Cadiz Inc.
Annual Report 2013

Plain-text annual report

Morningstar® Document Research℠ FORM 10-KCADIZ INC - CDZIFiled: March 10, 2014 (period: December 31, 2013)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, 2013 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 0-12114CADIZ 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 Global Market(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, 2013 was approximately $64,738,036 based on 14,073,486 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. Thisdetermination of affiliate status is not necessarily a conclusive determination for other purposes.As of March 5, 2014, the Registrant had 16,172,239 shares of common stock outstanding.Documents Incorporated by ReferenceSource: CADIZ INC, 10-K, March 10, 2014Powered 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.Portions of the Registrant’s definitive Proxy Statement to be filed for its 2014 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 10, 2014Powered 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 CONTENTS Part I Page Item 1.Business1 Item 1A.Risk Factors12 Item 1B.Unresolved Staff Comments15 Item 2.Properties15 Item 3.Legal Proceedings17 Item 4.Mine Safety Disclosures18 Part II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities19 Item 6.Selected Financial Data21 Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations22 Item 7A.Quantitative and Qualitative Disclosures about Market Risk39 Item 8.Financial Statements and Supplementary Data39 Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure39 Item 9A.Controls and Procedures39 Item 9B.Other Information40 Part III Item 10.Directors, Executive Officers and Corporate Governance41 Item 11.Executive Compensation41 Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters41 Item 13.Certain Relationships and Related Transactions, and Director Independence41 Item 14.Principal Accounting Fees and Services41 Part IV Item 15.Exhibits, Financial Statement Schedules42ii Source: CADIZ INC, 10-K, March 10, 2014Powered 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 contains forward-looking statements with regard to financial projections, proposed transactions such as those concerning thefurther development of our land and water assets, information or expectations about our business strategies, results of operations, products or markets, orotherwise makes 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-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially fromthese forward-looking statements. These include, among others, the cautionary statements under the caption “Risk Factors”, as well as other cautionarylanguage contained in this Form 10-K. These cautionary statements identify important factors that could cause actual results to differ materially from thosedescribed in the forward-looking statements. When considering forward-looking statements in this Form 10-K, you should keep in mind the cautionarystatements described above.Overview We are a land and water resource development company with 45,000 acres of land in three areas of eastern San Bernardino County,California. Virtually all of this land is underlain by high-quality, naturally recharging groundwater resources, and is situated in proximity to the ColoradoRiver and the Colorado River Aqueduct (“CRA”), a major source of imported water for Southern California. Our main objective is to realize the highest andbest use of these land and water resources in an environmentally responsible way. For more than 20 years, we have maintained an agricultural development at our 34,000-acre property in the Cadiz Valley, relying upongroundwater from the underlying aquifer system for irrigation. In 1993, we secured permits to develop agriculture on up to 9,600 acres of the Cadiz Valleyproperty and withdraw more than one million acre-feet of groundwater from the underlying aquifer system. Since that time, we have maintained various levelsof agriculture at the property and this operation has provided our principal source of revenue. In addition to our sustainable agricultural operations, we believe that the long-term value of our land assets can best be derived through thedevelopment of a combination of water supply and storage projects at our properties. The primary factor driving the value of such projects is continuingpressure on water supplies throughout California, including environmental and regulatory restrictions on each of the State’s three main water sources: theState Water Project, the CRA and the Los Angeles Aqueduct. Southern California’s water providers rely on imports from these systems for a majority of theirwater supplies, but deliveries from all three into the region have been below capacity over the last several years. Availability of supplies in California alsodiffers greatly from year to year due to natural hydrological variability. In January 2014, California’s Governor declared a drought emergency for the entirestate as a result of record-low winter precipitation and depleted reservoir storage levels. Water deliveries from the State Water Project, which provides watersupplies from Northern California to the central and southern parts of the state, have been limited to just 5% of capacity for 2014 in response to below-averageprecipitation as well as ongoing regulatory restrictions. With the region’s population expected to continue to grow, Southern California water providers areactively seeking new, reliable supply solutions to plan for long-term water needs and anticipated limitations of traditional water supplies. 1back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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. At present, our water development efforts are primarily focused on the Cadiz Valley Water Conservation, Recovery and Storage Project (“WaterProject” or “Project”), which will capture and conserve millions of acre-feet of native groundwater currently being lost to evaporation from the aquifer systembeneath our Cadiz Valley property and deliver it to water providers throughout Southern California (see “Water Resource Development”). We believe that theultimate implementation of this Water Project will create the primary source of our future cash flow and, accordingly, our working capital requirements relatelargely to the development activities associated with this Water Project. We also continue to explore additional uses of our land and water resource assets, including additional agricultural opportunities, thedevelopment of a land conservation bank on our properties outside the Water Project area and other long-term legacy uses of our properties, such as habitatconservation and cultural uses. In addition to these development efforts, we will also pursue strategic investments in complementary business or infrastructure to meet ourobjectives. We cannot predict with certainty when or if these objectives will be realized.(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, andland development initiatives to maximize the long-term value of our properties and future prospects (see “Narrative Description of Business”). Our initial focus was on the acquisition of land and the assembly of contiguous land holdings through property exchanges to prove the quantityand quality of water resources in the Mojave Desert region of eastern San Bernardino County. We subsequently established agricultural operations on ourproperties in the Cadiz Valley and sought to develop the water resources underlying that site. In 1993, we secured permits to develop up to 9,600 acres ofagriculture in the Cadiz Valley and withdraw more than one million acre-feet of groundwater from the underlying aquifer system. The agricultural operationsinclude vineyards, citrus orchards and seasonal vegetables. The agricultural development demonstrated that the geology and hydrology of the property is also uniquely suited and able to support a projectthat could offer additional water supplies and water storage opportunities in Southern California. 2back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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”), thelargest water wholesaler in the region and owner of the nearby Colorado River Aqueduct (“CRA”), to jointly design, permit, and build such a project (“2002Project”). 