceeds. In order to continue to fund our working capital requirements, in June 2009 we completed arrangements to amend our $36.4 million zero couponsenior secured convertible term loan to extend the maturity date from June 29, 2011, to June 29, 2013. Additionally, in October and November 2009, wecompleted a private placement (the “Placement”) to raise an additional $7.1 million, which, when used together with the cash resources on hand, will allow usto continue to fund our development activities. These transactions are described in more detail in Item 7, “Management’s Discussion and Analysis of FinancialCondition and Results of Operation.” In February 2010, we released new details of a comprehensive year-long study measuring the vast scale and recharge rate of the Cadiz aquifersystem. The study was conducted by internationally recognized environmental consulting firm CH2M Hill at the Project area utilizing new models producedby the U.S. Geological Survey in 2006 and 2008. CH2M Hill and additional hydrology experts that have peer-reviewed the work confirmed the aquifersystem can sustainably support the Cadiz Project. Major findings of the report include:· The groundwater in storage in the alluvial aquifer ranges from 17 to 34 million acre-feet;· The character of the underlying carbonate units greatly contribute to the productivity of the groundwater basin and would substantially add to thequantity of water stored in the alluvial aquifer system;· Application of the latest USGS computer model results in a recharge estimate of 32,000 acre-feet per year, much higher than the previous USGSMaxey-Eakin model estimates of 2,070 to 10,343 acre-feet per year; and· A significant groundwater resource generated by precipitation in the watershed is presently being wasted to evaporation at the Bristol and Cadiz DryLakes. 3 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. With the hydrological studies complete, we will now proceed with the environmental review of the Project jointly with our public agency partners. (b) Financial Information about Industry Segments Our primary business is to acquire and develop land and water resources. Our agricultural operations are confined to limited farming activities at theCadiz Valley property. As a result, our financial results are reported in a single segment. See Consolidated Financial Statements. See also Item 7,“Management’s Discussion and Analysis of Financial Condition and Results of Operations”.(c) Narrative Description of Business Our business strategy is the development of our landholdings for their highest and best uses. At present, our development activities are focused onwater resource, agricultural and renewable energy development.Water Resource Development Our portfolio of water resources is located in proximity to the Colorado River and the Colorado River Aqueduct (“CRA”), the principal source ofimported water for Southern California, and provides us with the opportunity to participate in a variety of water storage and supply programs, exchanges, andconservation programs with public agencies and other partners. The Cadiz Water Conservation and Storage Project We own approximately 35,000 acres of land and the subsurface strata, inclusive of the unsaturated soils and appurtenant water rights in the Cadizand Fenner valleys of eastern San Bernardino County (the “Cadiz Property”). The aquifer system underlying this property is naturally recharged byprecipitation (both rain and snow) within a watershed of approximately 1,300 square miles. See Item 2, “Properties – The Cadiz/Fenner Valley Property”. The Cadiz Water Conservation and Storage Project (the “Cadiz Project”) would provide Southern California with a valuable increase in water supplyduring periods of drought or other emergencies. The Cadiz Project is a comprehensive conjunctive use and water conservation program that provides for themanaged and scheduled withdrawal of groundwater and imported water from the aquifer system that underlies the Cadiz Property to optimize efficient use andavoid waste. Cadiz Project facilities would include, among other things:· Spreading basins, which are shallow settling ponds that will be configured to efficiently percolate water from the ground surface down tothe water table using subsurface storage capacity for the storage of water and minimize evaporative loss versus surface storage facilities; 4 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. · High yield wells designed to efficiently recover available native groundwater and stored Colorado River water from beneath the CadizProject area;· A 42-mile conveyance pipeline to connect the spreading basins and well field to the CRA;· A pumping plant to pump water through the conveyance pipeline from the CRA to the Cadiz Project spreading basins; and· Energy for the Project is expected to be supplied by solar power. Other Eastern Mojave Properties Our second largest landholding is approximately 9,000 acres in the Piute Valley of eastern San Bernardino County. This landholding is locatedapproximately 15 miles from the resort community of Laughlin, Nevada, and about 12 miles from the Colorado River town of Needles, California. Extensivehydrological studies, including the drilling and testing of a full-scale production well, have demonstrated that this landholding is underlain by high-qualitygroundwater. The aquifer system underlying this property is naturally recharged by precipitation (both rain and snow) within a watershed of approximately975 square miles. Discussions with potential partners with the objective of developing our Piute Valley assets are ongoing. Additionally, we own acreage located near Danby Dry Lake, approximately 30 miles southeast of our landholdings in the Cadiz and Fennervalleys. The Danby Lake property is located approximately 10 miles north of the CRA. Initial hydrological studies indicate that it has excellent potential foran aquifer storage, recovery and supply project.Agricultural Development Within the Cadiz Valley property, 9,600 acres have been zoned for agriculture. The infrastructure includes seven wells that are interconnected withinthis acreage, with total annual production capacity of approximately 13,000 acre feet of water. Additionally, there are housing and kitchen facilities thatsupport up to 300 employees. The underlying groundwater, fertile soil, and desert temperatures are well suited for a wide variety of fruits and vegetables. Permanent crops currently in production include 160 acres of certified organic vineyards and 260 acres of lemons. Both of these crops are farmedusing sustainable agricultural practices. Additionally, in January 2009, we entered into an agreement with a third party to develop up to another 500 acres oflemons. Seasonal vegetable crops are all grown organically and 2010 plantings are expected to include squash and beans.Renewable Energy and Other Development Opportunities In addition to the projects described above, we believe our landholdings are suitable for other types of development, including solar energygeneration. Both federal and state initiatives support alternative energy facilities to reduce greenhouse gas emissions and the consumption of imported fossilfuels. The locations, topography, and proximity of our properties to utility corridors are well-suited for solar energy generation and transmission. An additionaladvantage we can offer is the availability of the water supply needed by solar thermal power plant designs. We are engaged in on-going discussions withenergy companies interested in utilizing our landholdings for various types of solar energy development. 5 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Over the longer term, we believe that population growth in nearby desert communities in Southern California, Nevada and Arizona will resume andthat, in time, the economics of commercial and residential development on our properties will also become attractive. We remain committed to our land and water assets and will continue to explore all opportunities for development of these assets. We cannot predictwith certainty which of these development initiatives will ultimately be realized.Seasonality Our water resource development activities are not seasonal in nature. Our farming operations are limited to the cultivation of lemons and grapes/raisins and spring and fall plantings of vegetables on the Cadiz Valleyproperties. These operations are subject to the general seasonal trends that are characteristic of the agricultural industry.Competition We face competition for the acquisition, development and sale of our properties from a number of competitors. We may also face competition in thedevelopment of water resources and siting of renewable energy facilities associated with our properties. Since California has scarce water resources and anincreasing demand for available water, we believe that location, price and reliability of delivery are the principal competitive factors affecting transfers of waterin California.Employees As of December 31, 2009, we employed 9 full-time employees (i.e. those individuals working more than 1,000 hours per year). We believe that ouremployee relations are good.Regulation Our operations are subject to varying degrees of federal, state and local laws and regulations. As we proceed with the development of our properties,including the Cadiz Project, we will be required to satisfy various regulatory authorities that we are in compliance with the laws, regulations and policiesenforced by such authorities. Groundwater development, and the export of surplus groundwater for sale to entities such as public water agencies, is subject toregulation by specific existing statutes, in addition to general environmental statutes applicable to all development projects. Additionally, we must obtain avariety of approvals and permits from state and federal governments with respect to issues that may include environmental issues, issues related to specialstatus species, issues related to the public trust, and others. Because of the discretionary nature of these approvals and concerns which may be raised byvarious governmental officials, public interest groups and other interested parties during both the development and the approval process, our ability to developproperties and realize income from its projects, including the Cadiz Project, could be delayed, reduced or eliminated. 6 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Access To Our Information Our annual, quarterly and current reports, proxy statements and other information are filed with the Securities and Exchange Commission (“SEC”)and are available free of charge through our web site, www.cadizinc.com, as soon as reasonably practical after electronic filing of such material with the SEC. Our SEC filings are also available to the public at the SEC website at www.sec.gov. You may also read and copy any document we file at the SEC’spublic reference room located at 100 F Street N.E., Washington D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation ofthe public reference room.ITEM 1A. Risk Factors Our business is subject to a number of risks, including those described below.Our Development Activities Have Not Generated Significant Revenues At present, our activities are focused on water resource, agricultural, and renewable energy development at our San Bernardino Countyproperties. We have not received significant revenues from our development activities to date and we do not know when, if ever, we will receive operatingrevenues sufficient to offset the costs of our development activities. As a result, we continue to incur a net loss from operations.We May Never Generate Significant Revenues or Become Profitable Unless We Are Able To Successfully Implement Programs To Develop OurLand Assets and Related Water Resources We do not know the terms, if any, upon which we may be able to proceed with our water and other development programs. Regardless of the form ofour water development programs, the circumstances under which transfers or storage of water can be made and the profitability of any transfers or storage aresubject to significant uncertainties, including the risk of variable water supplies and changing water allocation priorities. Additional risks include our abilityto obtain all necessary regulatory approvals and permits, possible litigation by environmental or other groups, unforeseen technical difficulties, general marketconditions for real estate and water supplies, and the time needed to generate significant operating revenues from such programs after operations commence.The Development of Our Properties Is Heavily Regulated, Requires Governmental Approvals and Permits That Could Be Denied, and MayHave Competing Governmental Interests and Objectives In developing our land assets and related water resources, we are subject to local, state, and federal statutes, ordinances, rules and regulationsconcerning zoning, resource protection, environmental impacts, infrastructure design, subdivision of land, construction and similar matters. Ourdevelopment activities are subject to the risk of adverse interpretations or changes to U.S. federal, state and local laws, regulations and policies. Further, ourdevelopment activities require governmental approvals and permits that, if denied or granted subject to unfavorable conditions or restrictions, would adverselyimpact our ability to successfully implement our development programs. 7 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The opposition of government officials may adversely affect our ability to obtain needed government approvals and permits upon satisfactory termsin a timely manner. In this regard, federal government appropriations currently preclude spending for any proposal to store water for the purpose of export orfor any activities associated with the approval of rights-of-way on lands managed by the Needles Field Office of the Bureau of Land Management. As a resultof a new right-of-way with the Arizona & California Railroad Company, we do not believe federal approval will be required to implement the Cadiz Project,however, even this may be subject to similar challenges. A significant portion of our Cadiz Valley property is included in a study area as part of the Environmental Impact Statement (“EIS”) process for theexpansion of the Marine Corp Air Ground Combat Center in Twentynine Palms, California. Our property is included in one of the five different alternativesthat will be studied for the base expansion during the EIS process over the next three years. If any of the Cadiz Valley landholdings are included in the finalexpansion area, then we will be entitled to full fair market value compensation for any property taken. Additionally, the statutes, regulations and ordinances governing the approval processes provide third parties the opportunity to challenge proposedplans and approvals. In California, third parties have the ability to file litigation challenging the approval of a project, which they usually do by alleginginadequate disclosure and mitigation of the environmental impacts of the project. Opposition from environmental groups could cause delays and increase thecosts of our development efforts or preclude such development entirely. While we have worked with representatives of various environmental interests andagencies to minimize and mitigate the impacts of our planned projects, certain groups may remain opposed to our development plans.Our Failure To Make Timely Payments of Principal and Interest on Our Indebtedness May Result in a Foreclosure on Our Assets As of December 31, 2009, we had indebtedness outstanding to our senior secured lenders of approximately $43.6 million. Our assets have been putup as collateral for this debt. If we cannot generate sufficient cash flow to make principal and interest payments on this indebtedness when due, or if weotherwise fail to comply with the terms of agreements governing our indebtedness, we may default on our obligations. If we default on our obligations, ourlenders may sell off the assets that we have put up as collateral. This, in turn, would result in a cessation or sale of our operations.The Conversion of Our Outstanding Senior Indebtedness into Common Stock Would Dilute the Percentage of Our Common Stock Held byCurrent Stockholders Our senior indebtedness is convertible into common stock at the election of our lenders. As of December 31, 2009, our senior indebtedness wasconvertible into 1,766,201 shares of our common stock, an amount equal to approximately 11% of the number of fully-diluted shares of our common stockoutstanding as of that date. An election by our lenders to convert all or a portion of our senior secured indebtedness into common stock will dilute thepercentage of our common stock held by current stockholders. 8 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. We May Not Be Able To Obtain the Financing We Need To Implement Our Asset Development Programs Based upon our current and anticipated usage of cash resources, we have sufficient funds to meet our expected working capital needs through fiscalyear 2010. We will continue to require additional working capital to meet our cash resource needs from that point forward and to continue to finance ouroperations until such time as our asset development programs produce revenues. If we cannot raise needed funds, we might be forced to make substantialreductions in our operating expenses, which could adversely affect our ability to implement our current business plan and ultimately our viability as acompany. We cannot assure you that our current lenders, or any other lenders, will give us additional credit should we seek it. If we are unable to obtainadditional credit, we may engage in further equity financings. Our ability to obtain equity financing will depend, among other things, on the status of ourasset development programs and general conditions in the capital markets at the time funding is sought. Although we currently expect our capital sources tobe sufficient to meet our near term liquidity needs, there can be no assurance that our liquidity requirements will continue to be satisfied. Any further equityfinancings would result in the dilution of ownership interests of our current stockholders.The Issuance of Equity Securities Under Management Equity Incentive Plans Will Impact Earnings Our compensation programs for management emphasize long-term incentives, primarily through the issuance of equity securities and options topurchase equity securities. It is expected that plans involving the issuance of shares, options, or both will be submitted from time to time to our stockholdersfor approval. In the event that any such plans are approved and implemented, the issuance of shares and options under such plans may result in the dilutionof the ownership interest of other stockholders and will, under currently applicable accounting rules, result in a charge to earnings based on the value of ourcommon stock at the time of issue and the fair value of options at the time of their award. The expense would be recorded over the vesting period of each stockand option grant.ITEM 1B. Unresolved Staff Comments Not applicable at this time.ITEM 2. Properties Following is a description of our significant properties.The Cadiz/Fenner Valley Property Since 1983, we have acquired approximately 35,000 acres of largely contiguous land in the Cadiz and Fenner Valleys of eastern San BernardinoCounty, California. This area is located approximately 30 miles north of the Colorado River Aqueduct. In 1984, we conducted investigations of the feasibilityof agricultural development of this land. These investigations confirmed the availability of high-quality groundwater in quantities appropriate for agriculturaldevelopment. 9 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Additional independent geotechnical and engineering studies conducted since 1985 have confirmed that the Cadiz/Fenner property overlies an aquifersystem that is ideally suited for aquifer storage and use of indigenous groundwater, as contemplated in the Cadiz Project. See Item 1, “Business – NarrativeDescription of Business – Water Resource Development”. In November 1993, the San Bernardino County Board of Supervisors unanimously approved a General Plan Amendment establishing anagricultural land use designation for 9,600 acres in the Cadiz Valley. This action also allows for the withdrawal of more than 1,000,000 acre-feet ofgroundwater from the aquifer system underlying our property. In February 2010, we released new details of a comprehensive year-long study measuring the vast scale and recharge rate of the Cadiz aquifersystem. The study was conducted by internationally recognized environmental consulting firm CH2M Hill at the Project area utilizing new models producedby the U.S. Geological Survey in 2006 and 2008. CH2M Hill and additional hydrology experts that have peer-reviewed the work confirmed the aquifersystem can sustainably support the Cadiz Project.Other Eastern Mojave Properties We also own approximately 10,800 additional acres in the eastern Mojave Desert, including the Piute and Danby Lake properties. Our second largest property consists of approximately 9,000 acres in the Piute Valley of eastern San Bernardino County. This landholding is locatedapproximately 15 miles from the resort community of Laughlin, Nevada, and about 12 miles from the Colorado River town of Needles, California. Extensivehydrological studies, including the drilling and testing of a full-scale production well, have demonstrated that this landholding is underlain by high-qualitygroundwater. The aquifer system underlying this property is naturally recharged by precipitation (both rain and snow) within a watershed of approximately975 square miles. Discussions with potential partners have commenced with the objective of developing our Piute Valley assets. Additionally, we own acreage located near Danby Dry Lake, approximately 30 miles southeast of our landholdings in the Cadiz and FennerValleys. Our Danby Lake property is located approximately 10 miles north of the Colorado River Aqueduct. Initial hydrological studies indicate that it hasexcellent potential for an aquifer storage, recovery and supply project.Executive Offices We lease approximately 7,200 square feet of office space in Los Angeles, California for our executive offices. The lease terminates in October2012. Current base rent under the lease is approximately $14,000 per month. 