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 2002 Project, including a Record of Decision (“ROD”) from the U.S. Department of the Interior, which approved the 2002 Project andoffered a right-of-way for construction of facilities, including a 35-mile water conveyance pipeline from the Cadiz Valley property to the CRA across federallands. In October 2002, Metropolitan’s staff brought the right-of-way matter before its Board of Directors. By a very narrow margin, the Metropolitan Boardvoted not to accept the right-of-way grant nor proceed with the 2002 Project. Following Metropolitan’s decision, we began to pursue new partnerships and redesigned the 2002 Project to meet the changing needs of SouthernCalifornia’s water providers. We invested in significant scientific and technical analysis of the groundwater resources in the Cadiz Valley as part of thiseffort, and focused on the safe and sustainable management of the aquifer system beneath our Cadiz Valley property with the goal of providing a reliable,annual water supply for the region. Between 2010 and 2011 six Southern California water providers entered option agreements to participate in the redesignedWater Project. The Arizona & California Railroad Company, which owns the right-of-way within which the Water Project’s conveyance pipeline will beconstructed, will also receive water from the Water Project for a variety of critical railroad purposes. In accordance with the California Environmental Quality Act (“CEQA”), we began a new environmental review and permitting process for theWater Project in 2011 led by Santa Margarita Water District (“SMWD”), one of the Project participants (see “Water Resource Development”, below, for a fulldescription of the Water Project). After an extensive review process, the SMWD Board of Directors certified the Final Environmental Impact Report on July31, 2012 and became the first participating agency to convert its option agreement to a Water Purchase and Sale Agreement for firm supplies from the WaterProject. On October 1, 2012, San Bernardino County, a Responsible Agency under CEQA, also adopted CEQA findings and approved the Project’sGroundwater Monitoring, Management and Mitigation Plan (‘GMMMP”, “Plan”) and the withdrawal of 50,000 AF of water per year for 50 years. Followingthese critical approvals, Water Project development has transitioned from the environmental entitlement phase to a pre-construction development and planningphase, including defense of challenges to the CEQA approvals. We are focused on completing the Project’s pre-construction phase, including resolution of pending CEQA litigation, additional Purchase andSale Agreements with participating agencies, an agreement with Metropolitan regarding conveyance of Project water in the CRA, final design engineering plans,and construction financing arrangements. We also continue to plan for further environmental review of Phase II of the Project, which would incorporate our 96-mile Cadiz to Barstow,California pipeline asset into our overall business plans. See “Existing Pipeline Asset” below, for more detail. (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 activitiesat the Cadiz 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”. 3back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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) Narrative Description of Business Our business strategy is to pursue the development of our landholdings for their highest and best uses. At present, our development activitiesinclude water resource, land and agricultural 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 supply, water storage, and conservationprograms with public agencies and other partners. The Cadiz Valley Water Conservation, Recovery and Storage Project We own approximately 34,000 acres of land and the subsurface strata, inclusive of the unsaturated soils and appurtenant water rights in theCadiz and Fenner valleys of eastern San Bernardino County (the “Cadiz/Fenner Property”). The aquifer system underlying this property is naturallyrecharged by precipitation (both rain and snow) within a watershed of approximately 1,300 square miles. See Item 2, “Properties – The Cadiz/Fenner ValleyProperty”. The Cadiz Valley Water Conservation, Recovery and Storage Project (the “Water Project” or “Project”) is designed to supply, capture andconserve billions of gallons of renewable native groundwater currently being lost annually to evaporation from the aquifer system underlying our Cadiz/FennerProperty, and provide a reliable water supply to water users in Southern California. By implementing established groundwater management practices, theWater Project will create a new, sustainable water supply for project participants without adversely impacting the aquifer system or the desertenvironment. The total quantity of groundwater to be recovered and conveyed to Water Project participants will not exceed a long-term annual average of50,000 acre-feet per year for 50 years. The Project also offers participants the ability to carry-over their annual supply, and store it in the groundwater basinfrom year to year. A second phase of the Water Project, Phase II, will offer approximately one million acre-feet of storage capacity that can be used to storeimported water supplies at the Water Project area. Water Project facilities required for Phase I primarily include, among other things:· High yield wells designed to efficiently recover available native groundwater from beneath the Water Project area;· A water conveyance pipeline to deliver water from the well field to the CRA; and· An energy source to provide power to the well-field, pipeline and pumping plant; 4back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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. If an imported water storage component of the Project is ultimately implemented in Phase II, the following additional facilities would be required,among other things:· A pumping plant to pump water through the conveyance pipeline from the CRA to the Project well-field; and· 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. In general, several elements are needed to implement such a project: (1) a water conveyance pipeline right-of-way from the Water Project area to adelivery system; (2) storage and supply purchase agreements with one or more public water agencies or private water utilities; (3) environmental/regulatorypermits; and (4) construction and working capital. As described below, the first three elements have been progressed on a concurrent basis. The fourth isdependent on actions arising from the completion of the first three.(1) A Water Conveyance Pipeline Right-of-Way from the Water Project Area to a Delivery System In September 2008, we secured a right-of-way for the Water Project’s water conveyance pipeline by entering into a lease agreement with theArizona & California Railroad Company (“ARZC”), which operates an active shortline railroad extending from Cadiz to Matthie, Arizona. The agreementallows for the use of a portion of the railroad’s right-of-way to construct and operate a water conveyance pipeline for a period up to 99 years. The buriedpipeline would be constructed parallel to the railroad tracks and be used to convey water between our Cadiz Valley property and the CRA in Rice,California. The ARZC is also a Project participant and would receive water from the Project to serve a variety of railroad purposes, including fire suppressionand other safety and maintenance uses. In addition, in September 2013, we entered into a trackage rights agreement with the ARZC that would enable theoperation of steam-powered, passenger excursion trains on the line powered by water made available from the pipeline. The ARZC route was fully analyzed in the Water Project’s Final Environmental Impact Report (“FEIR”) as part of the California EnvironmentalQuality Act (“CEQA”) environmental review process completed in 2012. Pursuant to our lease agreement with ARZC, we made a payment in the amount of$3.3 million on March 6, 2013, marking the completion of the environmental review period and the commencement of the construction and operation term ofthe agreement. We are also exploring the potential to utilize an unused natural gas pipeline (as described in “Existing Pipeline Asset” below) that exists in theProject area, to which we hold an ownership right, as a means to access additional distribution systems. Initial feasibility studies indicate that this pipelinecould be used as a component of the Project to distribute water to Project participants or import water for storage at the Project area in Phase II. The potentialuse of this pipeline by the Project was preliminarily analyzed as part of the Project’s Environmental Impact Report (“EIR”) (see “Other DevelopmentOpportunities”). Additional environmental review would be required prior to converting this line for water distribution. 5back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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. (2) Storage and Supply Agreements with One or More Public Water Agencies or Private Water Utilities In 2010 and 2011, we entered into option and environmental cost sharing agreements with six water providers: Santa Margarita Water District(“SMWD”), Golden State Water Company (a wholly-owned subsidiary of American States Water [NYSE: AWR]), Three Valleys Municipal Water District,Suburban Water Systems (a wholly owned subsidiary of SouthWest Water Company), Jurupa Community Services District and California Water ServiceCompany, the third largest investor-owned American water utility. The six water providers serve more than one million customers in cities throughoutCalifornia’s San Bernardino, Riverside, Los Angeles, Orange, Imperial and Ventura Counties. Under the terms of the agreements with the six water providers, upon completion of the Water Project’s CEQA review and certification of theFinal Environmental Impact Report (“Final EIR”), which occurred on July 31, 2012, each agency has the right to acquire an annual supply of 5,000 acre-feetof water at a pre-determined formula competitive with their incremental cost of new water. In addition, the agencies have options to acquire storage rights in theWater Project to allow them to manage their supplies to complement their other water resources. Following CEQA certification, SMWD was the first participant to adopt resolutions approving a Water Purchase and Sale Agreement for 5,000acre-fee of water. The structure of the SMWD purchase agreement calls for an annually adjusted water supply payment of up to $500/AF including identifiedincome streams, plus their pro rata portion of the capital recovery charge and operating and maintenance costs. The capital recovery charge is calculated byamortizing the total capital investment by the Company over a 30 year term. Approximately 80% of the water to be conserved annually by the Project is now either under a Water Purchase and Sale Agreement or underoption. We are currently working with the other participating agencies to convert their option agreements to definitive economic agreements. We are also indiscussions with additional water providers interested in acquiring rights to the remaining available Project supplies, as well as with third parties regarding theimported storage aspect of this Project.(3) Environmental/Regulatory Permits In order to properly develop and quantify the sustainability of the Water Project, and prior to initiating the formal permitting process for theWater Project, we commissioned environmental consulting firm CH2M HILL to complete a comprehensive study of the water resources at the Projectarea. Following a year of analysis, CH2M HILL released its study of the aquifer system in February 2010. Utilizing new models produced by the U.S.Geological Survey in 2006 and 2008, the study estimated the total groundwater in storage in the aquifer system to be between 17 and 34 million acre-feet, aquantity on par with Lake Mead, the nation’s largest surface reservoir. The study also identified a renewable annual supply of native groundwater in theaquifer system currently being lost to evaporation. CH2M HILL’s findings, which were peer reviewed by leading groundwater experts, confirmed that theaquifer system could sustainably support the Water Project. 6back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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. Further, and also prior to beginning the formal environmental permitting process, we entered into a Memorandum of Understanding (“MOU”)with the Natural Heritage Institute (“NHI”), a leading global environmental organization committed to protecting aquatic ecosystems, to assist with our effortsto sustainably manage the development of our Cadiz/Fenner Property. As part of this “Green Compact”, we will follow stringent plans for groundwatermanagement and habitat conservation, and create a groundwater management plan for the Water Project. As discussed in (2), above, we have entered into environmental cost sharing agreements with all participating water providers. Theenvironmental cost sharing agreements created a framework for funds to be committed by each participant to share in the costs associated with the CEQAreview work. SMWD served as the lead agency for the review process. ESA Associates, a leading environmental consulting firm, prepared the WaterProject’s environmental review documentation. The CEQA process began in February 2011 with the issuance of a Notice of Preparation (“NOP”) of a Draft Environmental Impact Report(“Draft EIR”) by SMWD. SMWD held two public scoping meetings in March 2011 and released the Draft EIR in December 2011. The Draft EIR analyzedpotential impacts to environmental resources at the Project area, including critical resources of the desert environment such as vegetation, mountain springs,and water and air quality. The analysis of the Project considered peer-reviewed technical reports, independently collected data, existing reports and theProject’s state of the art Groundwater Management, Monitoring and Mitigation Plan (“GMMMP”). SMWD conducted a 100-day public comment period for the Draft EIR, hosting two public comment meetings and an informational workshopin January and February 2012. The public comment period concluded in March 2012. In May 2012, we entered into a Memorandum of Understanding withSan Bernardino County and SMWD, creating the framework for finalizing the GMMMP in accordance with the County’s desert groundwater ordinance. At the beginning of July 2012, SMWD released the Final EIR and responses to public comments. The Final EIR summarized that, with theexception of unavoidable short-term construction emissions, by implementing the measures developed in the GMMMP, the Project will avoid significantimpacts to desert resources. A public hearing was held on July 25, 2012 by the SMWD Board of Directors to take public testimony and consider certificationof the Final EIR. On July 31, 2012, the SMWD Board of Directors certified the Final EIR. Following SMWD’s certification of the Final EIR, the San Bernardino County Board of Supervisors voted on October 1, 2012 to approvethe GMMMP for the Project and adopted certain findings under CEQA, becoming the first Responsible Agency to take an approving action pursuant to thecertified EIR. San Bernardino County served as a Responsible Agency in the CEQA review process as the local government entity responsible for oversightover groundwater resources in the Cadiz Valley. Metropolitan, a Responsible Agency, will take action under CEQA prior to construction regarding the terms and conditions of the Project’s useof the CRA. Project water supplies will enter Metropolitan’s CRA in accordance with its published engineering and design standards and subject to allapplicable fees and charges routinely established by Metropolitan for the conveyance of water within its service territory. 7back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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. Third parties in California have the ability to challenge CEQA approvals in State Court. In 2012, the Company was named as a real-party-in-interest in nine lawsuits challenging the various Water Project approvals granted by SMWD and San Bernardino County. In 2013, three cases were dismissedor otherwise settled. Trial in the six remaining cases, which were brought by two petitioners, began in December 2013 and concluded in February 2014.Rulings in these cases are expected in the second quarter of 2014. See Item 3, “Legal Proceedings” for more information.(4) Construction and Working Capital As part of the Water Purchase and Sale Agreement with SMWD referred to in (2), above, SMWD is further authorized to continue next stepswith the Company, which includes final permitting, design and construction. As described above, construction of Phase I of the Project would primarily consist of wellfield facilities at the Water Project site, a conveyancepipeline extending approximately 43 miles along the right-of-way described in (1), above, from the wellfield to the CRA, and an energy source to pump waterthrough the conveyance pipeline between the Project well-field and the CRA. The construction of these facilities will require capital financing, which isexpected to be entirely provided with lower-cost senior debt, secured by the new facility assets. The Company’s existing corporate term debt (see Item 7,“Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources”) provides us the flexibility toincorporate Water Project construction financing within our current debt structure. Existing wells at the Cadiz Valley property currently in use for our agricultural operations will be integrated into the Water Project well-field,reducing the number of wells that must be constructed prior to Project implementation. Existing Pipeline Asset As described above (see “Water Resource Development”), we currently hold ownership rights to a 96-mile existing idle natural gas pipeline fromthe Cadiz Valley to Barstow, California that would be converted for the transportation of water. In September 2011, we entered into an agreement with El Paso Natural Gas (“EPNG”), a subsidiary of Kinder Morgan Inc., providing us withrights to purchase approximately 220-miles of idle, natural gas pipelines between Bakersfield and Cadiz, California for $40 million. Initial feasibility studies indicated that, upon conversion, the 30-inch line could transport between 20,000 and 30,000 acre-feet of water per yearbetween the Water Project area and various points along the Central and Northern California water transportation network. In February 2012, we made a $1million payment to EPNG to extend our option to purchase the 220-mile line until April 2013. In December 2012, we entered into a new agreement with EPNG dividing the 220-mile pipeline in Barstow, California, with the Companygaining ownership rights to the 96-mile eastern segment between Barstow and the Cadiz Valley and returning to EPNG rights to the 124-mile western segmentfor its own use. The 96-mile eastern portion from the Cadiz Valley to Barstow was identified as the most critical segment of the line for accessing the state’swater transportation infrastructure. The Barstow area serves as a hub for water delivered from northern and central California to communities in SouthernCalifornia’s High Desert. 