10 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Cadiz Real Estate In December 2003, we transferred substantially all of our assets (with the exception of our office sublease, certain office furniture and equipment andany Sun World related assets) to Cadiz Real Estate LLC, a Delaware limited liability company (“Cadiz Real Estate”). We hold 100% of the equity interests ofCadiz Real Estate, and therefore we continue to hold 100% beneficial ownership of the properties that we transferred to Cadiz Real Estate. Cadiz Real Estatewas created at the behest of our then existing senior secured lender, ING Capital LLC (“ING”). The Board of Managers of Cadiz Real Estate currentlyconsists of two managers appointed by us. Cadiz Real Estate is a co-obligor under our senior secured convertible term loan, for which assets of Cadiz Real Estate have been pledged as security. Because the transfer of our properties to Cadiz Real Estate has no effect on our ultimate beneficial ownership of these properties, we refer throughoutthis Report to properties owned of record either by Cadiz Real Estate or by us as “our” properties.Debt Secured by Properties Our assets have been pledged as collateral for $43.6 million of debt outstanding on December 31, 2009. Information regarding interest rates andprincipal maturities is provided in Note 6 to the Consolidated Financial Statements.ITEM 3. Legal Proceedings There are no material pending legal proceedings to which we are a party or of which any of our property is the subject.ITEM 4. (Removed and Reserved) 11 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. PART IIITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities Our common stock is currently traded on The NASDAQ Global Market ("NASDAQ") under the symbol "CDZI." The following table reflectsactual sales transactions for the dates that we were trading on NASDAQ, as reported by Bloomberg LP. High Low Quarter Ended Sales Price Sales Price 2008: March 31 $20.73 $13.81 June 30 $19.57 $15.15 September 30 $20.39 $14.66 December 31 $18.77 $8.45 2009: March 31 $8.20 $7.51 June 30 $9.98 $9.37 September 30 $11.86 $11.44 December 31 $12.13 $11.92 On March 9, 2010, the high, low and last sales prices for the shares, as reported by Bloomberg, were $12.98, $12.59, and $12.70, respectively. As of March 9, 2010, the number of stockholders of record of our common stock was 155. To date, we have not paid a cash dividend on our common stock and do not anticipate paying any cash dividends in the foreseeable future. Oursenior secured convertible term loan has covenants that prohibit the payment of dividends. All securities sold by us during the three years ended December 31, 2009, which were not registered under the Securities Act of 1933, as amended,have been previously reported in accordance with the requirements of Rule 12b-2 of the Securities Exchange Act of 1934, as amended. 12 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. STOCK PRICE PERFORMANCE The stock price performance graph below compares the cumulative total return of Cadiz common stock against the cumulative total return of theStandard & Poor’s Small Cap 600 NASDAQ U.S. index and the Russell 2000® index for the past five fiscal years. The graph indicates a measurement pointof December 31, 2004, and assumes a $100 investment on such date in Cadiz common stock, the Standard & Poor’s Small Cap 600 and the Russell 2000®indices. With respect to the payment of dividends, Cadiz has not paid any dividends on its common stock, but the Standard & Poor’s Small Cap 600 andthe Russell 2000® indices assume that all dividends were reinvested. The stock price performance graph shall not be deemed incorporated by reference by anygeneral statement incorporating by reference this annual report on Form 10-K into any filing under the Securities Act of 1933, as amended, except to the extentthat Cadiz specifically incorporates this graph by reference, and shall not otherwise be deemed filed under such acts. 13 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ITEM 6. Selected Financial Data The following selected financial data insofar as it relates to the years ended December 31, 2009, 2008, 2007, 2006, and 2005, has been derived fromour audited financial statements. The information that follows should be read in conjunction with the audited consolidated financial statements and notesthereto for the period ended December 31, 2009 included in Part IV of this Form 10-K. See also Item 7, "Management's Discussion and Analysis of FinancialCondition and Results of Operations". ($ in thousands, except for per share data) Year Ended December 31, 2009 2008 2007 2006 2005 Statement ofOperations Data: Total revenues $808 $992 $426 $614 $1,197 Net loss (14,399) (15,909) (13,633) (13,825) (23,025)Net lossapplicable to commonstock $(14,399)$(15,909)$(13,633)$(13,825)$(23,025)Per share: Net loss (basic anddiluted) $(1.13)$(1.32)$(1.15)$(1.21)$(2.14)Weighted-averagecommon sharesoutstanding 12,722 12,014 11,845 11,381 10,756 December 31, 2009 2008 2007 2006 2005 Balance Sheet Data: Total assets $50,319 $47,412 $49,572 $50,326 $46,046 Long-term debt $36,665 $33,975 $29,652 $25,881 $25,883 Preferred stock,common stockand additionalpaid-in capital $276,884 $263,658 $254,102 $245,322 $226,852 Accumulated deficit $(265,651)$(251,252) $(235,343)$(221,710)$(207,885)Stockholders'equity $11,233 $12,406 $18,759 $23,612 $18,967 On October 20, 2003, we and holders of Series D and Series E Preferred Stock entered into an agreement to exchange all outstanding shares of SeriesD and Series E Preferred Stock, plus accrued and unpaid dividends, for an aggregate of 400,000 shares of common stock. Holders of the remaining 100,000shares of Series F Preferred Stock, which was convertible into our common stock, were only entitled to dividends if common stock dividends are paid. At theholder’s election, 99,000 shares of Series F Preferred Stock were converted into our common stock in 2004, and the remaining 1,000 shares were converted in2007. On December 31, 2009, there were no shares of preferred stock issued or outstanding. Common shares issued and outstanding have increased from 11,330,463 in 2005 to 13,500,997 in 2009. The increase is primarily due to theissuance of shares to investors in private placements, the issuance of shares to investors upon the conversion of preferred stock and warrant exercises, and theissuance of shares to employees, vendors and lenders. 14 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the following discussion containstrend analysis and other forward-looking statements. Forward-looking statements can be identified by the use of words such as "intends","anticipates", "believes", "estimates", "projects", "forecasts", "expects", "plans" and "proposes". Although we believe that the expectations reflected inthese forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual resultsto differ materially from these forward-looking statements. These include, among others, our ability to maximize value from our land and waterresources and our ability to obtain new financings as needed to meet our ongoing working capital needs. See additional discussion under the heading"Risk Factors” above.Overview Our operations (and, accordingly, our working capital requirements) relate primarily to our water, agricultural, and renewable energy developmentactivities. Our primary asset consists of 45,000 acres of land in three areas of eastern San Bernardino County, California. Virtually all of this land isunderlain by high-quality groundwater resources that are suitable for a variety of uses, including water storage and supply programs. The advantages ofunderground water storage relative to surface storage include minimal surface environmental impacts, low capital investment, and minimal evaporative waterloss. The properties are located in proximity to the Colorado River and the Colorado River Aqueduct, the major source of imported water for SouthernCalifornia. The value of these assets derives from a combination of increasing pressure on water and renewable energy supplies in California. California ispresently facing a dire water crisis. Water agencies throughout California imposed mandatory rationing in 2009 in order to meet anticipateddemand. Additionally, through a series of policy initiatives, the State of California and the United States government have issued compelling calls forincreased renewable energy production in order to meet future national energy needs. This includes California’s mandate to acquire 33% of the state’s electricityfrom renewable sources by 2020. As a result, we believe that a competitive advantage exists for companies that can provide high-quality, reliable, andaffordable water to major population centers as well as for companies that can site renewable energy facilities. Our objective is to realize the highest and best use for these assets in an environmentally responsible way. We believe this can best be achievedthrough a combination of water supply and storage programs, sustainable agricultural development and the production of renewable energy at our properties.Water Resource Development In 1993, we secured permits for up to 9,600 acres of agricultural development in the Cadiz Valley and the withdrawal of more than one million acre-feet of groundwater from the underlying aquifer system. Once the agricultural development was underway, we also established that the location, geology andhydrology of this property is uniquely suited for both agricultural development and the development of an aquifer storage, recovery, and dry-year supplyproject to augment the water supplies available to Southern California. 15 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In 1997, we entered into the first of a series of agreements with the Metropolitan Water District of Southern California (“Metropolitan”) to jointlydesign, permit and build such a project (the “Cadiz Project” or “Project”). In general, several elements are needed to complete the development: (1) federal andstate environmental permits; (2) a pipeline right of way from the Colorado River Aqueduct to the project area; (3) a storage and supply agreement with one ormore public water agencies or private water utilities; and (4) construction and working capital financing. Between 1997 and 2002, we and Metropolitan received substantially all of the state and federal approvals required for the permits necessary toconstruct and operate the Project, including a Record of Decision (“ROD”) from the U.S. Department of the Interior, which endorsed the Cadiz Project andoffered a right-of-way for construction of project facilities. The ROD also approved a Final Environmental Impact Statement (“FEIS”) in compliance with theNational Environmental Policy Act (“NEPA”). In October 2002, Metropolitan’s staff brought the right-of-way matter before the Metropolitan Board of Directors. By a very narrow margin, theMetropolitan Board voted not to accept the right-of-way grant and not to proceed with the Project. In April 2003, we filed a claim against Metropolitan seeking compensatory damages. When settlement negotiations failed to produce a resolution, wefiled a lawsuit against Metropolitan in Los Angeles Superior Court on November 17, 2005, seeking compensatory damages for a breach of various contractualand fiduciary obligations to us, and interference with the economic advantage we would have obtained from the Cadiz Project. On February 11, 2009, we andMetropolitan agreed to settle our differences and dismissed all outstanding claims remaining against each other. In September 2008, we secured a new right-of-way for the Project’s water conveyance pipeline by entering into a lease agreement with the Arizona &California Railroad Company. The agreement allows Cadiz to utilize a portion of the railroad’s right-of-way for the Cadiz Project water conveyance pipeline fora period up to 99 years. In May 2009, we entered into a Memorandum of Understanding with the Natural Heritage Institute (“NHI”) a leading global environmentalorganization committed to protecting aquatic ecosystem, to assist with our efforts to sustainably manage the development of our Cadiz Valley property. As partof this “Green Compact” we will follow stringent plans for groundwater management and habitat conservation and create a groundwater management plan forthe Project. In June 2009, we executed Letters of Intent ("LOI") with five Southern California water providers. As part of the LOIs, Cadiz and the waterproviders will develop a cost-sharing agreement, finalize terms of pricing, design and capital allocation and work towards implementation of theProject. These providers serve more than three million customers in California’s San Bernardino, Riverside, Los Angeles, Orange and Ventura Counties. Weexpect to add additional participants for other aspects of the project as the environmental review proceeds. 16 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In February 2010, we released new details of a comprehensive year-long study measuring the vast scale and recharge rate of the Cadiz aquifersystem. The study was conducted by internationally recognized environmental consulting firm CH2M Hill at the Project area utilizing new models producedby the U.S. Geological Survey in 2006 and 2008. CH2M Hill and additional hydrology experts that have peer-reviewed the work confirmed the aquifersystem can sustainably support the Cadiz Project. With the hydrological studies complete, we will now proceed with the environmental review of the Project.Agricultural Development Within the Cadiz Valley property, 9,600 acres have been zoned for agriculture. The infrastructure includes seven wells that are interconnected withinthis acreage, with total annual production capacity of approximately 13,000 acre feet of water. Additionally, there are housing and kitchen facilities thatsupport up to 300 employees. The underlying groundwater, fertile soil, and desert temperatures are well suited for a wide variety of fruits and vegetables. Permanent crops currently in production include 160 acres of certified organic vineyards and 260 acres of lemons. Both of these crops are farmedusing sustainable agricultural practices. Additionally, we entered into an agreement with a third party to develop up to another 500 acres of lemons. Seasonal vegetable crops are all grown organically and 2010 plantings are expected to include squash and beans.Other Development Opportunities In addition to the development projects described above, we believe that our landholdings are suitable for other types of development, including solarenergy generation. Both federal and state initiatives support alternative energy facilities to reduce greenhouse gas emissions and the consumption of importedfossil fuels. The locations, topography, and proximity of our properties to utility corridors are well-suited for solar energy generation and transmission. Anadditional advantage we can offer is the availability of the water supply needed by solar thermal power plant designs. We are presently in discussions withenergy companies interested in utilizing our landholdings for various types of solar energy development. Over the longer term, we believe that the population of Southern California, Nevada, and Arizona will continue to grow, and that, in time, theeconomics of commercial and residential development of our properties will become attractive. We remain committed to our land and water assets and we continue to explore all opportunities for development of these assets. We cannot predictwith certainty which of these various opportunities will ultimately be utilized. 17 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Results of Operations(a) Year Ended December 31, 2009 Compared to Year Ended December 31, 2008 We have not received significant revenues from our water resource and real estate development activity to date. As a result, we continue to incur a netloss from operations. We had revenues of $0.8 million for the year ended December 31, 2009, and $1.0 million for the year ended December 31, 2008. Thedecrease in revenue is primarily due to a smaller raisin and lemon harvest in 2009 in comparison to 2008. The net loss totaled $14.4 million for the year endedDecember 31, 2009, compared with a net loss of $15.9 million for the year ended December 31, 2008. The larger loss in 2008 resulted primarily from highernon-cash expenses related to stock and option awards, and expenses related to our lawsuit against the Metropolitan Water District of Southern California thatwas settled in the first quarter of 2009. Our primary expenses are our ongoing overhead costs (i.e. general and administrative expense) and our interest expense. We will continue to incurnon-cash expenses in connection with our management and director equity incentive compensation plans. Revenues. Revenue totaled $0.8 million during the year ended December 31, 2009, compared to $1.0 million during the year ended December 31,2008. The decrease in revenue is primarily due to a smaller raisin and lemon harvest in 2009 in comparison to 2008. 2009 revenues included $0.6 million ofrevenues related to citrus crop sales, which were down $0.1 million from the prior year, and $0.2 million of revenues related to raisin sales, which were down$0.1 million from the prior year. Cost of Sales. Cost of Sales totaled $1.1 million during the year ended December 31, 2009, compared with $1.1 million during the year endedDecember 31, 2008. General and Administrative Expenses. General and administrative expenses during the year ended December 31, 2009, totaled $9.4 millioncompared with $11.2 million for the year ended December 31, 2008. Non-cash compensation costs related to stock and option awards are included in generaland administrative expenses. Compensation costs from stock and option awards for the year ended December 31, 2009 totaled $2.3 million compared with $4.4 million for theyear ended December 31, 2008. The expense reflects the vesting schedule of the 2007 Management Equity Incentive Plan stock awards that became effective inJuly 2007. Of these amounts, $1.2 million in 2009 and $3.1 million in 2008 relate to Milestone Based Deferred Stock, none of which were ultimatelyissued. Shares and options issued under the Plans vest over varying periods from the date of issue to January 2011. Other general and administrative expenses, exclusive of stock based compensation costs, totaled $7.2 million in the year ended December 31, 2009,compared with $6.8 million for the year ended December 31, 2008. Higher 2009 expenses were primarily due to additional legal and consulting fees related towater development efforts. Depreciation. Depreciation expenses totaled $0.3 million for the year ended December 31, 2009, compared to $0.3 million for 2008. Interest Expense, net. Net interest expense totaled $4.3 million during the year ended December 31, 2009, compared to $4.3 million during2008. The following table summarizes the components of net interest expense for the two periods (in thousands): 18 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Year EndedDecember 31, 2009 2008 Interest on outstanding debt $2,356 $2,033 Amortization of debt discount 1,937 2,299 Amortization of deferred loan costs 56 77 Interest income (35) (107) $4,314 $4,302 The interest on outstanding debt increased from $2.0 million to $2.4 million due to the increase in interest rate from 5% to 6% per annum on thesenior secured convertible term loan, while the amortization of debt discount decreased from $2.3 million to $1.9 million due to extension of the accretionschedule related to the conversion option embedded in the term loan. 2009 interest income decreased to $35 thousand from $107 thousand in the prior yeardue to lower short-term interest rates and a more conservative investment policy. Debt Refinancing. Deferred loan costs, which are primarily legal fees, are amortized over the life of each loan agreement. In June 2006, we refinancedour term loan with ING Capital LLC (“ING”) with a new senior secured convertible term loan with a different lender. As a result, $408,000 of legal fees werecapitalized and will be amortized over the 7 year life of the loan agreement. In June 2009, the conversion feature of the term loan was modified. As a result ofthe modification of the convertible debt arrangement, the change in conversion value between the original and modified instrument was approximately $1.6million, which was recorded as an additional debt discount. Such debt discount is accreted to the redemption value of the instrument over the remaining termof the loan as additional interest expense.(b) Year Ended December 31, 2008 Compared to Year Ended December 31, 2007 We had revenues of $1.0 million for the year ended December 31, 2008, and $0.4 million for the year ended December 31, 2007. The higher revenueswere due to a larger lemon and raisin harvest. The net loss totaled $15.9 million for the year ended December 31, 2008, compared with a net loss of $13.6million for the year ended December 31, 2007. The larger loss in 2008 resulted primarily from additional net interest expense of $1.1 million and additionalamortization expense related to stock based compensation of $0.8 million. Our primary expenses are our ongoing overhead costs (i.e. general and administrative expense) and our interest expense. We will continue to incurnon-cash expenses in connection with our management and director equity incentive compensation plans. Revenues. Revenue totaled $1.0 million during the year ended December 31, 2008, compared to $0.4 million during the year ended December 31,2007. 2008 revenues included $0.7 million of revenues related to citrus crop sales, which were up $0.3 million from the prior year and $0.3 million ofrevenues related to raisin sales compared with $0 in the prior year. Increased lemon revenues related to increased production following a freeze in 2007, andincreased raisin revenues related to our farming the vineyard in 2008 compared with it being leased to a third party in 2007. 19 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Cost of Sales. Cost of Sales totaled $1.1 million during the year ended December 31, 2008, compared with $0.6 million during the year endedDecember 31, 2007. The higher costs were a result of increased handling costs of lemons due to a larger crop in 2008 and the costs of growing raisins, whichwere leased to a third party in 2007. General and Administrative Expenses. General and administrative expenses during the year ended December 31, 2008, totaled $11.2 millioncompared with $10.0 million for the year ended December 31, 2007. Non-cash compensation costs related to stock and option awards are included in generaland administrative expenses. Compensation costs from stock and option awards for the year ended December 31, 2008, totaled $4.4 million compared with $3.6 million for theyear ended December 31, 2007. The expenses primarily relate to stock and options issued under the 2007 Management Equity Incentive Plans and the OutsideDirector Compensation Plan. 7,026 shares were granted under the Plans in 2008, compared with 954,599 shares in 2007. Shares and options issued underthe Plans vest over varying periods from the date of issue to December 2011. Other general and administrative expenses, exclusive of stock based compensation costs, totaled $6.8 million in the year ended December 31, 2008,compared with $6.4 million for the year ended December 31, 2007. Higher 2008 expenses were primarily due to additional legal and consulting fees related towater development efforts, including our lawsuit against The Metropolitan Water District of Southern California. Depreciation. Depreciation expenses totaled $0.3 million for the year ended December 31, 2008, compared to $0.3 million for 2007. Interest Expense, net. Net interest expense totaled $4.3 million during the year ended December 31, 2008, compared to $3.2 million during2007. Higher interest expense was primarily due to the amortization of the debt discount related to the senior secured convertible term loan arranged in June2006. 2008 interest income dropped to approximately $107,000 from approximately $605,000 in the prior year due to lower short-term interest rates. Thefollowing table summarizes the components of net interest expense for the two periods (in thousands): Year EndedDecember 31, 2009 2008 Interest on outstanding debt $2,033 $1,929 Amortization of debt discount 2,299 1,852 Amortization of deferred loan costs 77 62 Interest income (107) (605) $4,302 $3,238 Debt Refinancing. Deferred loan costs, which are primarily legal fees, are amortized over the life of each loan agreement. In June 2006, we refinancedour term loan with ING Capital LLC (“ING”) with a new senior secured convertible term loan with a different lender. As a result, $408,000 of legal fees werecapitalized and will be amortized over the 7 year life of the loan agreement. 20 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Other Income (expense). We had no other income (expense) in the year ended December 31, 2008, compared with $2,000 of losses on the dispositionof assets during the year ended December 31, 2007.Liquidity and Capital Resources(a) Current Financing Arrangements As we have not received significant revenues from our water resource, agricultural and renewable energy development activity to date, we have beenrequired to obtain financing to bridge the gap between the time water resource and other development expenses are incurred and the time that revenue willcommence. Historically, we have addressed these needs primarily through secured debt financing arrangements, private equity placements and the exercise ofoutstanding stock options and warrants. We have worked with our secured lenders to structure our debt in a way which allows us to continue development of the Cadiz Project and minimizethe dilution of the ownership interests of common stockholders. In June 2006, we entered into a new $36.4 million five year zero coupon senior securedconvertible term loan with Peloton Partners LLP (through an affiliate) and another lender (the “Term Loan”). On April 16, 2008, we were advised that Pelotonhad assigned its interest in the Term Loan to an affiliate of Lampe Conway & Company LLC (“Lampe Conway”), and Lampe Conway subsequentlyreplaced Peloton as administrative agent of the loan. On June 4, 2009, we completed arrangements to amend the Term Loan. The significant terms of theamendment are as follows:· Maturity date was extended from June 29, 2011, to June 29, 2013;· Interest will continue to accrue at 6% per annum through maturity;· The conversion feature has been modified to allow up to $4.55 million of principal to be converted into 650,000 shares of Cadiz common stock(“Initial Conversion Portion”) at a conversion price of $7 per share, and the remaining principal and interest to be converted into shares of Cadizcommon stock at a conversion price of $35 per share. If fully converted at June 29, 2013, this would result in Cadiz common stock beingissued at an average conversion price of $26 per share; and· We now have the right at any time prior to June 29, 2013 to prepay the loan's outstanding principal (other than as to the Initial ConversionPortion) plus all accrued interest in full without penalty, and may at the same time prepay the Initial Conversion Portion either in stock at a110% conversion premium or, at the election of the lenders, in cash with an equal value (but not less than $4.55 million). The Term Loan is collateralized by substantially all of the assets of the Company, which contains representations, warranties and covenants that aretypical for agreements of this type, including restrictions that would limit the Company’s ability to incur additional indebtedness, incur liens, pay dividendsor make restricted payments, dispose of assets, make investments and merge or consolidate with another person. However, while there are affirmativecovenants, there are no financial maintenance covenants and no restrictions on the Company’s ability to issue additional common stock to fund futureworking capital needs. 21 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. As a result of the modification of the convertible debt arrangement, the change in conversion value between the original and modified instrument ofapproximately $1.6 million was recorded as an additional debt discount. Such debt discount is accreted to the redemption value of the instrument over theremaining term of the loan as additional interest expense. The debt covenants associated with the loan were negotiated by the parties with a view towards our operating and financial condition as it existed atthe time the agreements were executed. At December 31, 2009, we were in compliance with our debt covenants. A private placement which we completed in November 30, 2004, included the issuance of warrants to purchase shares of our common stock at anexercise price of $15.00 per share. During 2006, holders of 70,000 of the warrants exercised their warrants, resulting in our issuance of 70,000 shares ofcommon stock with net proceeds of $1,050,000. In January 2007, we exercised our right to terminate all unexercised warrants on March 2, 2007, subject to a30 day notice period. In response, holders of all 335,440 warrants then outstanding exercised their warrants during February 2007. As a result, we issued335,440 shares of our common stock and received net proceeds of $5,031,000. Following these exercises, no warrants from this 2004 private placementremain outstanding. In November and December of 2008, we completed a private placement of 165,000 Units at the price of $31.50 per unit for proceeds of$5,197,500. Each Unit consists of three (3) shares of our common stock and two (2) common stock purchase warrants. The first warrant entitled theholder to purchase one (1) share of common stock at an exercise price of $12.50 per share. On November 17, 2009, the exercise price of this CallableWarrant was temporarily reduced to $10.50 per share. In response, holders of 162,849 warrants exercised their warrants, resulting in our issuance of162,849 shares of common stock with net proceeds of $1,709,915. The remaining 2,151 warrants were cancelled. The second warrant entitles the holderto purchase one (1) share of common stock at an exercise price of $12.50 per share. This warrant has a term of three years and is not callable by us. In October 2009, the Company raised $7.1 million with a private placement of 226,200 Units at $31.50 per Unit. This includes 20,880 Unitspurchased by the Lenders of the Term Loan pursuant to the Lenders’ Participation Rights under the Term Loan. Each Unit consists of three (3) shares of theCompany’s common stock and one (1) stock purchase warrant. The warrant entitles the holder to purchase one (1) share of common stock at an exerciseprice of $15.00 per share. The warrant has a term of three (3) years, but is callable by the Company at any time following November 1, 2010, if the closingmarket price of the Company’s common stock exceeds $22.50 for 10 consecutive trading days. As we continue to actively pursue our business strategy, additional financing will be required. See “Outlook”, below. The covenants in the TermLoan do not prohibit our use of additional equity financing and allow us to retain 100% of the proceeds of any equity financing. We do not expect the loancovenants to materially limit our ability to finance our water development activities. At December 31, 2009, we had no outstanding credit facilities other than the Convertible Term Loan. 22 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Cash Used for Operating Activities. Cash used for operating activities totaled $6.4 million for the year ended December 31, 2009, and $7.1million for the year ended December 31, 2008. The cash was primarily used to fund general and administrative expenses related to our water developmentefforts. Cash Provided by (Used for) Investing Activities. Cash provided by investing activities in the year ended December 31, 2009, was $4.4 million,compared with $4.8 million of cash used for investing activities during the same period in 2008. The 2009 period included $4.5 million of short-termdeposits that matured, which were not considered cash equivalents in 2008. Cash Provided by Financing Activities. Cash provided by financing activities totaled $8.9 million for the year ended December 31, 2009, comparedwith $5.1 million for the year ended December 31, 2008. The 2009 cash provided included $1.7 million of proceeds from the issuance of 162,849 shares ofcommon stock at $10.50 per share upon exercise of outstanding warrants, and $7.1 million of proceeds from a private placement. The 2008 result reflects$5.1 million of proceeds from a private placement. See “Current Financing Arrangements” above.(b) Outlook Short Term Outlook. The $7.1 million in proceeds from our October and November 2009 private placement, along with the $1.7 million inproceeds from the warrant exercise, provides us with sufficient funds to meet our expected working capital needs for the next 12 months. Within the next 12months we will need to identify financing for our 2011 working capital needs. Based on our current and anticipated usage of cash resources, we will continueto require additional working capital to meet our cash resource needs until such time as our asset development programs produce revenue. If we are unable togenerate this from our current development activities, then we will need to seek additional equity financing in the capital markets. We expect to continue ourhistorical practice of structuring our financing arrangements to match the anticipated needs of our development activities. See "Long Term Outlook",below. No assurances can be given, however, as to the availability or terms of any new financing. Long Term Outlook. In the longer term, we will need to raise additional capital to finance working capital needs, capital expenditures and anypayments due under our senior secured convertible term loan at maturity. See “Current Financing Arrangements” above. Payments will be due under the termloan only to the extent that lenders elect not to exercise equity conversion rights prior to the loan’s final maturity date. Our future working capital needs willdepend upon the specific measures we pursue in the entitlement and development of our water resources and other development. Future capital expenditureswill depend primarily on the progress of the Cadiz Project. We will evaluate the amount of cash needed, and the manner in which such cash will be raised, onan ongoing basis. We may meet any future cash requirements through a variety of means, including equity or debt placements, or through the sale or otherdisposition of assets. Equity placements would be undertaken only to the extent necessary, so as to minimize the dilutive effect of any such placements uponour existing stockholders. Limitations on our liquidity and ability to raise capital may adversely affect us. Sufficient liquidity is critical to meet our resourcedevelopment activities. However, liquidity in the currently dislocated capital markets has been severely constrained since the beginning of the creditcrisis. Although we currently expect our sources of capital to be sufficient to meet our near term liquidity needs, there can be no assurance that our liquidityrequirements will continue to be satisfied. If the Company cannot raise needed funds, it might be forced to make substantial reductions in its operatingexpenses, which could adversely affect its ability to implement its current business plan and ultimately its viability as a company. 23 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (c) Critical Accounting Policies As discussed in Note 2 to the Consolidated Financial Statements of Cadiz, the preparation of financial statements in conformity with accountingprinciples generally accepted in the United States requires management to make estimates and assumptions that affect amounts reported in the accompanyingconsolidated financial statements and related footnotes. In preparing these financial statements, management has made its best estimates and judgments ofcertain amounts included in the financial statements based on all relevant information available at the time and giving due consideration to materiality. We donot believe there is a great likelihood that materially different amounts would be reported related to the accounting policies described below. However,application of these policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differfrom these estimates. Management has concluded that the following critical accounting policies described below affect the most significant judgments andestimates used in the preparation of the consolidated financial statements. (1) Intangible and Other Long-Lived Assets. Property, plant and equipment, intangible and certain other long-lived assets are depreciated oramortized over their useful lives. Useful lives are based on management’s estimates of the period over which the assets will generate revenue. Long-livedassets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. TheCompany reevaluates the carrying value of its water program annually and has confirmed that the carrying value of the water program is not impaired as ofDecember 31, 2009. (2) Goodwill. As a result of a merger in May 1988 between two companies, which eventually became known as Cadiz Inc., goodwill in the amountof $7,006,000 was recorded. Approximately $3,193,000 of this amount was amortized until the adoption of Accounting Standards Codification 350,“Intangibles – Goodwill and Other” (“ASC 350”) on January 1, 2002. Goodwill is tested for impairment annually, or if events occur which require animpairment analysis be performed. The Company has confirmed that the carrying value of the goodwill is not impaired as of December 31, 2009. (3) Deferred Tax Assets and Valuation Allowances. To date, the Company has not generated significant revenue from its water developmentprograms, and it has a history of net operating losses. As such, the Company has generated significant deferred tax assets, including large net operating losscarry forwards for federal and state income taxes for which it has recorded a full valuation allowance. Management is currently working on water and realestate development projects, including the Cadiz Project, that are designed to generate future taxable income, although there can be no guarantee that this willoccur. If taxable income is generated in future years, some portion or all of the valuation allowance will be reversed, and an increase in net income wouldconsequently be reported. 24 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (d) New Accounting Pronouncements See Note 2 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies”.(e) Off Balance Sheet Arrangements Cadiz does not have any off balance sheet arrangements at this time. (f) Certain Known Contractual Obligations Payments Due by Period Contractual Obligations Total Less than 1year 1-3 years 4-5 years After 5 years Long term debt obligations $43,672 $20 $20 $43,632 $- Interest payable 10,254 1 0 10,253 - Operating leases 716 366 350 - - $54,642 $387 $370 $53,885 $- Long-term debt included in the table above primarily reflects the Convertible Term Loan, which is described above in Item 7, "Management’sDiscussion and Analysis of Financial Condition and Results of Operation; Liquidity and Capital Resources". Operating leases include the lease of theCompany’s executive offices, as described in Item 2, "Properties". Not included in the table above is a potential obligation to pay an amount of up to 1% of the net present value of the Cadiz Project in consideration ofcertain legal and advisory services to be provided to us. This fee would be payable upon completion of binding agreements for at least 51% of the CadizProject’s annual capacity and receipt of all environmental approvals and permits necessary to start construction of the Cadiz Project. A portion of this fee maybe payable in stock. Interim payments of $1.5 million, applicable to the final total, would be made upon the achievement of certain specifiedmilestones. $500 thousand of these interim payments was earned in June 2009 and paid as of December 31, 2009. This arrangement may be terminated byeither party upon 60 days notice, with any compensation earned but unpaid prior to termination payable following termination.ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk As of December 31, 2009, all of our indebtedness bore interest at fixed rates; therefore, we are not exposed to market risk from changes in interestrates on long-term debt obligations. ITEM 8. Financial Statements and Supplementary Data The information required by this item is submitted in response to Part IV below. See the Index to Consolidated Financial Statements. 25 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. ITEM 9A. Controls and Procedures Disclosure Controls and Procedures We have established disclosure controls and procedures to ensure that material information related to the Company, including its consolidatedentities, is accumulated and communicated to senior management, including the Chairman and Chief Executive Officer (the “Principal Executive Officer”) andChief Financial Officer (the “Principal Financial Officer”) and to our Board of Directors. Based on their evaluation as of December 31, 2009, our PrincipalExecutive Officer and Principal Financial Officer have concluded that the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934) are effective to ensure that the information required to be disclosed by the Company in the reports that itfiles or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securitiesand Exchange Commission rules and forms, and such information is accumulated and communicated to management, including the principal executive andprincipal financial officers as appropriate, to allow timely decisions regarding required disclosures. Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined inExchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our Principal Executive Officer and PrincipalFinancial Officer, we evaluated the effectiveness of our internal control over financial reporting based on the criteria in the Internal Control-IntegratedFramework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under that framework, ourmanagement concluded that our internal control over financial reporting was effective as of December 31, 2009. The effectiveness of our internal control overfinancial reporting as of December 31, 2009, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated intheir report which is included herein. Changes in Internal Control Over Financial Reporting In connection with the evaluation required by paragraph (d) of Rule 13a-15 under the Exchange Act, there was no change identified in the Company'sinternal control over financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, theCompany's internal control over financial reporting. 