8back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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 consideration of the new agreement, EPNG reduced the purchase price of the 96-mile eastern segment to a nominal amount of $1 (one dollar),plus previous option payments totaling $1.07 million already made by Cadiz. The remaining purchase price of $1 (one dollar) is payable before expiration ofthe option period in April 2014. In addition, if EPNG files for regulatory approval of any new use of the 124-mile western segment by December 2015, EPNGwill make an additional payment to the Company of $10 million, payable on the date the application for regulatory approval is filed. The 96-mile Cadiz-Barstow pipeline creates significant opportunities for our water resource development efforts. Once converted to water use,the pipeline can be used to directly connect the Cadiz area to northern and central California water sources, serving a growing need for additional locations forstorage of water south of the Bay Delta region. In addition, the 96-mile pipeline creates new opportunities to deliver water, either directly or via exchange, topotential customers in San Bernardino and Kern Counties, areas which do not currently have an interconnection point with the Project. When both the 96-mile line and the 43-mile pipeline to the CRA become operational, Cadiz would link the two major water delivery systems in California providing flexibleopportunities for both supply and storage. The entire EPNG pipeline was evaluated in the Water Project’s EIR during the CEQA process at a programmatic level. Any use of the linewould be conducted in conformity with the Project’s GMMMP and is subject to further CEQA evaluation (see “Cadiz Valley Water Conservation, Recoveryand Storage Project” above). Agricultural Development Within the Cadiz/Fenner Property, 9,600 acres have been zoned for agriculture and the Company has developed a total of 1,920 acres of theproperty for agricultural operations. The infrastructure currently includes seven wells that are interconnected within a portion of this acreage, with total annualproduction capacity of approximately 13,000 acre-feet of water. Additionally, there are housing and kitchen facilities that support up to 300 employees. If theentire 9,600 acres were developed and irrigated, total water usage would be approximately 40,000 – 50,000 acre-feet per year depending on the crop mix. Theunderlying groundwater, fertile soil, and desert temperatures are well suited for a wide variety of fruits and vegetables. Permanent crops currently include 160 acres of vineyard used to produce dried-on-the-vine raisins and 440 acres of lemon orchards. All cropsare farmed using sustainable agricultural practices. We currently derive our agricultural revenues through direct farming and sale of our products into the market or through the lease of ouragricultural properties to third parties for farming. The entire organic raisin crop grown at the property is farmed by the Company and we incur all of thecosts required to produce and harvest the crop. The harvested raisins are then sold in bulk to a raisin processing facility. Approximately 260 acres of lemonsin production are farmed by the Company. We incur all of the costs required to produce this lemon crop. Once harvested, the lemons are shipped in bulk toan independent packing and sales facility. 9back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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 remaining 180 acres of lemons are farmed by LA Fresh Foods under a 2009 lease agreement to develop up to 500 acres of lemonorchards. We expect to receive lease income once the new lemon orchards reach commercial production through a profit sharing component of the lease. In July 2013, we also entered into a lease agreement with Limoneira Company (NASDAQ: LMR) (“Limoneira”) to plant up to 1,280 acres ofnew lemons at the property over the next five years. In consideration for the lease arrangement, Limoneira will provide an annual base rent and will alsoprovide a profit-sharing payment once the new lemon orchards reach commercial production. Agricultural revenues will vary from year to year based on the number of acres in development, crop yields, and prices. We do not expect thatour agricultural revenues will be material to our overall results of operations once the Water Project is fully operational. However, our agricultural operationsare expected to be maintained in complement with the Water Project to provide added value to Project operations.Additional Eastern Mojave Properties We also own approximately 11,000 acres outside of the Cadiz/Fenner Valley area in other parts of the Mojave Desert in eastern San BernardinoCounty. Our primary landholding outside of the Cadiz area is approximately 9,000 acres in the Piute Valley. This landholding is located approximately15 miles from the resort community of Laughlin, Nevada, and about 12 miles from the Colorado River town of Needles, California. Extensive hydrologicalstudies, 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 and could be suitable for a water supply project, agricultural development or solar energy production. Certain of these properties are locatedin or adjacent to areas designated by the federal government as Critical Desert Tortoise Habitat and/or Desert Wilderness Areas and are also suitable candidatesfor preservation and conservation. Additionally, we own acreage located near Danby Dry Lake, approximately 30 miles southeast of our Cadiz/Fenner Valley properties. TheDanby Dry Lake property is located approximately 10 miles north of the CRA. Initial hydrological studies indicate that the area has excellent potential for awater supply project. Certain of the properties in this area may also be suitable for agricultural development and/or preservation and conservation.Land Conservation Bank As stated above, approximately 10,000 acres of our properties not currently being developed are located within areas designated by the federalgovernment as Critical Desert Tortoise Habitat and/or Desert Wilderness Areas. We are currently in a permitting process with the California Department ofFish and Wildlife to permit approximately 7,500 acres of these properties for inclusion in a land mitigation or conservation bank, which would provide creditsthat can be acquired by entities that must mitigate or offset planned development in other areas. For example, this bank could potentially service the mitigationrequirements of numerous utility-scale solar development projects being considered throughout Riverside and San Bernardino Counties, including projectswithin the recently approved federal Riverside-East Solar Energy Zone. 10back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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 Opportunities Over the longer-term, we believe the population of Southern California, Nevada and Arizona will continue to grow, and that, in time, theeconomics of commercial and residential development at our properties may become attractive. Moreover, other opportunities in business or infrastructurecomplementary to our current objectives could provide new opportunities for our business. We remain committed to the sustainable use of our land and water assets, and will continue to explore all opportunities for environmentallyresponsible development of these assets. We cannot predict with certainty which of these various opportunities will ultimately be utilized.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 CadizValley properties. 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 inthe development 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, 2013, we employed 10 full-time employees (i.e. those individuals working more than 1,000 hours per year). We believe thatour employee 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 ourproperties, including the Water Project, we will be required to satisfy various regulatory authorities that we are in compliance with the laws, regulations andpolicies enforced by such authorities. Groundwater development, and the export of surplus groundwater for sale to entities such as public water agencies, issubject to regulation by specific existing statutes, in addition to general environmental statutes applicable to all development projects. Additionally, we mustobtain a variety of approvals and permits from state and federal governments with respect to issues that may include environmental issues, issues related tospecial status species, issues related to the public trust, and others. Because of the discretionary nature of these approvals and concerns, which may be raisedby various governmental officials, public interest groups and other interested parties during both the development and the approval process, our ability todevelop properties and realize income from our projects, including the Water Project, could be delayed, reduced or eliminated. 