26 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ITEM 9B. Other Information Our 2009 annual meeting was held on December 14, 2009. The stockholders took the following actions at the meeting: 1. Elected Messrs. Keith Brackpool, Stephen E. Courter, Stephen J. Duffy, Geoffrey Grant, Winston H. Hickox, Murray H. Hutchison, RaymondJ. Pacini and Timothy J. Shaheen to the Company's Board of Directors. Mr. Brackpool was elected by the vote of 7,151,558 shares in favor and 729,539withheld and no broker non-votes. Mr. Courter was elected by the vote of 7,152,334 shares in favor and 728,763 withheld and no broker non-votes. Mr.Duffy was elected by the vote of 7,152,374 shares in favor and 728,723 withheld and no broker non-votes. Mr. Grant was elected by the vote of 7,151,505shares in favor and 729,592 withheld and no broker non-votes. Mr. Hickox was elected by the vote of 7,152,372 shares in favor and 728,725 withheld andno broker non-votes. Mr. Hutchison was elected by the vote of 6,956,470 shares in favor and 924,627 withheld and no broker non-votes. Mr. Pacini waselected by the vote of 7,152,297 shares in favor and 728,800 withheld and no broker non-votes. Mr. Shaheen was elected by the vote of 6,962,132 shares infavor and 918,965 withheld and no broker non-votes. 2. Ratified the selection by our Board of Directors of PricewaterhouseCoopers LLP to continue as our independent certified public accountants forfiscal year 2009 by a vote of 7,790,170 in favor and 72,434 against, with 18,493 abstaining and no broker non-votes. 3. Approved the Company’s 2009 Equity Incentive Plan by a vote of 4,161,190 in favor and 2,287,560 against, with 7,347 abstaining and1,425,000 broker non-votes. 27 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. PART III ITEM 10. Directors, Executive Officers and Corporate Governance The information called for by this item is incorporated herein by reference to the definitive proxy statement involving the election of directors whichwe intend to file with the SEC pursuant to Regulation 14A under the Securities and Exchange Act of 1934 not later than 120 days after December 31, 2009.ITEM 11. Executive Compensation The information called for by this item is incorporated herein by reference to the definitive proxy statement involving the election of directors whichwe intend to file with the SEC pursuant to Regulation 14A under the Securities and Exchange Act of 1934 not later than 120 days after December 31, 2009. ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information called for by this item is incorporated herein by reference to the definitive proxy statement involving the election of directors whichwe intend to file with the SEC pursuant to Regulation 14A under the Securities and Exchange Act of 1934 not later than 120 days after December 31, 2009.ITEM 13. Certain Relationships and Related Transactions, and Director Independence The information called for by this item is incorporated herein by reference to the definitive proxy statement involving the election of directors whichwe intend to file with the SEC pursuant to Regulation 14A under the Securities and Exchange Act of 1934 not later than 120 days after December 31, 2009.ITEM 14. Principal Accounting Fees and Services The information called for by this item is incorporated herein by reference to the definitive proxy statement involving the election of directors whichwe intend to file with the SEC pursuant to Regulation 14A under the Securities and Exchange Act of 1934 not later than 120 days after December 31, 2009. 28 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. PART IVITEM 15. Exhibits, Financial Statement Schedules 1.Financial Statements. See Index to Consolidated Financial Statements. 2.Financial Statement Schedule. See Index to Consolidated Financial Statements. 3.Exhibits.The following exhibits are filed or incorporated by reference as part of this Form 10-K. 3.1Cadiz Certificate of Incorporation, as amended(1) 3.2Amendment to Cadiz Certificate of Incorporation dated November 8, 1996(2) 3.3Amendment to Cadiz Certificate of Incorporation dated September 1, 1998(3) 3.4Amendment to Cadiz Certificate of Incorporation dated December 15, 2003(4) 3.5Certificate of Elimination of Series D Preferred Stock, Series E-1 Preferred Stock and Series E-2 Preferred Stock of Cadiz Inc. datedDecember 15, 2003(4) 3.6Certificate of Elimination of Series A Junior Participating Preferred Stock of Cadiz Inc., dated March 25, 2004(4) 3.7Amended and Restated Certificate of Designations of Series F Preferred Stock of Cadiz Inc.(5) 3.8Cadiz Bylaws, as amended (6) 3.9Second Amended and Restated Certificate of Designations of Series F Preferred Stock of Cadiz Inc. dated June 30, 2006, as correctedby Certificate of Correction dated March 14, 2007(14) 3.10Certificate of Elimination of Series F Preferred Stock of Cadiz Inc. (as filed August 3, 2007)(16) 4.1Form of Subscription Agreement used for issuance of Units in November 2008(7) 4.2Form of Subscription Agreement used for issuance of Units in December 2008(7) 4.3Form of Warrant Agreement (Callable Warrant)(7) 29 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 4.4Form of Warrant Agreement (Non-Callable)(7) 4.5Form of Subscription Agreement used for issuance of Units in October and November 2009(8) 4.6Form of Warrant Agreement(8) 10.1Limited Liability Company Agreement of Cadiz Real Estate LLC dated December 11, 2003(4) 10.2Amendment No. 1, dated October 29, 2004, to Limited Liability Company Agreement of Cadiz Real Estate LLC(9) 10.3Consulting Agreement dated August 1, 2002 by and between Richard Stoddard and Cadiz Inc., and Extension of ConsultingAgreement dated January 1, 2004 by and between Richard Stoddard and Cadiz Inc.(9) 10.4Settlement Agreement dated as of August 11, 2005 by and between Cadiz Inc., on the one hand, and Sun World International, Inc.,Sun Desert, Inc., Coachella Growers and Sun World/Rayo, on the other hand(10) 10.5$36,375,000 Credit Agreement among Cadiz Inc. and Cadiz Real Estate LLC, as Borrowers, the Several Lenders from time to timeparties thereto, and Peloton Partners LLP, as Administrative Agent, dated as of June 26, 2006(11) 10.6Amendment No. 1 dated September 29, 2006 to the $36,375,000 Credit Agreement among Cadiz Inc. and Cadiz Real Estate LLC,as Borrowers, the Several Lenders from time to time parties thereto and Peloton Partners LLP, as Administrative Agent, dated as ofJune 26, 2006(12) 10.7Outside Director Compensation Plan(13) 10.8Resolutions adopted by the Cadiz Inc. Board of Directors on March 13, 2007, increasing the monthly consulting fees paid toRichard E. Stoddard(14) 10.92007 Management Equity Incentive Plan(15) 10.10Amendment No. 2 dated October 1, 2007 to Reorganization Plan and Agreement for Purchase and Sale of Assets dated as ofFebruary 18, 1998 among Cadiz Inc. and Mark A. Liggett in his capacity as successor in interest to Exploration ResearchAssociates, Incorporated., a California corporation (“ERA”) and in his individual capacity as former sole shareholder of ERA andas the successor in interest to ERA(17) 10.11Longitudinal Lease Agreement dated September 17, 2008 between Arizona & California Railroad Company and Cadiz Real Estate,LLC(18) 30 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 10.12Amended and Restated Employment Agreement between Keith Brackpool and Cadiz Inc. dated May 22, 2009(19) 10.13Employment Agreement between Timothy J. Shaheen and Cadiz Inc. dated May 22, 2009(19) 10.14Amendment No. 2 to the Credit Agreement among Cadiz Inc. and Cadiz Real Estate LLC, as Borrowers, the Several Lenders fromtime to time parties thereto, and LC Capital Master Fund Ltd., as Administrative Agent, dated as of June 4, 2009(20) 10.152009 Equity Incentive Plan(21) 10.16Letter of Intent with Golden State Water Company dated June 1, 2009(8) 10.17Services and Exclusivity Agreement with Layne Christensen Company dated November 2, 2009, as amended by amendments datedJanuary 4, 2010, and January 27, 2010. 21.1Subsidiaries of the Registrant 23.1Consent of Independent Registered Public Accounting Firm 31.1Certification of Keith Brackpool, Chairman and Chief Executive Officer of Cadiz Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2Certification of Timothy J. Shaheen, Chief Financial Officer and Secretary of Cadiz Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1Certification of Keith Brackpool, Chairman and Chief Executive Officer of Cadiz Inc. pursuant to 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2Certification of Timothy J. Shaheen, Chief Financial Officer and Secretary of Cadiz Inc. pursuant to 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002________________________________________________________________________ (1)Previously filed as an Exhibit to our Registration Statement of Form S-1 (Registration No. 33-75642) declared effective May 16, 1994 filed on February23, 1994 (2)Previously filed as an Exhibit to our Report on Form 10-Q for the quarter ended September 30, 1996 filed on November 14, 1996 (3)Previously filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 filed on November 13, 1998 (4)Previously filed as an Exhibit to our Annual Report on Form 10-K for the year ended December 31, 2003 filed on November 2, 2004 31 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (5)Previously filed as an Exhibit to our Current Report on Form 8-K dated November 30, 2004 filed on December 2, 2004 (6)Previously filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 filed on August 13, 1999 (7)Previously filed as an Exhibit to Amendment No.1 to our Registration Statement on Form S-3 (Registration No. 333-156502) filed on January 27, 2009 (8)Previously filed as an Exhibit to our Registration Statement on Form S-3 (Registration No. 333-163321) filed on November 24, 2009 (9)Previously filed as an Exhibit to our Annual Report on Form 10-K for the fiscal year ended December 31, 2004 filed on March 31, 2005 (10)Previously filed as an Exhibit to our Report on Form 10-Q for the quarter ended September 30, 2005 filed on November 14, 2005 (11)Previously filed as an Exhibit to our registration statement on Form S-3 (Registration No. 333-126117) filed on July 28, 2006 (12)Previously filed as an Exhibit to our current report on Form 8-K dated October 4, 2006 and filed October 4, 2006 (13)Previously filed as Appendix B to our definitive proxy dated October 10, 2006 and filed October 10, 2006 (14)Previously filed as an Exhibit to our Annual Report on Form 10-K for the fiscal year ended December 31, 2006 filed on March 16, 2007 (15)Previously filed as Appendix A to our definitive proxy dated April 27, 2007 and filed April 27, 2007 (16)Previously filed as an Exhibit to our Report on Form 10-Q for the quarter ended June 30, 2007 filed on August 6, 2007 (17)Previously filed as an Exhibit to our Annual Report on Form 10-K for the fiscal year ended December 31, 2007 filed on March 14, 2008 (18)Previously filed as an Exhibit to our Report on Form 10-Q for the quarter ended September 30, 2008 on November 10, 2008 (19)Previously filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2009, filed on August 10, 2009 (20)Previously filed as an Exhibit to the Post-Effective Amendment No. 1 to our Registration Statement on Form S-3 (Registration No. 333-136117) filed onAugust 3, 2009 (21)Previously filed as Appendix A to our definitive proxy dated November 3, 2009, and filed on November 5, 2009 32 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. CADIZ INC.INDEX TO FINANCIAL STATEMENTS CADIZ INC. CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm34 Consolidated Statements of Operations for the three years ended December 31, 200936 Consolidated Balance Sheets as of December 31, 2009 and 200837 Consolidated Statements of Cash Flows for the three years ended December 31, 200938 Consolidated Statements of Stockholders’ Equity for the three years ended December 31, 200939 Notes to the Consolidated Financial Statements40 Financial Statement Schedule66 (Schedules other than those listed above have been omitted since they are either not required, inapplicable, or the required information is included on thefinancial statements or notes thereto.) 33 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Report of Independent Registered Public Accounting FirmTo the Board of Directors and Stockholders of Cadiz Inc.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, cash flows, and stockholder's equitypresent fairly, in all material respects, the financial position of Cadiz Inc. and its subsidiaries at December 31, 2009 and December 31, 2008 and the results oftheir operations and their cash flows for each of the three years in the period ended December 31, 2009 in conformity with accounting principles generallyaccepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index appearing under Item15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financialstatements. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31,2009, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the TreadwayCommission (COSO). The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effectiveinternal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Reporton Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financialstatement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordancewith the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits toobtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financialreporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amountsand disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating theoverall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control overfinancial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal controlbased on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that ouraudits provide a reasonable basis for our opinions.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting andthe preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control overfinancial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflectthe transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 34 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.PricewaterhouseCoopers LLPLos Angeles, CaliforniaMarch 15, 2010 35 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. CADIZ INC.CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, (In thousands, except per share data) 2009 2008 2007 Total revenues $808 $992 $426 Costs and expenses: Cost of sales (exclusive of depreciation shown below) 1,102 1,098 566 General and administrative 9,445 11,154 9,988 Depreciation 342 341 261 Total costs and expenses 10,889 12,593 10,815 Operating loss (10,081) (11,601) (10,389) Interest expense, net (4,314) (4,302) (3,238)Other expense - - (2 ) Other expense, net (4,314) (4,302) (3,240) Net loss before income taxes (14,395) (15,903) (13,629) Income tax expense 4 6 4 Net loss applicable to common stock $(14,399) $(15,909) $(13,633) Basic and diluted net loss per share $(1.13) $(1.32) $(1.15) Weighted-average shares outstanding 12,722 12,014 11,845 See accompanying notes to the consolidated financial statements. 36 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. CADIZ INC.CONSOLIDATED BALANCE SHEETS December 31, ($ in thousands) 2009 2008 ASSETS Current assets: Cash and cash equivalents $8,878 $2,014 Short-term investments - 4,500 Accounts Receivable 175 66 Prepaid expenses and other 362 507 Total current assets 9,415 7,087 Property, plant, equipment and water programs, net 36,613 35,784 Goodwill 3,813 3,813 Other assets 478 728 Total assets $50,319 $47,412 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $499 $247 Accrued liabilities 829 559 Current portion of long term debt 20 9 Total current liabilities 1,348 815 Long-term debt 36,665 33,975 Tax liability 321 216 Other long-term liabilities 752 - Total liabilities 39,086 35,006 Commitments and contingencies (Note 12) Stockholders' equity: Common stock - $0.01 par value; 70,000,000 shares authorized; shares issued and outstanding: 13,500,997 at December 31, 2009, and 12,453,210 at December 31, 2008 135 125 Additional paid-in capital 276,749 263,533 Accumulated deficit (265,651) (251,252)Total stockholders' equity 11,233 12,406 Total liabilities and stockholders' equity $50,319 $47,412 See accompanying notes to the consolidated financial statements. 37 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. CADIZ INC.CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, ($ in thousands) 2009 2008 2007 Cash flows from operating activities: Net loss $(14,399) $(15,909) $(13,633)Adjustments to reconcile net loss to net cash Used for operating activities: Depreciation 342 341 261 Amortization of deferred loan costs 56 77 62 Amortization of debt discount 1,937 2,299 1,852 Interest added to loan principal 2,356 2,033 1,928 Net loss on disposal of assets - - 2 Compensation charge for stock awards and share options 2,273 4,358 3,609 Issuance of stock for services 500 135 - Changes in operating assets and liabilities: (Increase) decrease in accounts receivable (109) (46) 281 Decrease (increase) in prepaid expenses and other 145 (291) 27 Decrease in other assets 194 - - Increase (decrease) increase in accounts payable 252 (161) (36)(Decrease) increase in accrued liabilities (30) 27 371 Increase (decrease) in tax liability 105 4 (7) Net cash used for operating activities (6,378) (7,133) (5,283) Cash flows from investing activities: Investments in short-term deposits - (4,500) (8,819)Additions to property, plant and equipment (119) (93) (1,105)Proceeds from sale of marketable securities 4,500 - 8,819 Other assets - (235) (250) Net cash provided by (used for) investing activities 4,381 (4,828) (1,355) Cash flows from financing activities: Proceeds from exercise of stock options - - 139 Net proceeds from issuance of common stock 8,835 5,063 5,032 Proceeds from issuance of long-term debt 46 - - Principal payments on long-term debt (20) (9) (9) Net cash provided by financing activities 8,861 5,054 5,162 Net increase (decrease) in cash and cash equivalents 6,864 (6,907) (1,476) Cash and cash equivalents, beginning of period 2,014 8,921 10,397 Cash and cash equivalents, end of period $8,878 $2,014 $8,921 See accompanying notes to the consolidated financial statement. 38 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.CADIZ INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For the Years Ended December 31, 2009, 2008, and 2007 ($ in thousands) Additional Total Preferred Stock Common Stock Paid-in Accumulated Stockholders’ Shares Amount Shares Amount Capital Deficit Equity Balance as of December31, 2006 1,000 $- 11,536,597 $116 $245,206 $(221,710) $23,612 Issuance of sharespursuant to warrantexercise - - 335,440 3 5,029 - 5,032 Issuance of sharespursuant to stockawards and optionexercise - - 14,285 - 139 - 139 Issuance of shares uponconversion of SeriesF Preferred Stock (1,000) - 17,289 - - - - Stock compensationexpense - - - - 3,609 - 3,609 Net loss - - - - - (13,633) (13,633)Balance as of December31, 2007 - $- 11,903,611 $119 $253,983 $(235,343) $18,759 Issuance of sharespursuant to stockawards - - 54,599 1 - - 1 Issuance of sharespursuant to PrivatePlacement - - 495,000 5 5,192 - 5,197 Stock compensationexpense - - - - 4,358 - 4,358 Net loss - - - - - (15,909) (15,909)Balance as of December31, 2008 - $- 12,453,210 $125 $263,533 $(251,252) $12,406 Issuance of sharespursuant to stockawards - - 147,026 1 - - 1 Issuance of sharespursuant towarrant exercises andPrivate Placement - - 841,449 8 8,827 - 8,835 Issuance of commonstock for services - - 59,312 1 499 - 500 Convertible term loanconversion option - - - - 1,617 - 1,617 Stock compensationexpense - - - - 2,273 - 2,273 Net loss - - - - - (14,399) (14,399)Balance as of December31, 2009 - $- 13,500,997 $135 $276,749 $(265,651) $11,233 See accompanying notes to the consolidated financial statements.39 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. CADIZ INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTE 1 – DESCRIPTION OF BUSINESS The Company’s primary asset consists of 45,000 acres of land in three areas of eastern San Bernardino County, California. Virtually all of thisland is underlain by high-quality groundwater resources that are suitable for a variety of water storage and supply programs. The advantages of undergroundstorage relative to surface storage include minimal surface environmental impacts, low capital investment, and minimal evaporative water loss. The propertiesare located in proximity to the Colorado River and the Colorado River Aqueduct, the major source of imported water for Southern California. The value of these assets derives from a combination of increasing pressure on water and renewable energy supplies in California. California ispresently facing a dire water crisis. Water agencies throughout California imposed mandatory rationing in 2009 in order to meet anticipateddemand. Additionally, through a series of policy initiatives, the State of California and the United States government have issued compelling calls forincreased renewable energy production in order to meet future national energy needs. This includes California’s mandate to acquire 33% of the state’s electricityfrom renewable sources by 2020. As a result, the Company believes that a competitive advantage exists for companies that can provide high-quality, reliable,and affordable water to major population centers as well as for companies that can site renewable energy facilities. The Company’s objective is to realize the highest and best use for these assets in an environmentally responsible way. The Company believes thiscan best be achieved through a combination of water supply and storage programs, sustainable agricultural development and the production of renewableenergy at the Cadiz properties. In 1993, Cadiz acquired permits for up to 9,600 acres of agricultural development in the Cadiz Valley and the withdrawal of more than one millionacre-feet of groundwater from the aquifer system underlying the property. The Company believes that the location, geology and hydrology of this property isuniquely suited for both agriculture and the development of an aquifer storage, recovery and supply program to augment the water supplies available toSouthern California. To this end, in 1997, Cadiz entered into the first of a series of agreements with the Metropolitan Water District of Southern California(“Metropolitan”) to jointly design, permit and build such a project (the “Cadiz Project” or “Project”). In general, several elements are needed to complete thedevelopment: (1) federal and state environmental permits; (2) a pipeline right-of-way from the Colorado River Aqueduct to the project area; (3) a storage andsupply agreement with one or more public water agencies or private water utilities; and (4) construction and working capital financing. Between 1997 and 2002, Cadiz and Metropolitan received substantially all of the state and federal approvals required for the permits necessary toconstruct and operate the Project, including a Record of Decision (“ROD”) from the U.S. Department of the Interior, which endorsed the Cadiz Project andoffered a right-of-way for construction of project facilities. The ROD also approved a Final Environmental Impact Statement (“FEIS”) in compliance with theNational Environmental Policy Act (“NEPA”). 40 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In October 2002, Metropolitan’s staff brought the right-of-way matter before the Metropolitan Board of Directors. By a very narrow margin, theMetropolitan Board voted not to accept the right-of-way grant and not to proceed with the Project. In April 2003, Cadiz filed a claim against Metropolitan seeking compensatory damages. When settlement negotiations failed to produce a resolution,Cadiz filed a lawsuit against Metropolitan in Los Angeles Superior Court on November 17, 2005, seeking compensatory damages for a breach of variouscontractual and fiduciary obligations to us, and interference with the economic advantage we would have obtained from the Cadiz Project. On February 11,2009, Cadiz and Metropolitan agreed to settle our differences and dismissed all outstanding claims remaining against each other. Meanwhile, the need for new water storage and dry-year supplies has not abated. The population of California continues to grow, while watersupplies are being challenged by drought, lack of infrastructure and environmental protections. Indeed, California is facing the very real possibility thatcurrent and future supplies of water will not be able to meet demand. Moreover, cities throughout Southern California have endured dry local conditions forthree years leaving supplies in storage at perilously low levels, while Colorado River deliveries to the State have remained at average levels. These conditions have greatly challenged California’s water supplies. Approximately 49 water agencies throughout California have imposedmandatory rationing in 2009 in order to meet anticipated demand and at least 60 water agencies have imposed voluntary conservation measures. Policy leadersand lawmakers have introduced legislation to improve the State’s water infrastructure and are pursuing public financing for new storage and supply projects. To meet the growing demand for new water storage and supplies, the Company has continued to pursue the implementation of the Cadiz Project. In addition to agriculture and water development, the Company believes that its landholdings are suitable for other types of development, includingsolar energy generation. Both federal and state initiatives support alternative energy facilities to reduce greenhouse gas emissions and the consumption ofimported fossil fuels. The locations, topography, and proximity of the Company’s properties to utility corridors are well-suited for solar energy generation. Anadditional advantage the Company can provide is the availability of the water supply needed by solar thermal power plant designs. The Company is presentlyin discussions with energy companies interested in utilizing the Company’s landholdings for various types of solar energy development. Over the longer term, the Company believes that the population of Southern California, Nevada, and Arizona will continue to grow, and that, in time,the economics of commercial and residential development of the Company’s properties will become attractive. The Company remains committed to its land and water assets and will continue to explore all opportunities for development of these assets. TheCompany cannot predict with certainty which of these various opportunities will ultimately be utilized. 41 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBasis of Presentation The financial statements of the Company have been prepared using accounting principles applicable to a going concern, which assumes realization ofassets and settlement of liabilities in the normal course of business. The Company incurred losses of $14.4 million, $15.9 million and $13.6 million for theyears ended December 31, 2009, 2008 and 2007, respectively. The Company had working capital of $8.1 million at December 31, 2009, and used cash inoperations of $6.4 million for the year ended December 31, 2009. Currently, the Company’s sole focus is the development of its land and water assets. In June 2006, the Company raised $36.4 million through the private placement of a five year zero coupon convertible term loan with Peloton PartnersLLP (“Peloton”), as administrative agent, and an affiliate of Peloton and another investor, as lenders (the “Term Loan”). The proceeds of the new term loanwere partially used to repay the Company’s prior term loan facility with ING Capital LLC (“ING”). On April 16, 2008, the Company was advised thatPeloton’s interest in the Term Loan had been assigned to an affiliate of Lampe, Conway & Company LLC (“Lampe Conway”), and Lampe Conwaysubsequently replaced Peloton as administrative agent of the loan. On June 4, 2009, the Company completed arrangements to amend the Term Loan andextend its maturity to June of 2013. In February 2007, $5.0 million was raised when certain warrant holders chose to exercise their rights to purchase 335,440 shares of the Company’scommon stock for $15.00 per share. In November and December 2008, the Company raised an additional $5.2 million with a private placement of 165,000Units at $31.50 per unit. Each unit consists of three (3) shares of the Company’s common stock and two (2) stock purchase warrants. The first warrantentitled the holder to purchase one (1) share of common stock at an exercise price of $12.50 per share. On November 17, 2009, the exercise price of thisCallable Warrant was temporarily reduced to $10.50 per share. In response, holders of 162,849 warrants exercised their warrants, resulting in our issuanceof 162,849 shares of common stock with net proceeds of $1,709,915. The remaining 2,151 warrants were cancelled. The second warrant entitles theholder to purchase one (1) share of common stock at an exercise price of $12.50 per share. This warrant has a term of three years and is not callable by us. In October and November 2009, the Company raised $7.1 million with a private placement of 226,200 Units at $31.50 per Unit. This includes20,880 Units purchased by the Lenders of the Term Loan pursuant to the Lenders’ Participation Rights under the Term Loan. Each Unit consists of three (3)shares of the Company’s common stock and one (1) stock purchase warrant. The warrant entitles the holder to purchase one (1) share of common stock at anexercise price of $15.00 per share. The warrant has a term of three (3) years, but is callable by the Company at any time following November 1, 2010, if theclosing market price of the Company’s common stock exceeds $22.50 for 10 consecutive trading days. 42 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The Company’s current resources do not provide the capital necessary to fund a water development project should the Company be required to doso. There is no assurance that additional financing (public or private) will be available on acceptable terms or at all. If the Company issues additional equityor equity linked securities to raise funds, the ownership percentage of the Company’s existing stockholders would be reduced. New investors may demandrights, preferences or privileges senior to those of existing holders of common stock. If the Company cannot raise needed funds, it might be forced to makefurther substantial reductions in its operating expenses, which could adversely affect its ability to implement its current business plan and ultimately itsviability as a company. The proceeds remaining from the Company’s $8.8 million private placement in 2009, and the sale of common shares, pursuant to the exercise ofcertain warrants in 2009, provide it with sufficient funds to meet expected working capital needs for the next 12 months. Within the next 12 months theCompany will need to identify financing for its 2011 working capital needs. If the Company is unable to generate this from its current development activities,then it will need to seek additional equity financing in the capital markets.Principles of Consolidation In December 2003, the Company transferred substantially all of its assets (with the exception of an office sublease, certain office furniture andequipment and any Sun World related assets) to Cadiz Real Estate LLC, a Delaware limited liability company (“Cadiz Real Estate”). The Company holds100% of the equity interests of Cadiz Real Estate, and therefore continues to hold 100% beneficial ownership of the properties that it transferred to Cadiz RealEstate. Because the transfer of the Company’s properties to Cadiz Real Estate has no effect on its ultimate beneficial ownership of these properties, theproperties owned of record either by Cadiz Real Estate or by the Company are treated as belonging to the Company.Use of Estimates in Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statementsand the reported amounts of revenues and expenses during the reporting period. In preparing these financial statements, management has made estimates withregard to goodwill and other long-lived assets, stock compensation and deferred tax assets. Actual results could differ from those estimates.Revenue Recognition The Company recognizes crop sale revenue upon shipment and transfer of title to customers.Stock-Based Compensation General and administrative expenses include $2.3 million, $4.4 million and $3.6 million of stock based compensation expenses in the fiscal yearsended December 31, 2009, 2008 and 2007, respectively. The fair value of each option granted to employees and directors is estimated using the Black-Scholes option pricing model. 43 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The Company applies the Black-Scholes valuation model in determining the fair value of share-based payments to employees, which is thenamortized on a straight-line basis over the requisite service period. ASC 718 also requires the Company to estimate forfeitures in calculating the expense related to stock-based compensation as opposed to onlyrecognizing these forfeitures and the corresponding reduction in expense as they occur. The remaining vesting periods are relatively short, and the potentialimpact of forfeitures is not material. The Company is in a tax loss carryforward position and is not expected to realize a benefit from any additionalcompensation expense recognized under ASC 718. See Note 7, “Income Taxes".Net Loss Per Common Share Basic Earnings Per Share (EPS) is computed by dividing the net loss, after deduction for preferred dividends either accrued or imputed, if any, bythe weighted-average common shares outstanding. Options, deferred stock units, warrants, participating and redeemable preferred stock and the zero couponterm loan convertible into or exercisable for certain shares of the Company’s common stock were not considered in the computation of diluted EPS becausetheir inclusion would have been antidilutive. Had these instruments been included, the fully diluted weighted average shares outstanding would have increasedby approximately 2,420,000 shares, 2,372,000 shares and 2,208,000 shares for the years ended December 31, 2009, 2008 and 2007, respectively.Cash and Cash Equivalents The Company considers all short-term deposits with an original maturity of three months or less to be cash equivalents. The Company invests itsexcess cash in deposits with major international banks and government agency notes and, therefore, bears minimal risk. Such investments are stated at cost,which approximates fair value, and are considered cash equivalents for purposes of reporting cash flows.Short-Term Investments The Company considers all short-term deposits with an original maturity greater than three months, but no greater than one year, to be short-terminvestments. At December 31, 2009, the Company had no short-term investments, and had $4.5 million invested in short-term investments at December 31,2008.Property, Plant, Equipment and Water Programs Property, plant, equipment and water programs are stated at cost. Depreciation is provided using the straight-line method over the estimated usefullives of the assets, generally ten to forty-five years for land improvements and buildings and five to fifteen years for machinery and equipment. Leaseholdimprovements are depreciated over the shorter of the term of the relevant lease agreement or the estimated useful life of the asset. 44 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Water rights and water storage and supply programs are stated at cost. Certain costs directly attributable to the development of such programs havebeen capitalized by the Company. These costs, which are expected to be recovered through future revenues, consist of direct labor, drilling costs, consultingfees for various engineering, hydrological, environmental and feasibility studies, and other professional and legal fees.Impairment of Long-Lived Assets The Company evaluates its long-lived assets, including intangibles, for potential impairment when circumstances indicate that the carrying amountof the asset may not be recoverable. This evaluation is based upon estimated future cash flows. In the event that the undiscounted cash flows are less than thenet book value of the assets, the carrying value of the assets will be written down to their estimated fair value. Beginning in 2004, the Company has reviewedthe valuation of the water program annually and has concluded that the carrying amount of the program was not impaired. The Company’s analysis could beimpacted by changes in plans related to the Cadiz Project.Goodwill and Other Assets As a result of a merger in May 1988 between two companies which eventually became known as Cadiz Inc., goodwill in the amount of $7,006,000was recorded. Approximately $3,193,000 of this amount was amortized prior to the adoption of ASC 350 on January 1, 2002. Goodwill is tested forimpairment annually in the first quarter of each year, or if events occur which require an impairment analysis be performed. Beginning in 2002, theCompany has performed an annual impairment test of goodwill in the first quarter of each year and has determined that the goodwill was not impaired. Amounts (in thousands) Balance at December 31, 2007 $3,813 Adjustments - Balance at December 31, 2008 3,813 Adjustments - Balance at December 31, 2009 $3,813 Deferred loan costs represent costs incurred to obtain debt financing. Such costs are amortized over the life of the related loan. At December 31,2009, the deferred loan fees relate to the zero coupon secured convertible term loan with Lampe Conway & Company LLC (“Lampe Conway”), as describedin Note 6, "Long-Term Debt".Income Taxes Income taxes are provided for using an asset and liability approach which requires the recognition of deferred tax assets and liabilities for the expectedfuture tax consequences of temporary differences between the financial statement and tax bases of assets and liabilities at the applicable enacted tax rates. Avaluation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. 45 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Effective January 1, 2007, the Company adopted Accounting Standards Codification 740, “Income Taxes” (“ASC 740”). The adoption of ASC 740did not have a significant impact on the financial statements of the Company. In connection with the adoption of ASC 740, the Company elected to classifyincome tax penalties and interest as general and administrative and interest expenses, respectively. See Note 7, “Income Taxes”.Fair Value of Financial Instruments Financial assets with carrying values approximating fair value include cash and cash equivalents and accounts receivable. Financial liabilities withcarrying values approximating fair value include accounts payable and accrued liabilities due to their short-term nature. The carrying value of the Company'sdebt, before discount, approximates fair value, based on interest rates available to the Company for debt with similar terms. See Note 6, "Long-TermDebt", for discussion of fair value of debt. Supplemental Cash Flow Information No cash payments are due on the loan with Lampe Conway prior to the June 29, 2013, final maturity date. In December 2009, the Company recorded non-cash additions to fixed assets of $1,052,000, which were accrued at year-end, for the development ofnew wells at the Cadiz Project site. Cash payments for income taxes were $4,000, $6,400, and $7,300 in the years ended December 31, 2009, 2008, and 2007, respectively.Recent Accounting Pronouncements On January 1, 2008, the Financial Accounting Standards Board issued new accounting guidance on fair value measurements. This new guidancedefines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair valuemeasurements. The new guidance was effective for the Company beginning January 1, 2008, for certain financial assets and liabilities. Refer to Note 14, "FairValue Measurements", for additional information regarding our fair value measurements for financial assets and liabilities. The new guidance was effective fornon-financial assets and liabilities recognized or disclosed at fair value on a non-recurring basis beginning January 1, 2009. The new accounting guidancedescribes how to measure fair value based on a three-level hierarchy of inputs, of which the first two are considered observable and the last unobservable. 46 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. • Level 1 - Quoted prices in active markets for identical assets or liabilities. • Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted pricesin markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term ofthe assets or liabilities. • Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The adoption of this new accounting guidance did not have a material impact on our consolidated financial statements. In December 2007, the Financial Accounting Standards Board issued new accounting guidance on business combinations and non-controllinginterests in consolidated financial statements. The new guidance revises the method of accounting for a number of aspects of business combinations andnoncontrolling interests, including acquisition costs, contingencies (including contingent assets, contingent liabilities and contingent purchase price), theimpacts of partial and step-acquisitions (including the valuation of net assets attributable to non-acquired minority interests) and post-acquisition exit activitiesof acquired businesses. This new accounting guidance was effective for business combinations for which the acquisition date is on or after the beginning ofthe first annual reporting period beginning on or after December 15, 2008. The adoption of this accounting guidance has had no impact on the Company’sfinancial position and results of operations. In May 2008, the Financial Accounting Standards Board issued new accounting guidance on convertible debt instruments that may be settled in cashupon conversion, including partial cash settlement. This new guidance requires an issuer to allocate the initial proceeds from the issuance of a convertible debtinstrument between the instrument’s liability and equity components so that the effective interest rate of the liability component equals the issuer’snonconvertible debt borrowing rate at issuance. The Company adopted this accounting guidance in the first quarter of 2009. The adoption of this accountingguidance had no impact on the Company’s financial position and results of operations. In June 2008, the Financial Accounting Standards Board issued new accounting guidance for determining whether instruments granted in share-based payment transactions are participating securities. This new accounting guidance addresses whether unvested instruments granted in share-basedpayment transactions that contain nonforfeitable rights to dividends or dividend equivalents are participating securities subject to the two-class method ofcomputing earnings per share. This accounting guidance is effective for financial statements issued for fiscal years, and interim periods within those fiscalyears, beginning on or after December 15, 2008. Earlier adoption is prohibited. The adoption of this new accounting guidance had no impact on theCompany's financial position and results of operations. In April 2009, the Financial Accounting Standards Board issued new guidance for interim disclosures about the fair value of financialinstruments. This new guidance requires disclosures beginning in the second quarter of 2009 about the fair value of all financial instruments, for which it ispracticable to estimate that fair value, for interim and annual reporting periods. Since this guidance impacts disclosure only, the adoption will not have animpact on the Company’s consolidated results of operations, financial position or cash flows. This enhanced disclosure is provided in Note 14, "Fair ValueMeasurements". 