11back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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 withthe 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 theSEC’s public 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 theoperation of the 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 development activities include water resource and agricultural development at our San Bernardino County properties. We havenot received significant revenues from our development activities to date and we do not know when, if ever, we will receive operating revenues sufficient tooffset 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 theform of our water development programs, the circumstances under which supplies or storage of water can be developed and the profitability of any supply orstorage project are subject to significant uncertainties, including the risk of variable water supplies and changing water allocation priorities. Additional risksinclude our ability to obtain all necessary regulatory approvals and permits, litigation by environmental or other groups, unforeseen technical difficulties,general market conditions for water supplies, and the time needed to generate significant operating revenues from such programs after operations commence. 12back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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 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. If such permits were to be denied or granted subject to unfavorable conditions orrestrictions, our ability to successfully implement our development programs would be adversely impacted. The opposition of government officials may adversely affect our ability to obtain needed government approvals and permits upon satisfactoryterms in a timely manner. In this regard, federal government appropriations currently preclude spending for “any proposal to store water for the purpose ofexport or for any activities associated with the approval of rights-of-way on lands managed by the Needles Field Office of the U.S. Bureau of LandManagement” (the “BLM”). Federal government appropriations also direct the U.S. Department of the Interior (the “DOI”) to confirm that the Water Project’sproposed use of a portion of the right-of-way of the ARZC for the Project’s conveyance pipeline is within the scope of ARZC’s right-of-way. According toexisting federal law and direction from the DOI in Memorandum Opinion M-23075, a railroad has the authority to grant third party uses within its rights-of-way without BLM approval if those uses will serve a railroad purpose. The Project and pipeline will further numerous railroad purposes, including firesuppression and access to water for railroad business operations, and the ARZC has provided information regarding these purposes to the BLM. As a result,we do not believe federal right-of-way approval is required to implement the Project; however, this may be subject to challenge. Additionally, the statutes, regulations and ordinances governing the approval processes provide third parties the opportunity to challengeproposed plans and approvals. Opposition from third parties will cause delays and increase the costs of our development efforts or preclude suchdevelopment entirely. 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. We are currently named as a real party in interest in six lawsuits challengingthe various Water Project approvals granted to date and expect to be party to various legal proceedings arising in the general course of our business related to thedevelopment of the Water Project. While we have worked with representatives of various environmental and third party interests and agencies to minimize andmitigate 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, 2013, we had indebtedness outstanding to our senior secured lenders of approximately $98.83 million, $42.2 million ofwhich is secured by our assets (see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity andCapital Resources”). To the extent that we do not make principal and interest payments on the indebtedness when due at maturity, or if we otherwise fail tocomply with the terms of agreements governing our indebtedness, we may default on our obligations. 13back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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 Conversion of Our Outstanding Convertible Notes into Common Stock Would Dilute the Percentage of Our Common Stock Held by CurrentStockholders In connection with our March 2013 debt refinance (see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results ofOperations – Liquidity and Capital Resources”), we issued approximately $53.5 million in convertible notes (the “Convertible Notes”) Principal and accruedinterest under the Convertible Notes can be converted into common stock at $8.05 per share at the election of our lenders. An election by our lenders to convertall or a portion of principal and accrued interest under these Convertible Notes into common stock will dilute the percentage of our common stock held bycurrent stockholders up to 7.1 million shares as of March 5, 2014, and up to an additional 2.3 million shares if held to maturity. 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 throughthe first quarter of 2015. We will continue to require additional working capital to meet our cash resource needs until such time as our asset developmentprograms produce revenues. If we cannot raise funds if and when needed, we might be forced to make substantial reductions in our operating expenses, whichcould adversely affect our ability to implement our current business plan and ultimately our viability as a company. We cannot assure you that our currentlenders, or any other lenders, will give us additional credit should we seek it. If we are unable to obtain additional credit, we may engage in furtherfinancings. Our ability to obtain financing will depend, among other things, on the status of our asset development programs and general conditions in thecapital markets at the time funding is sought. Although we currently expect our capital sources to be sufficient to meet our near term liquidity needs, there canbe no assurance that our liquidity requirements will continue to be satisfied. Any further equity or convertible debt financings would result in the dilution ofownership 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. 14back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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 Volatility of Our Stock Price Could Adversely Affect Current and Future Stockholders The market price of our common stock is volatile and fluctuates in response to various factors which are beyond our control. Suchfluctuations are particularly common in companies such as ours, which have not generated significant revenues. The following factors, in addition to otherrisk factors described in this section, could cause the market price of our common stock to fluctuate substantially: · developments involving the execution of our business plan;· disclosure of any adverse results in litigation;· regulatory developments affecting our ability to develop our properties;· the dilutive effect or perceived dilutive effect of additional debt or equity financings;· perceptions in the marketplace of our company and the industry in which we operate; and· general economic, political and market conditions. In addition, the stock markets, from time to time, experience extreme price and volume fluctuations that may be unrelated or disproportionate tothe operating performance of companies. These broad fluctuations may adversely affect the market price of our common stock. Price volatility could beworse if the trading volume of our common stock is low.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 34,000 acres of largely contiguous land in the Cadiz and Fenner valleys of eastern San BernardinoCounty, California (the “Cadiz/Fenner Property”). This area is located approximately 30 miles north of the Colorado River Aqueduct (“CRA”). In 1984, weconducted investigations into the feasibility of agricultural development of this land. These investigations confirmed the availability of high-qualitygroundwater in quantities appropriate for agricultural development. Additional independent geotechnical and engineering studies conducted since 1985 have confirmed that the Cadiz/Fenner Property overlies anaquifer system that is ideally suited for the conservation, recovery and delivery of indigenous groundwater, as well as the storage of conserved or importedwater, as contemplated by the Water Project. See Item 1, “Business – Narrative Description of Business – Water Resource Development”. 