47 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In June 2009, the Financial Accounting Standards Board issued an amendment to the accounting and disclosure requirements for transfers offinancial assets. This amendment requires greater transparency and additional disclosures for transfers of financial assets and the entity’s continuinginvolvement with them and changes the requirements for derecognizing financial assets. In addition, this amendment eliminates the concept of a qualifyingspecial-purpose entity (QSPE). This amendment is effective for financial statements issued for fiscal years beginning after November 15, 2009. The adoptionof this new accounting guidance will not impact the Company's financial position and results of operations. In June 2009, the Financial Accounting Standards Board also issued an amendment to the accounting and disclosure requirements for theconsolidation of variable interest entities (VIEs). The elimination of the concept of a QSPE, as discussed above, removes the exception from applying theconsolidation guidance within this amendment. This amendment requires an enterprise to perform a qualitative analysis when determining whether or not itmust consolidate a VIE. The amendment also requires an enterprise to continuously reassess whether it must consolidate a VIE. Additionally, the amendmentrequires enhanced disclosures about an enterprise’s involvement with VIEs and any significant change in risk exposure due to that involvement, as well ashow its involvement with VIEs impacts the enterprise’s financial statements. Finally, an enterprise will be required to disclose significant judgments andassumptions used to determine whether or not to consolidate a VIE. This amendment is effective for financial statements issued for fiscal years beginning afterNovember 15, 2009. The adoption of this new accounting guidance will not impact the Company's financial position and results of operations In June 2009, the Financial Accounting Standards Board (FASB) issued the FASB Accounting Standards Codification (Codification). TheCodification will become the single source for all authoritative GAAP recognized by the FASB to be applied for financial statements issued for periods endingafter September 15, 2009. The Codification did not change GAAP and will not have an affect on our financial position, results of operations or liquidity. 48 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. NOTE 3 – PROPERTY, PLANT, EQUIPMENT AND WATER PROGRAMS Property, plant, equipment and water programs consist of the following (dollars in thousands): December 31, 2009 2008 Land and land improvements $23,050 $21,998 Water programs 14,274 14,274 Buildings 1,161 1,161 Leasehold improvements 570 570 Furniture and fixtures 421 407 Machinery and equipment 915 854 Construction in progress 44 - 40,435 39,264 Less accumulated depreciation (3,822) (3,480) $36,613 $35,784 Depreciation expense during the years ended December 31, 2009, 2008 and 2007 was approximately $342,000, $341,000, and $261,000.NOTE 4 – OTHER ASSETS Other assets consist of the following (dollars in thousands): December 31, 2009 2008 Deferred loan costs, net $188 $244 Prepaid rent 32 226 Security deposits 258 258 $478 $728 Deferred loan costs consist of legal and other fees incurred to obtain debt financing. Amortization of deferred loan costs was approximately $56,000,$77,000, and $62,000 in 2009, 2008 and 2007, respectively. Prepaid rent consists of rental and other fees incurred to obtain the right-of-way for the CadizProject water conveyance pipeline, as discussed in Note 1, "Description of Business". Amortization of prepaid rent was approximately $194,000 in 2009 and$64,400 in 2008. 49 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. NOTE 5 – ACCRUED LIABILITIES Accrued liabilities consist of the following (dollars in thousands): December 31, 2009 2008 Payroll, bonus, and benefits $54 $ 170 Consulting and legal expenses 365 77 Deferred rent 148 189 Other accrued expenses 262 123 $829 $559 NOTE 6 – LONG-TERM DEBT At December 31, 2009 and 2008, the carrying amount of the Company’s outstanding debt is summarized as follows (dollars in thousands): December 31, 2009 2008 Zero coupon secured convertible term loan due June 29,2013. Interest accruing at 5% per annum until June 29, 2009 andat 6% thereafter $43,632 $41,276 Other loans 40 13 Debt discount (6,987) (7,305) 36,685 33,984 Less current portion 20 9 $36,665 $33,975 The Company estimates fair value of debt to be $36,258,000. Pursuant to the Company’s loan agreements, annual maturities of long-term debt outstanding on December 31, 2009, are as follows:Year $000’s 2010 20 2011 16 2012 4 2013 43,632 $43,672 50 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In June 2006, the Company entered into a $36.4 million five year zero coupon convertible term loan with Peloton Partners LLP, as administrativeagent for the loan, and with an affiliate of Peloton and another investor, as lenders. Certain terms of the loan were subsequently amended pursuant toAmendment #1 to the Credit Agreement, which was effective September 2006. On April 16, 2008, the Company was advised that Peloton had assigned itsinterest in the loan to an affiliate of Lampe Conway & Company LLC (“Lampe Conway”), and Lampe Conway subsequently replace Peloton asadministrative agent of the loan (the “Lampe Conway Loan”). On June 4, 2009, the Company completed arrangements to amend the Term Loan. Thesignificant terms of the amendment are as follows:· Maturity date was extended from June 29, 2011, to June 29, 2013;· Interest will continue to accrue at 6% per annum through maturity;· The convert feature has been modified to allow up to $4.55 million of principal to be converted into 650,000 shares of Cadiz common stock (“InitialConvert Portion”) at a conversion price of $7 per share, and the remaining principal and interest to be converted into shares of Cadiz common stockat a conversion price of $35 per share. If fully converted at June 29, 2013, this would result in Cadiz common stock being issued at an averageconvert price of $26 per share; and· The Company now has the right at any time prior to June 29, 2013 to prepay the loan's outstanding principal (other than as to the Initial ConvertPortion) plus all accrued interest in full without penalty, and may at the same time prepay the Initial Convert Portion either in stock at a 110%conversion premium or, at the election of the lenders, in cash with an equal value (but not less than $4.55 million). The term loan is collateralized by substantially all of the assets of the Company, which contains representations, warranties and covenants that aretypical for agreements of this type, including restrictions that would limit the Company’s ability to incur additional indebtedness, incur liens, pay dividendsor make restricted payments, dispose of assets, make investments and merge or consolidate with another person. However, while there are affirmativecovenants, there are no financial maintenance covenants and no restrictions on the Company’s ability to issue additional common stock to fund futureworking capital needs. As a result of the modification of the convertible debt arrangement, the change in conversion value between the original and modified instrument wasapproximately $1.6 million which was recorded as an additional debt discount. Such debt discount is accreted to the redemption value of the instrument overthe remaining term of the loan as additional interest expense. The Company has analyzed all of the above provisions of the convertible loan and related agreements for embedded derivatives under generallyaccepted accounting principles and SEC rules. The Company concluded that certain provisions of the convertible loan agreement, which were in effect priorto the first amendment date, are deemed to be derivatives. Therefore, these embedded instruments were bifurcated from the host debt instrument and classifiedas a liability in the Company’s financial statements. The Company prepared valuations for each of the deemed derivatives using a Black-Scholes optionpricing model and recorded a liability of approximately $12.2 million on the June 30, 2006 loan funding date, with an offsetting discount to the convertibleterm loan. 51 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. On June 30, 2006, the derivative liability was classified and recorded as part of long-term debt in the balance sheet. The debt discount will beamortized to interest expense over the life of the loan using the effective interest amortization method. The principal valuation assumptions are as follows:Loan balance available for conversion:$36.4 millionExpected term:5 yearsCadiz common share price:$17.01Volatility:46%Risk-free Interest Rate:5.18%Change in control probability:10% On September 29, 2006, the terms of the loan were amended, and it was determined that bifurcation of the embedded equity conversion option is nolonger required. The derivative liability was adjusted to fair value on the amendment date, and the $2,919,000 increase in fair value was recorded as an“Other Expense” item in the Consolidated Statement of Operations. The $15.2 million fair value of the derivative liability was then transferred to theAdditional Paid-in Capital component of Stockholders' Equity. In 2006, the Company incurred $408,000 of outside legal expenses related to the negotiation and documentation of the loan, which will be amortizedover the life of the loan. December 31, 2009, the Company was in compliance with its debt covenants under the Lampe Conway Loan.NOTE 7 – INCOME TAXES Deferred taxes are recorded based upon differences between the financial statement and tax bases of assets and liabilities and availablecarryforwards. Temporary differences and carryforwards which gave rise to a significant portion of deferred tax assets and liabilities as of December 31,2009 and 2008, are as follows (in thousands): December 31, 2009 2008 Deferred tax assets: Net operating losses $38,573 $35,303 Fixed asset basis difference 7,262 7,312 Contributions carryover 1 1 Deferred compensation 1,260 3,603 Accrued liabilities 253 108 Total deferred tax assets 47,350 46,400 Valuation allowance for deferred tax assets (47,350) (46,400) Net deferred tax asset $- $- 52 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The valuation allowance increased $950,000 and $4,220,000 in 2009 and 2008, respectively, due to an increase in the net operating loss category ofdeferred tax assets. The change in deferred tax assets resulted from current year net operating losses, expiration of prior year loss carryovers, and changes tofuture tax deductions resulting from terms of stock compensation plans. As of December 31, 2009, the Company had net operating loss (NOL) carryforwards of approximately $100.3 million for federal income taxpurposes and $50.6 million for California income tax purposes. Such carryforwards expire in varying amounts through the year 2029. Use of thecarryforward amounts is subject to an annual limitation as a result of ownership changes. On August 26, 2005, a Settlement Agreement between Cadiz, on the one hand, and Sun World and three of Sun World’s subsidiaries, on the otherhand, was approved by the U.S. Bankruptcy Court, concurrently with the Court’s confirmation of the amended Plan. The Settlement Agreement providesthat following the September 6, 2005 effective date of Sun World’s plan of reorganization, Cadiz will retain the right to utilize the Sun World net operating losscarryovers (NOLs). Sun World Federal NOLs are estimated to be approximately $58 million. If, in any year from calendar year 2005 through calendar year2011, the utilization of such NOLs results in a reduction of Cadiz’ tax liability for such year, then Cadiz will pay to the Sun World bankruptcy estate 25%of the amount of such reduction, and shall retain the remaining 75% for its own benefit. There is no requirement that Cadiz utilize these NOLs during thisreimbursement period, or provide any reimbursement to the Sun World bankruptcy estate for any NOLs used by Cadiz after this reimbursement periodexpires. As of the January 1, 2007, adoption of ASC 740, the Company possessed unrecognized tax benefits totaling approximately $3.3 million. A scheduleof changes for the 36 months ended December 31, 2009 is shown below: Amounts (in millions) Balance at January 1, 2007 $3.3 Additions or reductions for tax positions of prior years - Additions or reductions for tax positions of current year - Changes related to current year settlements - Changes due to expirations of the statute of limitations - Balance at December 31, 2007 $3.3 Additions or reductions for tax positions of prior years - Additions or reductions for tax positions of current year - Changes related to current year settlements - Changes due to expirations of the statute of limitations - Balance at December 31, 2008 3.3 Additions or reductions for tax positions of prior years - Additions or reductions for tax positions of current year - Changes related to current year settlements - Changes due to expirations of the statute of limitations - Balance at December 31, 2009 $3.3 53 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. None of these tax benefits, if recognized, would affect the Company's effective tax rate because the Company has recorded a full valuation allowanceagainst these assets. Additionally, as of December 31, 2009, the Company had accrued a total of $321,000 for state taxes, interest and penalties related toincome tax positions in prior returns. In connection with the adoption of ASC 740, the Company elected to classify income tax penalties and interest as generaland administrative and interest expenses, respectively. For the twelve months ended December 31, 2009, general and administrative and interest expensesincluded approximately $0 of income tax penalties. The Company does not expect that the unrecognized tax benefits will significantly increase or decrease in the next 12 months. The Company's tax years 2006 through 2009 remain subject to examination by the Internal Revenue Service, and tax years 2005 through 2009remain subject to examination by California tax jurisdictions. In addition, the Company's loss carryforward amounts are generally subject to examination andadjustment for a period of three years for federal tax purposes and four years for California purposes, beginning when such carryovers are utilized to reducetaxes in a future tax year. A reconciliation of the income tax benefit to the statutory federal income tax rate is as follows (dollars in thousands): Year Ended December 31, 2009 2008 2007 Expected federal income tax benefit at 34% $(4,895) $(5,379) $(4,638)Loss with no tax benefit provided 3,751 4,492 3,983 State income tax 4 6 4 Stock Options 462 86 - Non-deductible expenses and other 682 801 655 Income tax expense $4 $6 $4 Because it is more likely than not that the Company will not realize its net deferred tax assets, it has recorded a full valuation allowance against theseassets. Accordingly, no deferred tax asset has been recorded in the accompanying balance sheet. 54 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. NOTE 8 – EMPLOYEE BENEFIT PLANS The Company has a 401(k) Plan for its salaried employees. The Company matches 100% of the first three percent of annual base salary and 50% ofthe next two percent of annual base salary contributed by an employee to the plan. The Company contributed approximately $42,000, $47,000, and $38,000to the plans for fiscal years 2009, 2008 and 2007, respectively. NOTE 9 – PREFERRED AND COMMON STOCKSeries F Convertible Preferred Stock In June 2007, ING elected to covert the 1,000 preferred shares then remaining outstanding into 17,289 shares of the Company’s common stock, andthe Company subsequently filed a Certification of Elimination of Series F Convertible Preferred Stock with the State of Delaware. As a result, no Series FPreferred Stock was issued or outstanding on December 31, 2009.Common Stock and Warrants On November 30, 2004, the Company completed a private placement of 400,000 Units at the price of $60.00 per Unit. Each Unit consisted of five(5) shares of the Company’s common stock and one (1) common stock purchase warrant. Each warrant entitled the holder to purchase, commencing 180days from the date of issuance, one (1) share of common stock at an exercise price of $15.00 per share. Each warrant had a term of three (3) years. InSeptember 2006, certain warrant holders exercised their right to purchase 70,000 common shares. In 2007, the Company exercised its right to terminate theremaining warrants on March 2, 2007, subject to a 30 day notice period. In response, the remaining warrant holders exercised their right to purchase 335,440shares of the Company’s common stock during the notice period. Following this exercise, no warrants from this 2004 private placement remain outstanding. On October 1, 2007, the Company agreed to the conditional issuance of up to 300,000 shares to the former sole shareholder and successor in interestto Exploration Research Associates, Inc. (“ERA”), who is now an employee of the Company. The agreement settled certain claims by ERA against theCompany, and provided that the 300,000 shares will be issued if and when certain significant milestones in the development of the Company’s properties areachieved. In November 2008, the Company arranged for certain legal and advisory services including interim payments due upon completion of specifiedmilestones with respect to the Cadiz Project, with the fee payable in cash and/or stock. The first such milestone was satisfied on June 4, 2009, resulting in anobligation by the Company to pay a fee of $500,000, for which the parties agreed to payment in the form of 59,312 shares of the Company’s common stockvalued at $8.43 per share, reflecting the fair market value of the stock on June 4, 2009. 55 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. A private placement was completed by the Company in November and December of 2008 of 165,000 Units at the price of $31.50 per unit forproceeds of $5,197,500. Each Unit consists of three (3) shares of the Company’s common stock and two (2) common stock purchase warrants. The firstwarrant entitles the holder to purchase one (1) share of common stock at an exercise price of $12.50 per share. On November 17, 2009, the exercise price ofthis Callable Warrant was temporarily reduced to $10.50 per share in an effort to induce warrant holders to purchase additional shares to provide additionalsources of financing for the Company’s on-going projects and operating costs. In response to the inducement, holders of 162,849 warrants exercised theirwarrants, resulting in our issuance of 162,849 shares of common stock with net proceeds of $1,709,915. The fair value of the inducement was animmaterial amount that did not impact losses applicable to the common shareholders in the calculation of earnings per share. The remaining 2,151 warrantswere cancelled. The second warrant entitles the holder to purchase one (1) share of common stock at an exercise price of $12.50 per share. This warrant hasa term of three years and is not callable by the Company. In October and November 2009, the Company raised $7.1 million with a private placement of 226,200 Units at $31.50 per Unit. This includes20,880 Units purchased by the Lenders of the Term Loan pursuant to the Lenders’ Participation Rights under the Term Loan. Each Unit consists of three (3)shares of the Company’s common stock and one (1) stock purchase warrant. The warrant entitles the holder to purchase one (1) share of common stock at anexercise price of $15.00 per share. The warrant has a term of three (3) years, but is callable by the Company at any time following November 1, 2010 if theclosing market price of the Company’s common stock exceeds $22.50 for 10 consecutive trading days. As discussed in Note 6, "Long-Term Debt", principal and accrued interest on the Lampe Conway Loan is convertible into common shares of theCompany at the Lender’s option. The terms of the loan include optional prepayment provisions that could result in an early conversion of the loan undercertain circumstances, and a preferred conversion formula is provided upon a change in control of the Company.NOTE 10 – STOCK-BASED COMPENSATION PLANS AND WARRANTS The Company has issued options pursuant to its 2003 and 2007 Management Equity Incentive Plans. The Company also has granted stock awardspursuant to its 2003 Management Equity Incentive Plan, 2007 Management Equity Incentive Plan and Outside Director Compensation Plan, as describedbelow. In December 2009, shareholders approved the adoption of the 2009 Equity Incentive Plan. As of December 31, 2009, there were no issuances underthe 2009 Equity Incentive Plan.2003 Management Equity Incentive Plan In December 2003, concurrently with the completion of the Company’s then current financing arrangements with ING, the Company’s board ofdirectors authorized the adoption of a Management Equity Incentive Plan (the “Incentive Plan”). Under the Incentive Plan, a total of 1,472,051 shares ofcommon stock and common stock options were granted to key personnel. The Board formed allocation committees to direct the initial allocation of 717,373 ofthese shares and a subsequent allocation of 377,339 shares of common stock and 377,339 options to purchase common stock. All the stock and options weregranted prior to December 31, 2006, and all vesting conditions were satisfied prior to December 31, 2007. 