15back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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 Eastern Mojave Properties In addition to the Cadiz/Fenner Valley property, we also own approximately 11,000 additional acres in the eastern Mojave Desert portion of SanBernardino County, California at two separate properties. The first property consists of approximately 9,000 acres in the Piute Valley. This landholding is located approximately 15 miles from the resortcommunity of Laughlin, Nevada, and about 12 miles from the Colorado River town of Needles, California. Extensive hydrological studies, including thedrilling and testing of a full-scale production well, have demonstrated that this landholding is underlain by high-quality groundwater. The aquifer systemunderlying this property is naturally recharged by precipitation (both rain and snow) within a watershed of approximately 975 square miles and could besuitable for a water supply project, agricultural development or solar energy production. Certain of these properties are located in or adjacent to areasdesignated by the federal government as Critical Desert Tortoise Habitat and/or Desert Wilderness Areas and are suitable candidates for preservation andconservation. Additionally, we own nearly 2,000 acres near Danby Dry Lake, approximately 30 miles southeast of our Cadiz/Fenner landholdings. OurDanby Dry Lake property is located approximately 10 miles north of the Colorado River Aqueduct. Initial hydrological studies indicate that it has excellentpotential for water supply, agricultural development and related uses. Certain of the properties in this area may also be suitable for agricultural developmentand/or preservation and conservation.Executive Offices We lease approximately 7,200 square feet of office space in Los Angeles, California for our executive offices. The lease terminates in January2016. Current base rent under the lease is approximately $14,000 per month.Cadiz Real Estate In December 2003, we transferred substantially all of our assets (with the exception of our office sublease, and certain office furniture andequipment) to Cadiz Real Estate LLC, a Delaware limited liability company (“Cadiz Real Estate”). We hold 100% of the equity interests of Cadiz Real Estateand, therefore, we continue to hold 100% beneficial ownership of the properties that we transferred to Cadiz Real Estate. The Board of Managers of Cadiz RealEstate currently consists of two managers appointed by us. Cadiz Real Estate is a co-obligor under our senior secured 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 referthroughout this Report to properties owned of record either by Cadiz Real Estate or by us as “our” properties. 16back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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. Debt Secured by Properties Our assets have been pledged as collateral for $42.2 million of senior secured debt outstanding as of December 31, 2013. Information regardinginterest rates and principal maturities is provided in Note 6 to the Consolidated Financial Statements.ITEM 3. Legal ProceedingsCEQA Claims Challenging Water Project Approvals As noted under Item 1A, Risk Factors, third parties have the ability in California to file litigation challenging the approval of a project. We arecurrently named as a real party in interest in six (6) lawsuits related to the Water Project approvals granted in 2012 by the Santa Margarita Water District andthe County of San Bernardino in accordance with the California Environmental Quality Act (“CEQA”). Three (3) additional cases filed last year have beendismissed and are no longer pending. The six lawsuits have been brought by two plaintiffs and challenge the following three (3) separate Project approvals: (1) MOU Approval – two cases filed by Tetra Technologies, Inc. (“Tetra”) (NYSE: TTI) challenging the May 2012 approvals of theMemorandum of Understanding between Cadiz, SMWD and the County related to the Project’s Groundwater Management, Monitoring &Mitigation Plan (“GMMMP”). (2) EIR Approval – two cases filed by Tetra and Center for Biological Diversity, et al (“CBD”) challenging the adequacy of the EIR certified bySMWD on July 31, 2012. (3) GMMMP Approval – two cases filed by Tetra and CBD challenging the approval of the GMMMP by the County Board of Supervisors onOctober 1, 2012: The six remaining cases have been coordinated in Orange County Superior Court and are before one judge. The cases seek various forms ofrelief, but are primarily focused on causing a reconsideration of the environmental documents and limitation of the Project approvals. Administrative trial forthe six cases began in December 2013 and was carried over until late January 2014. Final arguments in the cases concluded on February 5, 2014. Rulings in all six cases are expected in the second quarter of 2014. We cannot predict with certainty the outcome of any of the proceedings.Other Proceedings There are no other material legal proceedings pending to which we are a party or of which any of our property is the subject. 17back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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 4. Mine Safety Disclosures Not Applicable. 18back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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 NASDAQ. High Low Quarter Ended Sales Price Sales Price 2012: March 31 $ 9.44 $9.12 June 30 $ 7.33 $7.12 September 30 $10.12 $9.68 December 31 $8.10 $7.50 2013: March 31 $ 6.79 $6.69 June 30 $ 4.83 $4.58 September 30 $5.15 $5.05 December 31 $7.22 $6.74 On March 5, 2014, the high, low and last sales prices for the shares, as reported by Bloomberg, were $7.80, $7.50, and $7.52, respectively. As of December 31, 2013, the number of stockholders of record of our common stock was 113. To date, we have not paid a cash dividend on our common stock and do not anticipate paying any cash dividends in the foreseeablefuture. Our senior secured term loan has covenants that prohibit the payment of dividends. All securities sold by us during the three years ended December 31, 2013, which were not registered under the Securities Act of 1933, asamended, have been previously reported in accordance with the requirements of Rule 12b-2 of the Securities Exchange Act of 1934, as amended. 19back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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 Inc. common stock against the cumulative total returnof the Standard & Poor’s Small Cap 600 NASDAQ U.S. index and the Russell 2000® index for the past five fiscal years. The graph indicates a measurementpoint of December 31, 2008, and assumes a $100 investment on such date in Cadiz Inc. common stock, the Standard & Poor’s Small Cap 600 and theRussell 2000® indices. With respect to the payment of dividends, Cadiz Inc. has not paid any dividends on its common stock, but the Standard & Poor’sSmall Cap 600 and the Russell 2000® indices assume that all dividends were reinvested. The stock price performance graph shall not be deemed incorporatedby reference by any general statement incorporating by reference this annual report on Form 10-K into any filing under the Securities Act of 1933, as amended,except to the extent that Cadiz Inc. specifically incorporates this graph by reference, and shall not otherwise be deemed filed under such acts. 20back to topSource: CADIZ INC, 10-K, March 10, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ITEM 6. Selected Financial Data The following selected financial data insofar as it relates to the years ended December 31, 2013, 2012, 2011, 2010, and 2009 has been derivedfrom our audited financial statements. The information that follows should be read in conjunction with the audited consolidated financial statements andnotes thereto for the period ended December 31, 2013 included in Part IV of this Form 10-K. See also Item 7, "Management's Discussion and Analysis ofFinancial Condition and Results of Operations". ($ in thousands, except for per share data) Year Ended December 31, 2013 2012 2011 2010 2009 Statement of Operations Data: Total revenues $301 $362 $1,019 $1,023 $808 Net loss $(22,677) $(19,574) $(16,837) $(15,899) $(14,399)Net loss applicable to common stock $(22,677) $(19,574) $(16,837) $(15,899) $(14,399)Per share: Net loss (basic and diluted) $(1.46) $(1.27) $(1.20) $(1.16) $(1.13)Weighted-average common shares outstanding 15,570 15,438 14,082 13,672 12,722 December 31, 2013 2012 2011 2010 2009 Balance Sheet Data: Total assets $64,174 $50,518 $57,998 $48,936 $ 50,319 Long-term debt $ 96,417 $ 63,250 $52,032 44,403 36,665 Common stock and additional paid-in capital $304,140 $301,193 $ 300,317 $282,496 $ 276,884 Accumulated deficit $(340,638) $(317,961) $(298,387) $(281,550) $(265,651)Stockholders' (deficit) equity $(36,498) $(16,768) $1,930 $946 $11,233 Common shares issued and outstanding have increased from 13,500,997 in 2009 to 16,152,756 in 2013. The increase is primarily due tothe issuance of shares to investors in private placements, the issuance of shares to investors upon the conversion of preferred stock and warrant exercises, andthe issuance of shares to employees, vendors and lenders. 21back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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 We are a land and water resource development company with 45,000 acres of land in three areas of eastern San Bernardino County,California. Virtually all of this land is underlain by high-quality, naturally recharging groundwater resources, and is situated in proximity to the ColoradoRiver and the Colorado River Aqueduct (“CRA”), a major source of imported water for Southern California. Our main objective is to realize the highest andbest use of these land and water resources in an environmentally responsible way. For more than 20 years, we have maintained an agricultural development at our 34,000-acre property in the Cadiz Valley, relying upongroundwater from the underlying aquifer system for irrigation. In 1993, we secured permits to develop agriculture on up to 9,600 acres of the Cadiz Valleyproperty and withdraw more than one million acre-feet of groundwater from the underlying aquifer system. Since that time, we have maintained various levelsof agriculture at the property and this operation has provided our principal source of revenue. In addition to our sustainable agricultural operations, we believe that the long-term value of our land assets can best be derived through thedevelopment of a combination of water supply and storage projects at our properties. The primary factor driving the value of such projects is continuingpressure on water supplies throughout California, including environmental and regulatory restrictions on each of the State’s three main water sources: theState Water Project, the CRA and the Los Angeles Aqueduct. Southern California’s water providers rely on imports from these systems for a majority of theirwater supplies, but deliveries from all three in the region have been below capacity over the last several years. Availability of supplies in California also differsgreatly from year to year due to natural hydrological variability. In January 2014, California’s Governor declared a drought emergency for the entire state as aresult of record low winter precipitation and depleted reservoir storage levels. Water deliveries from the State Water Project, which provides water suppliesfrom Northern California to the central and southern parts of the state, have been limited to just 5% of capacity for 2014 in response to below averageprecipitation as well as ongoing regulatory restrictions. With the region’s population expected to continue to grow, Southern California water providers areactively seeking new, reliable supply solutions to plan for long-term water needs and anticipated limitations of traditional water supplies. 22back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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. At present, our water development efforts are primarily focused on the Cadiz Valley Water Conservation, Recovery and Storage Project (“WaterProject” or “Project”), which will capture and conserve millions of acre-feet of native groundwater currently being lost to evaporation from the aquifer systembeneath our Cadiz Valley property and deliver it to water providers throughout Southern California (see “Water Resource Development”). We believe that theultimate implementation of this Water Project will create the primary source of our future cash flow and, accordingly, our working capital requirements relatelargely to the development activities associated with this Water Project. We also continue to explore additional uses of our land and water resource assets, including additional agricultural opportunities, thedevelopment of a land conservation bank on our properties outside the Water Project area and other long-term legacy uses of our properties, such as habitatconservation and cultural uses. In addition to these development efforts, we will also pursue strategic investments in complementary business or infrastructure to meet ourobjectives. We cannot predict with certainty when or if these objectives will be realized.Water Resource Development The Water Project is designed to supply, capture and conserve billions of gallons of renewable native groundwater currently being lost annuallyto evaporation from the aquifer system underlying our Cadiz/Fenner Property, and provide a reliable water supply to water users in Southern California. Byimplementing established groundwater management practices, the Water Project will create a new, sustainable water supply for project participants withoutadversely impacting the aquifer system or the desert environment. The total quantity of groundwater to be recovered and conveyed to Water Projectparticipants will not exceed a long-term annual average of 50,000 acre-feet per year for 50 years. The Project also offers participants the ability to carry-overtheir annual supply and store it in the groundwater basin from year to year. A second phase of the Water Project, Phase II, will offer approximately one millionacre-feet of storage capacity that can be used to store imported water supplies at the Water Project area. Water Project facilities required for Phase I primarily include, among other things:· High yield wells designed to efficiently recover available native groundwater from beneath the Water Project area;· A water conveyance pipeline to deliver water from the well field to the CRA; and· An energy source to provide power to the well-field, pipeline and pumping plant. If an imported water storage component of the Project is ultimately implemented in Phase II, the following additional facilities would be required,among other things:· A pumping plant to pump water through the conveyance pipeline from the CRA to the Project well-field; and 23back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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. · 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. In general, several elements are needed to implement such a project: (1) a water conveyance pipeline right-of-way from the Water Project area to adelivery system; (2) storage and supply purchase agreements with one or more public water agencies or private water utilities; (3) environmental/regulatorypermits; and (4) construction and working capital. As described below, the first three elements have been progressed on a concurrent basis. The fourth isdependent on actions arising from the completion of the first three.(1) A Water Conveyance Pipeline Right-of-Way from the Water Project Area to a Delivery System In September 2008, we secured a right-of-way for the Water Project’s water conveyance pipeline by entering into a lease agreement with theArizona & California Railroad Company (“ARZC”), which operated an active shortline railroad extending from Cadiz to Matthie, Arizona. The agreementallows for the use of a portion of the railroad’s right-of-way to construct and operate a water conveyance pipeline for a period up to 99 years. The buriedpipeline would be constructed parallel to the railroad tracks and be used to convey water between our Cadiz Valley property and the CRA in Rice,California. The ARZC is also a Project participant and would receive water from the Project to serve a variety of railroad purposes, including fire suppressionand other safety and maintenance uses. In addition, in September 2013, we entered into a trackage rights agreement with the ARZC that would enable theoperation of steam-powered, passenger excursion trains on the line powered by water made available from the pipeline.The ARZC route was fully analyzed in the Water Project’s Final Environmental Impact Report (“FEIR”) as part of the California EnvironmentalQuality Act (“CEQA”) environmental review process completed in 2012. Pursuant to our lease agreement with ARZC, we made a payment in the amount of$3.3 million on March 6, 2013, marking the completion of the environmental review period and the commencement of the construction and operation term ofthe agreement.We are also exploring the potential to utilize an unused natural gas pipeline (as described “Existing Pipeline Asset” below) that exists in the Project area, towhich we hold an ownership right, as a means to access additional distribution systems. Initial feasibility studies indicate that this pipeline could be used as acomponent of the Project to distribute water to Project participants or import water for storage at the Project area in Phase II. The potential use of this pipelineby the Project was preliminarily analyzed as part of the Project’s Environmental Impact Report (“EIR”) (see “Other Development Opportunities”). Additionalenvironmental review would be required prior to converting this line for water distribution.(2) Storage and Supply Agreements with One or More Public Water Agencies or Private Water Utilities In 2010 and 2011, we entered into option and environmental cost sharing agreements with six water providers: Santa Margarita Water District(“SMWD”), Golden State Water Company (a wholly-owned subsidiary of American States Water [NYSE: AWR]), Three Valleys Municipal Water District,Suburban Water Systems (a wholly owned subsidiary of SouthWest Water Company), Jurupa Community Services District and California Water ServiceCompany, the third largest investor-owned American water utility. The six water providers serve more than one million customers in cities throughoutCalifornia’s San Bernardino, Riverside, Los Angeles, Orange, Imperial and Ventura Counties. 24back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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. Under the terms of the agreements with the six water providers, upon completion of the Water Project’s CEQA review and certification of theFinal Environmental Impact Report (“Final EIR”), which occurred on July 31, 2012, each agency has the right to acquire an annual supply of 5,000 acre-feetof water at a pre-determined formula competitive with their incremental cost of new water. In addition, the agencies have options to acquire storage rights in theWater Project to allow them to manage their supplies to complement their other water resources. Following CEQA certification, SMWD was the first participant to adopt resolutions approving a Water Purchase and Sale Agreement for 5,000acre-fee of water. The structure of the SMWD purchase agreement calls for an annually adjusted water supply payment of up to $500/AF including identifiedincome streams, plus their pro rata portion of the capital recovery charge and operating and maintenance costs. The capital recovery charge is calculated byamortizing the total capital investment by the Company over a 30 year term. Approximately 80% of the water to be conserved annually by the Project is now either under a Water Purchase and Sale Agreement or underoption. We are currently working with other participating agencies to convert their option agreements to definitive economic agreements. We are also indiscussions with additional water providers interested in acquiring rights to the remaining available Project supplies, as well as with third parties regarding theimported storage aspect of this Project.