56 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Outside Director Compensation Plan The Cadiz Inc. Outside Director Compensation Plan was approved by Cadiz shareholders in November 2006. Under the plan, each outside directorreceives $30,000 of cash compensation and receives a deferred stock award consisting of shares of the Company’s common stock with a value equal to$20,000 on June 30th of each year. The award accrues on a quarterly basis, with $7,500 of cash compensation and $5,000 of stock earned for each fiscalquarter in which a director serves. The deferred stock award vests automatically on the January 31st which first follows the award date.2007 Management Equity Incentive Plan The 2007 Management Equity Incentive Plan was approved by stockholders at the June 15, 2007 Annual Meeting. The plan provides for the grantand issuance of up to 1,050,000 shares and options to the Company’s employees and consultants. The plan became effective when the Company filed aregistration statement on Form S-8 on July 25, 2007, and grants of 950,000 shares of common stock and options to purchase 7,661 shares of common stockbecame effective on that date. Options to purchase 10,000 shares of common stock were granted in January 2008. As discussed below, all grants are subjectto vesting conditions, and certain grants are subject to additional market conditions.2009 Equity Incentive Plan The 2009 Equity Incentive Plan was approved by stockholders at the December 14, 2009, Annual Meeting, and became immediately effective. Theplan provides for the grant and issuance of up to 850,000 shares and options to the Company’s employees and consultants. On December 18, 2009, theCompany filed a registration statement on Form S-8 registering the shares issuable pursuant to this plan. 115,000 shares of common stock and options topurchase 387,500 shares of common stock were granted in January 2010. Stock Options Issued under the 2003 and 2007 Management Equity Incentive Plans The 2003 Management Equity Incentive Plan provided for the granting of 377,339 options for the purchase of one share of common stock. Optionsissued under the Management Equity Incentive Plan were granted during 2005 and 2006. The options have a ten year term with vesting periods ranging fromissuance date to three years. Certain of these options had strike prices that were below the fair market value of the Company’s common stock on the date ofgrant. All options have been granted to officers, employees and consultants of the Company. 365,000 options were granted under the plan during 2005, andthe remaining 12,339 options were granted in 2006. The Company granted options to purchase 7,661 common shares at a price of $20.00 per share under the 2007 Management Equity Incentive Planon July 25, 2007, and options to purchase 10,000 common shares at a price of $18.99 on January 9, 2008. The options have strike prices that were slightlyabove the fair market value of the Company’s common stock on the date that the grant became effective. The options have a ten year term with vesting periodsranging from issuance date to 16 months. Unexercised options to purchase 20,000 shares and 40,000 shares were forfeited in August 2008 and February2009, respectively. Previously recognized expenses of $66,000 related to the unvested portion of these awards was credited against stock based compensationexpense in 2008. All options have been issued to officers, employees and consultants of the Company. In total, options to purchase 325,000 shares wereunexercised and outstanding on December 31, 2009, under the two management equity plans. 57 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The fair value of each option granted under both plans was estimated on the date of grant using the Black Scholes option pricing model based on thefollowing weighted-average assumptions:Risk free interest rate4.21%Expected life9.5 yearsExpected volatility46%Expected dividend yield0.0%Weighted average vesting period0.8 years The risk free interest rate was assumed to be equal to the yield of a U.S. Treasury bond of comparable maturity, as published in the Federal ReserveStatistical Release for the relevant date. The expected life estimate is based on an analysis of the employees receiving option grants and the expected behavior ofeach employee. The expected volatility was derived from an analysis of the historical volatility of the trading price per share of the Company’s common stockon the NASDAQ Global Market. The Company does not anticipate that it will pay dividends to common shareholders in the future, and the weighted averagevesting period is based on the option vesting schedule, assuming no options are forfeit prior to the initial vesting date. The Company recognized stock option related compensation costs of $0, $82,000 and $180,000 in fiscal 2009, 2008 and 2007, respectively, relatingto these options. No stock options were exercised during fiscal 2009. Options to purchase 10,000 shares were exercised in 2007. A summary of option activity under the plans as of December 31, 2009, and changes during the current fiscal year is presented below: Weighted- Average Aggregate Average Remaining Intrinsic Exercise Contractual Value Options Shares Price Term ($000’s) Outstanding January 1, 2009 365,000 $12.85 6.4 $ 3,885 Granted - - - - Exercised - - - - Forfeited or expired (40,000) - - (175)Outstanding at December 31, 2009 325,000 $12.68 5.4 $3,710 Exercisable at December 31, 2009 325,000 $12.68 5.4 $3,710 The weighted-average grant-date fair value of options granted during the years ended December 31, 2008 and 2007 were $11.18, and $9.43 per share,respectively. The following table summarizes stock option activity for the periods noted. 58 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Weighted- Average Amount Exercise Price Outstanding at December 31, 2007 375,000 $13.06 Granted 10,000 $18.99 Expired or canceled (20,000) $20.00 Exercised - $- Outstanding at December 31, 2008 365,000 $12.85 Granted - $- Expired or canceled (40,000) $17.25 Exercised - - Outstanding at December 31, 2009 325,000(a) $12.68 Options exercisable at December 31, 2009 325,000 $12.68 Weighted-average years of remaining contractual life of options outstandingat December 31, 2009 5.4 (a) Exercise prices vary from $12.00 to $18.99, and expiration dates vary from May 2015 to December 2016.Stock Awards to Directors, Officer, Consultants and Employees The Company has also granted stock awards pursuant to its 2003 and 2007 Management Equity Incentive Plans and its Outside DirectorCompensation Plan. The 2003 Management Equity Incentive Plan provided for the granting of 1,094,712 shares of common stock in May 2005, the 2007 ManagementEquity Incentive Plan provides for the granting of up to 1,050,000 shares of stock and stock options, the 2009 Equity Incentive Plan provides for the grantingof up to 850,000 shares of stock and stock options, and the Outside Director Compensation Plan provides for the granting of up to 50,000shares. Compensation cost for stock granted to employees and directors is measured at the quoted market price of the Company's stock on the date of grant. All of the shares issuable under the 2003 Management Equity Incentive Plan were awarded in May 2005. At that time, 717,373 initial allocationshares and 377,339 subsequent allocation shares were awarded. 604,029 shares were issued on the award date, 364,904 shares were issued in December2005, and the remaining 125,779 shares were issued in December 2006. On December 31, 2006, no additional shares were issuable under the 2003Management Equity Incentive Plan. 59 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Of the total 1,050,000 shares reserved under the 2007 Management Equity Incentive Plan, a grant of 950,000 shares under the 2007 ManagementEquity Incentive Plan became effective on July 25, 2007. The grant consisted of two separate awards.- A 150,000 share award that vests in three equal installments on January 1, 2008, January 1, 2009 and January 1, 2010. 100,000 shares havebeen issued pursuant to this award as of December 31, 2009.- 800,000 of the shares were designated as Milestone-Based Deferred Stock, none of which were ultimately issued. The shares were allocated forissuance subject to the satisfaction of certain milestone conditions relating to the trading price of our common stock during the periodcommencing March 13, 2007, and ending March 12, 2009. The milestone conditions were not satisfied by March 12, 2009, resulting in theexpiration of all 800,000 shares. Of the remaining 100,000 shares reserved under the 2007 Management Equity Incentive Plan, 10,000 were issued as options as described above, and90,000 were issued as shares that vested in May 2009. The initial Outside Director Compensation Plan award was made on November 14, 2006, and included 10,416 shares for service rendered duringthe 12 month service period ended June 30, 2004 and 2005 and 4,285 shares for services rendered during the 12 month service period ended June 30,2006. 10,416 shares were issued immediately upon shareholder approval in November 2006, and the remaining 4,285 shares vested and were issued inJanuary 2007. A 4,599 share award for service during the plan year ended June 30, 2007, became effective on that date, and this award vested on January31, 2008. A 7,206 share award for service during the plan year ended June 30, 2008, became effective on that date, and this award vested on January 31,2009. An 11,775 share award for service during the plan year ended June 30, 2009, became effective on that date, and this award will vest on January 31,2010. The compensation cost of stock grants without market conditions is measured at the quoted market price of the Company’s stock at the date ofgrant. The fair value of the two 2007 Management Equity Incentive Plan awards with market conditions was calculated using a lattice model using thefollowing weighted average assumptions:Risk free interest rate4.74%Current stock price$19.74Expected volatility38%Expected dividend yield0.0%Weighted average vesting period2.0 years The risk free interest rate was assumed to be equal to the yield of a U.S. Treasury bond of comparable maturity, as published in the Federal ReserveStatistical Release for the relevant date. The current stock price is the closing price of the Company’s common stock quoted on the NASDAQ Global Marketon the grant date. The expected volatility was derived from an analysis of the historical volatility of the trading price per share of the Company’s commonstock on the NASDAQ Global Market. The Company does not anticipate that it will pay dividends in the future. 60 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The lattice model calculates a derived service period, which is equal to the median period between the grant date and the date that the relevant marketconditions are satisfied. The derived service periods for the grants with $28 and $35 per share market conditions are 0.72 years and 1.01 years,respectively. The weighted average vesting period is based on the latter of the derived service period and the scheduled vesting dates for each grant. The accompanying consolidated statements include approximately $2,273,000, $4,276,000, and $3,429,000 of stock based compensation expenserelated to these stock awards in the fiscal year ended December 31, 2009, 2008 and 2007, respectively. On December 31, 2009, the unamortizedcompensation expense relating to these stock awards was $496,000. This unamortized compensation expense is expected to be recognized through December31, 2010. A summary of stock awards activity under the plans during the fiscal year ended December 31, 2009 and 2008 is presented below: Weighted- Average Grant-date Shares Fair Value ($000’s) Nonvested at December 31, 2007 954,599 $9,620 Granted 7,026 120 Forfeited or canceled - - Vested (54,599) (1,090) Nonvested at December 31, 2008 907,026 $8,650 Granted 101,775 712 Forfeited or canceled (800,000) (6,556) Vested (147,026) (1,706) Nonvested at December 31, 2009 61,775 $1,100 Stock Purchase Warrants Issued to Non-Employees The Company accounts for equity securities issued to non-employees in accordance with the provisions of ASC 718 and ASC 505. On November30, 2004, the Company completed a private placement of 400,000 units, each Unit consisting of five (5) shares of the Company’s common stock and one (1)common stock purchase warrant. Each of the 400,000 warrants entitle the holder to purchase one (1) share of common stock at an exercise price of $15.00 pershare. An additional 5,440 warrants were issued to an individual who assisted the company in identifying participants in the November 30, 2004 privateplacement and elected to receive a commission for the services in stock rather than cash. Each warrant had a term of three (3) years and was callable at theCompany’s option. 61 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. During 2006, certain warrant holders exercised their rights to purchase 70,000 shares, and the Company received $1,050,000 from the sale of thatcommon stock. In 2007, the Company exercised a right to terminate the remaining warrants on March 2, 2007, subject to a 30 day notice period. In response,the remaining warrant holders exercised their rights to purchase 335,440 shares of the Company’s common stock during the notice period, and the Companyreceived $5.0 million from the sale of these shares. Following this exercise, no warrants from this 2004 private placement remain outstanding. A private placement was completed by the Company in November and December of 2008 of 165,000 Units at the price of $31.50 per unit forproceeds of $5,197,500. Each Unit consists of three (3) shares of the Company’s common stock and two (2) common stock purchase warrants. The firstwarrant entitles the holder to purchase one (1) share of common stock at an exercise price of $12.50 per share. On November 17, 2009, the exercise price ofthis Callable Warrant was temporarily reduced to $10.50 per share. In response, holders of 162,849 warrants exercised their warrants, resulting in ourissuance of 162,849 shares of common stock with net proceeds of $1,709,915. The remaining 2,151 warrants were cancelled. The second warrant entitlesthe holder to purchase one (1) share of common stock at an exercise price of $12.50 per share. This warrant has a term of three years and is not callable bythe Company. In October 2009, the Company raised $7.1 million with a private placement of 226,200 Units at $31.50 per Unit. This includes 20,880 Unitspurchased by the Lenders of the Term Loan pursuant to the Lenders’ Participation Rights under the Term Loan. Each Unit consists of three (3) shares of theCompany’s common stock and one (1) stock purchase warrant. The warrant entitles the holder to purchase one (1) share of common stock at an exerciseprice of $15.00 per share. The warrant has a term of three (3) years, but is callable by the Company at any time following November 1, 2010 if the closingmarket price of the Company’s common stock exceeds $22.50 for 10 consecutive trading days. 391,200 warrants remain outstanding as of December 31, 2009.NOTE 11 – SEGMENT INFORMATION The primary business of the Company is to acquire and develop land and water resources. As a result, the Company’s financial results are reportedin a single segment.NOTE 12 – COMMITMENTS AND CONTINGENCIES The Company leases equipment and office facilities under operating leases that expire through 2012. Aggregate rental expense under all operatingleases was approximately $375,000, $236,000, and $140,000 in the years ended December 31, 2009, 2008 and 2007, respectively. At December 31, 2009,the future minimum rental commitments under existing non-cancelable operating leases are as follows: 62 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Year $000’s 2010 366 2011 212 2012 138 $716 In the normal course of its agricultural operations, the Company handles, stores, transports and dispenses products identified as hazardousmaterials. Regulatory agencies periodically conduct inspections and, currently, there are no pending claims with respect to hazardous materials. The Company entered into a Services and Exclusivity Agreement with Layne Christensen Company (“Layne”) on November 2, 2009. Theagreement provides that the Company will contract exclusively with Layne for certain water related services, including drilling of boreholes, drilling ofmonitoring wells, completion of test wells, completion of production wells, and completion of aquifer, storage and recovery wells. In exchange for the Servicesand Exclusivity Agreement, Layne has agreed to forego $752,000 for work performed as of December 31, 2009. Alternatively, if (a) the Company elects by December 31, 2012, not to proceed with the Cadiz Project, then it will pay Layne 100% of the $752,000balance due for work performed as of December 31, 2009, or (b) the Company elects by December 31, 2012, to proceed with the Cadiz Project and in itsreasonable discretion decides not to use Layne as the exclusive provider of services for the well field the Company will pay Layne 125% of the $752,000balance due for work performed as of December 31, 2009. As previously reported, the Company has a potential obligation to pay an amount of up to 1% of the net present value of the Cadiz Project inconsideration of certain legal and advisory services to be provided to us. This fee would be payable upon completion of binding agreements for at least 51% ofthe Cadiz Project’s annual capacity and receipt of all environmental approvals and permits necessary to start construction of the Cadiz Project. A portion ofthis fee may be payable in stock. Interim payments of $1.5 million, applicable to the final total, would be made upon the achievement of certain specifiedmilestones. $500 thousand of these interim payments was earned in June 2009 and paid as of December 31, 2009. This arrangement may be terminated byeither party upon 60 days notice, with any compensation earned but unpaid prior to termination payable following termination. The Company is involved in other legal and administrative proceedings and claims. In the opinion of management, the ultimate outcome of eachproceeding or all such proceedings combined will not have a material adverse impact on the Company's financial statements. 63 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. NOTE 13 – QUARTERLY FINANCIAL INFORMATION (UNAUDITED)(in thousands except per share data) Quarter Ended March 31, June 30, September 30, December 31, 2009 2009 2009 2009 Revenues $29 $19 $138 $622 Operating loss (2,210) (3,245) (2,157) (2,469)Net loss applicable to common stock (3,395) (4,386) (3,134) (3,484)Basic and diluted net loss per common share $(0.27) $(0.35) $(0.25) $(0.26) Quarter Ended March 31, June 30, September 30, December 31, 2008 2008 2008 2008 Revenues $17 $16 $247 $712 Operating loss (4,008) (2,641) (2,381) (2,571)Net loss applicable to common stock (4,979) (3,698) (3,486) (3,746)Basic and diluted net loss per common share $(0.42) $(0.31) $(0.29) $(0.30) NOTE 14 – FAIR VALUE MEASUREMENTS The following table presents information about our assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2009and 2008, and indicate the fair value hierarchy of the valuation techniques we utilized to determine such fair value. In general, fair values determined byLevel 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. We consider a security that trades at least weekly to havean active market. Fair values determined by Level 2 inputs utilize data points that are observable, such as quoted prices, interest rates and yield curves. Fairvalues determined by Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activityfor the asset or liability. Investments at Fair Value as of December 31, 2009 (in thousands)Level 1 Level 2 Level 3 Total Certificates of Deposit $6,400 $- $- $6,400 Total investments at fair value $6,400 $- $- $6,400 Investments at Fair Value as of December 31, 2008 (in thousands)Level 1 Level 2 Level 3 Total Certificates of Deposit $4,500 $- $- $4,500 Total investments at fair value $4,500 $- $- $4,500 64 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. NOTE 15 – SUBSEQUENT EVENT In January 2010, the Company granted 115,000 shares of common stock and options to purchase 387,500 shares of common stock to employeesand consultants under the 2009 Equity Incentive Plan. 65 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. CADIZ INC.SCHEDULE 1 - VALUATION AND QUALIFYING ACCOUNTSFor the years ended December 31, 2009, 2008 and 2007 ($ in thousands) Balance at Additions Charged to Balance Beginning Costs and Other at End Year ended December 31, 2009 of Period Expenses Accounts Deductions of Period Tax valuation allowance $46,400 $950 $- $- $47,350 Year ended December 31, 2008 Tax valuation allowance $42,180 $4,220 $- $- $46,400 Year ended December 31, 2007 Tax valuation allowance $34,201 $7,979 $- $- $42,180 66 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed onits behalf by the undersigned, thereto duly authorized.CADIZ INC. By:/s/ Keith Brackpool Keith Brackpool, Chairman and Chief Executive Officer Date:March 15, 2010Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the datesindicated.Name and PositionDate /s/ Keith BrackpoolMarch 15, 2010Keith Brackpool, Chairman and Chief Executive Officer (Principal Executive Officer) /s/ Timothy J. ShaheenMarch 15, 2010Timothy J. Shaheen, Chief Financial Officer (Principal Financial and Accounting Officer) /s/ Stephen J. DuffyMarch 15, 2010Stephen J. Duffy, Director /s/ Geoffrey GrantMarch 15, 2010Geoffrey Grant, Director /s/ Winston H. HickoxMarch 15, 2010Winston H. Hickox, Director /s/ Murray H. HutchisonMarch 15, 2010Murray H. Hutchison, Director /s/ Raymond J. PaciniMarch 15, 2010Raymond J. Pacini, Director /s/ Stephen E. CourterMarch 15, 2010Stephen E. Courter, Director 67Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 10.17 SERVICES AND EXCLUSIVITY AGREEMENTThis Services and Exclusivity Agreement (“Agreement”) is made and entered into as of the 2nd day of November, 2009, by and between LAYNECHRISTENSEN COMPANY, a Delaware corporation (“Layne”) and CADIZ, INC., a Delaware corporation (“Cadiz”), (each a “Party” and collectively the“Parties”).RECITALSA. Cadiz is a publicly traded company that owns approximately 35,000 acres of land in eastern San Bernardino County (the “Property”), whichProperty is presently used for the production of agricultural and is the planned location for a water conservation and water banking project (the“Project”);B. Cadiz is a going agricultural concern with production wells and monitoring wells on the Property;C. Layne is a publicly traded company that provides a full line of water-related services and products including hydrological studies, site selection, welldesign, drilling and well development, pump installation, and repair and maintenance;D. CH2M Hill previously provided an opinion to Cadiz on the total quantity of recoverable water that can be extracted from the Property, as well as theminimum quantity of water that flows across the Fenner Gap and then evaporates from the Cadiz and Bristol Dry Lakes;E. The Parties acknowledge that the process of peer reviewing the opinion provided by CH2M Hill will require the collection of additional field data,namely the development of two test wells (“Test Wells”) within Section 18 of the Property, as generally depicted in Exhibit “A” attached hereto; andF. Layne initially estimated the cost of collecting the field data necessary to complete the peer review of the Test Wells at approximately $690,050.00,and a final bid contract was executed and is attached hereto as Exhibit “B.”G. In drilling the first test well (TW-1), Layne encountered coarse alluvial material and lost circulation of its well when it entered the carbonates and ithas requested Cadiz to renegotiate the existing bid contracts.H. Layne has prepared a revised estimate to account for the physical circumstances and to provide for a pump test in the alluvium at TW-1 and TW-2,which revised estimate is attached hereto as Exhibit “C.”I. Layne and Cadiz desire to confirm their ongoing relationship with respect to the Project.AGREEMENTNOW THEREFORE, the Parties agree as follows:1. Exclusive Services. During the term of this Agreement and subject to the limitations described in Section 4(b) below, with respect to the Project, Cadiz shallcontract exclusively with Layne for the following water-related services (individually, the “Service” and collectively, the “Services”): (a)Drilling of bore holes; (b)Drilling and completion of monitoring wells, completion of test wells, completion of production wells, and completion of aquifer, storageand recovery wells; (c)Servicing the wells and pumps currently on the Property and any that may be drilled in the future. This work includes any well service,preventative maintenance and well rehabilitation of all wells existing or newly constructed. (d)Furnish and install new and replacement pumping equipment for shallow/deep wells, and booster applications. (e)Pipeline installations. Layne will be considered a preferred provider of pipeline services and therefore it will be given a fair opportunity tobid on the installation of a pipeline and any pipeline related proposals to convey water to and from the Project and on the Project site. Cadizwill not select another contractor unless and until it meets and confers with Layne. However, if Cadiz determines, in its completediscretion, that it desires to use another contractor for pipeline related services while exclusively using Layne for the services identified in1(a) through 1(d) above, then this Agreement will remain in full force and effect and no further compensation will be due to Layne forpipeline services or otherwise.Layne agrees to perform the Services in a first-class and high-quality manner typical of the quality of work performed by Layne, with all representations,indemnities and warranties typically offered to purchasers of services similar to the services. With respect to all Services performed by Layne, Layne willsubmit to Cadiz an executed contract and detailed scope of services describing the work to be performed by Layne, and outlining the representations,warranties and indemnities provided by Layne.2. Term. The term of this Agreement is 10 years from the date of execution. Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.3. Competitive Services. Cadiz’ commitment to use Layne for the Services is expressly subject to the limitation that the prices charged by Layne must becompetitive. Layne covenants and agrees that the prices it charges for the Services will be competitively priced. After receiving a written proposal from Laynefor a specific Service, Cadiz may elect to solicit proposals from other competent providers, as agreed between Cadiz and Layne, of services similar to theServices. If another service provider is willing to provide the specific Service for a price that is at least 15% percent lower than the price quoted by Layne,then Layne will have 14 days to either agree to perform the Service at a price within 5% of the other service provider’s proposal, or if Layne either declines orfails to timely respond, then Cadiz may use the alternative service provider on the specific Service. Layne’s decision to decline to adjust its price (or refuse totimely respond) on any specific Service will not affect its right to provide exclusive service on future Services. 4. Payment. The revised work to be provided by Layne and contemplated by the Parties as depicted in Exhibit “C” has been estimated by Layne at$971,120. As a final and total payment for the completion of the services contemplated by Exhibits A, B and C, inclusive of any and all any unanticipatedactions or costs, Cadiz will pay the following: (a) $300,000, which payment will be due within 30 days of job completion (the “Initial Payment”). (b) If Layne satisfactorily and substantially completes the job before 5.00 p.m. (pst) on November 30, 2009, Layne will be owed the fullamount remaining for such work ($671,120) (the “Full Payment”). However, if Layne completes the job at any time after 5.00 p.m. (pst) on November 30,2009, in lieu of full payment, Layne will be owed only the sum of $530,585 in full satisfaction for such work (the “Reduced Payment”). The FullPayment and the Reduced Payment may collectively be referred to as the “Remaining Payment”). The Remaining Payment will be payable as follows(without any interest owed to Layne): (1) If Cadiz transmits written notice by December 31, 2012 of its intention to proceed with the Project and to use Layne as the exclusiveprovider of Services as provided herein, Cadiz will not owe Layne any of the Remaining Payment, and the Initial Payment will be in full satisfaction of thework described above. (2) If Cadiz transmits written notice by December 31, 2012 of its intention to proceed with the Project and not use Layne as its exclusiveprovider of services as provided herein, in Cadiz’s reasonable discretion, Cadiz will pay Layne 125% of the applicable Remaining Payment owed to Layneand the exclusivity requirements shall terminate. (3) If Cadiz transmits written notice by December 31, 2012 of its intention not to proceed with the Project, Cadiz will pay Layne the applicableRemaining Payment owed to Layne within 30 days of such notice and the exclusivity requirements shall terminate. (4) If the Project is halted because in Cadiz’s sole and complete discretion it determines that: (a) the two test wells do not meet Cadiz’sexpectations or (b) the Project is deemed technically infeasible, then Cadiz will pay Layne the full applicable Remaining Payment as stated in 4(b)(3), within 30days of Cadiz’s determination. (5) Regardless of any such action Cadiz takes with regards to 4(b)(1) through (4) above, Cadiz will notify Layne in writing absolutely no laterthan December 31, 2012 of Cadiz’s intentions to proceed with the Project or not to proceed with the Project. (6) If Cadiz notifies Layne of the termination of the Project pursuant to paragraph 4(b)(3) or 4(b)(4) above, and Cadiz subsequently elects toresume the Project within five years after the date of such notice, the Parties’ rights and obligations under this Agreement will be reinstated as if the Project hadnot been terminated, with the term continuing to run from the original date of this Agreement. 5. Covenant of Good Faith and Fair Dealing. This Agreement shall be subject to the covenant of good faith and fair dealing. 6. Miscellaneous. (a) Notices. All notices, requests, demands or other communications required, permitted or desired to be given hereunder shall be deemed to have beenduly given if delivered in writing by hand delivery, one business day after delivery by overnight courier, or 72 hours after deposit in the US mail and mailedby certified mail and addressed as follows: If to Cadiz:Tim Shaheen, CFOCadiz, Inc.550 S. Hope Street, Suite 2850Los Angeles, CA 90071 With a copy to:Scott SlaterBrownstein Hyatt Farber Schreck, LLP21 East Carrillo StreetSanta Barbara, CA 93101 If to Layne:Bob Ereth, General ManagerLayne Christensen Company11001 Etiwanda AvenueFontana , CA 92337 Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(b) Assignment. Layne may not assign this Agreement without Cadiz’s approval, which approval Cadiz may withhold in its sole discretion.(c) Entire Agreement. This Agreement, including all exhibits and schedules, contains the entire agreement between the Parties hereto with respect to thetransactions contemplated herein.(d) Amendments. This Agreement may be amended, modified or supplemented only by mutual written consent of the Parties to this Agreement.(e) Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of California.(f) Attorneys Fees. Should any action or proceeding be necessary to construe or enforce the terms and conditions of this Agreement, or the rights andduties of the Parties hereunder, the Party prevailing in such action shall be entitled to recover all court costs and actual attorneys’ fees.(g) Time is of the Essence. Time is of the essence with respect to each provision in this Agreement.(h) Severability. In case any one or more provisions contained in this Agreement shall, for any reason, be held invalid, illegal or unenforceable in anyrespect, such invalidity, illegality or unenforceability shall not affect any other provision hereof and this Agreement shall be construed as if such invalid,illegal or unenforceable provision had not been contained herein.(i) Execution in Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which togethershall constitute one and the same instrument. IN WITNESS WHEREOF, the Parties have set forth their signatures as of the date first written above. CADIZ, INC.LAYNE CHRISTENSEN COMPANY /s/ Scott S. Slater/s/ Robert A. ErethScott S. Slater By: Robert A. Ereth General Counsel Its: General Manager EXHIBIT “A”DESCRIPTION AND LOCATION OF TEST WELLS EXHIBIT “B”FINAL BID CONTRACT TEST WELLSEXHIBIT “C”ESTIMATE TW-1 AND TW-2 WELLS Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. AMENDMENT NO. 1 TOSERVICES AND EXCLUSIVITY AGREEMENTThis Amendment No. 1 to Services and Exclusivity Agreement (“Amendment”) is made and entered into as of January 4, 2010, by and betweenLAYNE CHRISTENSEN COMPANY, a Delaware corporation (“Layne”) and CADIZ, INC., a Delaware corporation (“Cadiz”), (each a “Party” andcollectively the “Parties”).RECITALSA. The Parties signed that certain Services and Exclusivity Agreement dated as of November 2, 2009;B. The Parties desire that Layne also perform the services described in that certain Project Estimate (“Project Estimate”) for the TW-2(B) Test Hole (“TW-2(B) Well”); andC. The Parties desire to amend the Agreement to include the TW-2(B) Well. AGREEMENTNOW THEREFORE, the Parties agree as follows:1. Amendment. The Agreement is hereby modified and amended by this Amendment. Except as expressly modified herein, the Agreement continues in fullforce and effect. All capitalized terms not defined herein shall have the meanings given in the Agreement. 2. Payment. In addition to the payment provisions described in Section 6 of the Agreement, the following shall apply with respect to the payment for the TW-2(B) Well: (a) Pursuant to the terms described in the Project Estimate, the estimated cost to complete the TW-2(B) Well is $117,375.00. (b) Promptly following execution of the Project Estimate, Cadiz shall pay Layne 40% of the estimated cost to complete the TW-(B) Well ($46,950)(“Initial TW-2(B) Payment”). (c) If Layne satisfactorily and substantially completes the work before 5:00 p.m. (pst) on January 19, 2010, Layne will be owed the full amountremaining for such work ($70,425). However, if Layne completes the work at any time after such date, the remaining amount owed to Layne shall be reducedby 10%. Every two weeks that the work has not satisfactorily and substantially completed commencing on 5:00 p.m. (pst) on February 2, 2010, theremaining payment will be reduced by an additional 10% until the work is completed. The remaining payment owed for the TW-2(B) Well, as it may bereduced as set forth above is referred to as “Remaining TW-2(B) Payment”. The Remaining TW-2(B) Payment will be payable as follows (without anyinterest owed to Layne): (1) If Cadiz transmits written noticed by December 31, 2012, of its intention to proceed with the Project and to use Layne as the exclusiveprovider of Services, Cadiz will not owe Layne any of the Remaining TW-2(B) Payment, and the Initial TW-2(B) Payment will be in full satisfaction of thework described above. (2) If Cadiz transmits written notice by December 31, 2012, of its intention to proceed with the Project and not use Layne as its exclusiveprovider of services as provided herein, in Cadiz’s reasonable discretion, Cadiz will pay Layne 125% of the applicable Remaining TW-2(B) Payment owed toLayne and the exclusivity requirements shall terminate. (3) If Cadiz transmits written notice by December 31, 2012, of its intention not to proceed with the Project, Cadiz will pay Layne theapplicable Remaining TW-2(B) Payment owed to Layne within 30 days of such notice and the exclusivity requirements shall terminate. 3. Execution in Counterparts. This Amendment may be executed in counterparts, each of which shall be deemed an original, but all of which together shallconstitute one of the same instrument. IN WITNESS WHEREOF, the Parties have set forth their signatures as of the date first written above. CADIZ, INC.LAYNE CHRISTENSEN COMPANY /s/ Scott S. Slater/s/ Robert A. ErethScott S. Slater By: Robert A. Ereth General Counsel Its: General Manager Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. AMENDMENT NO. 2 TOSERVICES AND EXCLUSIVITY AGREEMENTThis Amendment No. 2 to Services and Exclusivity Agreement (“Amendment No. 2”) is made and entered into as of January 27, 2010, by and betweenLAYNE CHRISTENSEN COMPANY, a Delaware corporation (“Layne”) and CADIZ, INC., a Delaware corporation (“Cadiz”), (each a “Party” andcollectively the “Parties”).RECITALSA. The Parties signed that certain Services and Exclusivity Agreement dated as of November 2, 2009 (“Original Agreement”);B. On or about January 4, 2010, the Parties signed that certain Amendment No. 1 to Services and Exclusivity Agreement (“Amendment No. 1”);C. The Parties desire to confirm the amount of payment owed to Layne under the Original Agreement;D. The Parties desire that Layne also perform the services described in that certain Project Estimate (“Project Estimate”) for the TW-3 Test Hole (“TW-3 Well”), which Project Estimate is attached hereto as Exhibit A; andE. The Original Agreement, as amended by Amendment No. 1 may hereafter be referred to as the “Agreement”. AGREEMENTNOW THEREFORE, the Parties agree as follows:1. Amendment. The Agreement is hereby modified and amended by this Amendment No. 2. Except as expressly modified herein, the Agreement continues infull force and effect. All capitalized terms not defined herein shall have the meanings given in the Agreement. 2. Payment of TW-1 and TW-2 Wells. Although the Remaining Payment will continue to be deferred in accordance with Section 4(b) of the OriginalAgreement, the Parties acknowledge that Layne has met the requirements necessary for the Full Payment with respect to TW-1 and TW-2. Further, because ofadditional work performed by Layne and approved by Cadiz, the amount of the Remaining Payment for TW-1 and TW-2 shall be increased by $81,270($752,390 total Remaining Payment for TW-1 and TW-2). 3. TW-3 Well. With respect to TW-3, the Parties agree that Layne will perform the work and for the fees described in the Project Estimate ($72,350). Suchwork shall be performed in a timely manner. The following shall apply with respect to the payment for the TW-3 Well: (a) Within 30 days following substantial completion of the TW-3 Well, Cadiz shall pay Layne 40% of the total amount owed under the ProjectEstimate ($28,940) (“Initial TW-3 Payment”). (b) The remaining payment owed for the TW-3 Well is referred to as the “Remaining TW-3 Payment”). The Remaining TW-3 Payment willbe payable as follows (without any interest owed to Layne): (1) If Cadiz transmits written notice by December 31, 2012 of its intention to proceed with the Project and to use Layne as the exclusiveprovider of Services, Cadiz will not owe Layne any of the Remaining TW-3 Payment, and the Initial TW-3 Payment will be in full satisfaction of the workdescribed above. (2) If Cadiz transmits written notice by December 31, 2012 of its intention to proceed with the Project and not use Layne as its exclusiveprovider of services as provided herein, in Cadiz’s reasonable discretion, Cadiz will pay Layne 125% of the Remaining TW-3 Payment owed to Layne and theexclusivity requirements shall terminate. (3) If Cadiz transmits written notice by December 31, 2012 of its intention not to proceed with the Project, Cadiz will pay Layne the applicableRemaining TW-3 Payment owed to Layne within 30 days of such notice and the exclusivity requirements shall terminate. 4. Execution in Counterparts. This Amendment may be executed in counterparts, each of which shall be deemed an original, but all of which together shallconstitute one and the same instrument. IN WITNESS WHEREOF, the Parties have set forth their signatures as of the date first written above. CADIZ, INC.LAYNE CHRISTENSEN COMPANY /s/ Scott S. Slater/s/ Robert A. ErethScott S. Slater By: Robert A. Ereth General Counsel Its: General Manager EXHIBIT ASource: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.PROJECT ESTIMATE TW-3 WELLSource: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 21.1CADIZ INC.SUBSIDIARIES OF THE COMPANYCadiz Real Estate LLCRancho Cadiz Mutual Water CompanySW Estate, Inc.Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 31.1CERTIFICATION PURSUANT TO SECTION 302 OF THESARBANES-OXLEY ACT OF 2002I , Keith Brackpool, certify that: 1. I have reviewed this annual report on Form 10-K of Cadiz Inc.; 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 thestatements 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 thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange 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 theregistrant and have:a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure 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 inaccordance 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 effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscalquarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, theregistrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likelyto adversely affect the registrant's ability to record, process, summarize and report financial information; andb) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control overfinancial reporting.Dated: March 15, 2010 /s/ Keith BrackpoolKeith BrackpoolChairman and Chief Executive OfficerSource: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 31.2CERTIFICATION PURSUANT TO SECTION 302 OF THESARBANES-OXLEY ACT OF 2002I, Timothy Shaheen, certify that: 1. I have reviewed this annual report on Form 10-K of Cadiz Inc.; 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 thestatements 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 thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange 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 theregistrant and have:a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure 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 inaccordance 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 effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscalquarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, theregistrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likelyto adversely affect the registrant's ability to record, process, summarize and report financial information; andb) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control overfinancial reporting.Dated: March 15, 2010 /s/ Timothy ShaheenTimothy ShaheenChief Financial Officer and SecretarySource: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 32.1STATEMENT PURSUANT TO SECTION 906 THE SARBANES-OXLEY ACT OF 2002BY PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER I, Keith Brackpool, herby certify, to my knowledge, that: 1. the accompanying Annual Report on Form 10-K of Cadiz Inc. for the year ended December 31, 2009 (the "Report") fully complies with the requirementsof Section 13(a) or 15(d), as applicable, of the Securities and Exchange Act of 1934, as amended; and 2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Cadiz Inc. IN WITNESS WHEREOF, the undersigned has executed this Statement as of the date first written above.Dated: March 15, 2010/s/ Keith BrackpoolKeith BrackpoolChairman and Chief Executive Officer Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 32.2STATEMENT PURSUANT TO SECTION 906 THE SARBANES-OXLEY ACT OF 2002BY PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER I, Timothy J. Shaheen, herby certify, to my knowledge, that: 1. the accompanying Annual Report on Form 10-K of Cadiz Inc. for the year ended December 31, 2009 (the "Report") fully complies with the requirementsof Section 13(a) or 15(d), as applicable, of the Securities and Exchange Act of 1934, as amended; and 2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Cadiz Inc. IN WITNESS WHEREOF, the undersigned has executed this Statement as of the date first written above.Dated: March 15, 2010/s/ Timothy J. ShaheenTimothy J. ShaheenChief Financial Officer and Secretary Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 333-156502, 333-163321, 333-136117, 333-126117, and333-130338), and Form S-8 (No. 333-163823, 333-144862, 333-124626, and 333-138674) of Cadiz Inc. of our report dated March 15, 2010 relating to thefinancial statements, financial statement schedule, and the effectiveness of internal control over financial reporting, which appears in this Form 10-K. PricewaterhouseCoopers LLP Los Angeles, California March 15, 2010Source: CADIZ INC, 10-K, March 15, 2010Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.

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