(3) Environmental / Regulatory Permits In order to properly develop and quantify the sustainability of the Water Project, and prior to initiating the formal permitting process for theWater Project, we commissioned environmental consulting firm CH2M HILL to complete a comprehensive study of the water resources at the Projectarea. Following a year of analysis, CH2M HILL released its study of the aquifer system in February 2010. Utilizing new models produced by the U.S.Geological Survey in 2006 and 2008, the study estimated the total groundwater in storage in the aquifer system to be between 17 and 34 million acre-feet, aquantity on par with Lake Mead, the nation’s largest surface reservoir. The study also identified a renewable annual supply of native groundwater in theaquifer system currently being lost to evaporation. CH2M HILL’s findings, which were peer reviewed by leading groundwater experts, confirmed that theaquifer system could sustainably support the Water Project. Further, and also prior to beginning the formal environmental permitting process, we entered into a Memorandum of Understanding with theNatural Heritage Institute (“NHI”), a leading global environmental organization committed to protecting aquatic ecosystems, to assist with our efforts tosustainably manage the development of our Cadiz/Fenner property. As part of this “Green Compact”, we will follow stringent plans for groundwatermanagement and habitat conservation, and create a groundwater management plan for the Water Project. 25back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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 discussed in (2), above, we have entered into environmental cost sharing agreements with all participating water providers. Theenvironmental cost sharing agreements created a framework for funds to be committed by each participant to share in the costs associated with the CEQAreview work. SMWD served as the lead agency for the review process. ESA Associates, a leading environmental consulting firm, prepared the WaterProject’s environmental review documentation. The CEQA process began in February 2011 with the issuance of a Notice of Preparation (“NOP”) of a Draft Environmental Impact Report(“Draft EIR”) by SMWD. SMWD held two public scoping meetings in March 2011 and released the Draft EIR in December 2011. The Draft EIR analyzedpotential impacts to environmental resources at the Project area, including critical resources of the desert environment such as vegetation, mountain springs,and water and air quality. The analysis of the Project considered peer-reviewed technical reports, independently collected data, existing reports and theProject’s state of the art Groundwater Management, Monitoring and Mitigation Plan (“GMMMP”). SMWD conducted a 100-day public comment period for the Draft EIR, hosting two public comment meetings and an informational workshopin January and February 2012. The public comment period concluded in March 2012. In May 2012, we entered into a Memorandum of Understanding withSan Bernardino County and SMWD, creating the framework for finalizing the GMMMP in accordance with County’s desert groundwater ordinance. At the beginning of July 2012, SMWD released the Final EIR and responses to public comments. The Final EIR summarized that, with theexception of unavoidable short-term construction emissions, by implementing the measures developed in the GMMMP, the Project will avoid significantimpacts to desert resources. A public hearing was held on July 25, 2012 by the SMWD Board of Directors to take public testimony and consider certificationof the Final EIR. On July 31, 2012, the SMWD Board of Directors certified the Final EIR. Following SMWD’s certification of the Final EIR, the San Bernardino County Board of Supervisors voted on October 1, 2012 to approvethe GMMMP for the Project and adopted certain findings under CEQA, becoming the first Responsible Agency to take an approving action pursuant to thecertified EIR. San Bernardino County served as a Responsible Agency in the CEQA review process as the local government entity responsible for oversightover groundwater resources in the Cadiz Valley. Metropolitan Water District of Southern California (“Metropolitan”), a Responsible Agency, will take action under CEQA prior to constructionregarding the terms and conditions of the Project’s use of the CRA. Project water supplies will enter Metropolitan’s CRA in accordance with its publishedengineering and design standards and subject to all applicable fees and charges routinely established by Metropolitan for the conveyance of water within itsservice territory. Third parties in California have the ability to challenge CEQA approvals in State Court. In 2012, the Company was named as a real-party-in-interest in nine lawsuits challenging the various Water Project approvals granted by SMWD and San Bernardino County. In 2013, three cases were dismissedor otherwise settled. Trial in the six remaining cases, which were brought by two petitioners, began in December 2013 and concluded in February2014. Rulings in these cases are expected in the second quarter of 2014. See Item 3, “Legal Proceedings” for more information. 26back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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) Construction and Working Capital As part of the Water Purchase and Sale Agreement with SMWD referred to in (2), above, SMWD further authorized to continue next steps withthe Company, which includes final permitting, design and construction. As described above, construction of Phase I of the Project would primarily consist of well-field facilities at the Water Project site, a conveyancepipeline extending approximately 43 miles along the right-of-way described in (1), above, from the well-field to the CRA, and an energy source to pump waterthrough the conveyance pipeline between the Project well-field and the CRA. The construction of these facilities will require capital financing, which isexpected to be entirely provided with lower-cost senior debt, secured by the new facility assets. The Company’s existing corporate term debt (see Item 7 –Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources), provides us the flexibility toincorporate Water Project construction financing within our current debt structure. Existing wells at the Cadiz Valley property currently in use for our agricultural operations will be integrated into the Water Project well-field,reducing the number of wells that must be constructed prior to Project implementation. These wells will be upgraded from diesel power to natural gas powerover the next 12 months to advance the overall construction timeline. Existing Pipeline Asset We currently hold ownership rights to a 96-mile existing idle natural gas pipeline from the Cadiz Valley to Barstow, California that would beconverted for the transportation of water. In September 2011, we entered into an agreement with El Paso Natural Gas (“EPNG”), a subsidiary of Kinder Morgan Inc., providing us withrights to purchase approximately 220-miles of idle, natural gas pipelines between Bakersfield and Cadiz, California for $40 million. Initial feasibility studies indicated that upon conversion the 30-inch line could transport between 20,000 and 30,000 acre-feet of water per yearbetween the Water Project area and various points along the Central and Northern California water transportation network. In February 2012, we made a $1million payment to EPNG to extend our option to purchase the 220-mile line until April 2013. In December 2012, we entered into a new agreement with EPNG dividing the 220-mile pipeline in Barstow, California, with the Companygaining ownership rights to the 96-mile eastern segment between Barstow and the Cadiz Valley and returning to EPNG rights to the 124-mile western segmentfor its own use. The 96-mile eastern portion from the Cadiz Valley to Barstow was identified as the most critical segment of the line for accessing the state’swater transportation infrastructure. The Barstow area serves as a hub for water delivered from northern and central California to communities in SouthernCalifornia’s High Desert. 27back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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 consideration of the new agreement, EPNG reduced the purchase price of the 96-mile eastern segment to a nominal amount of $1 (one dollar),plus previous option payments totaling $1.07 million already made by Cadiz. The remaining purchase price of $1 (one dollar) is payable before expiration ofthe option period in April 2014. In addition, if EPNG files for regulatory approval of any new use of the 124-mile western segment by December 2015, EPNGwill make an additional payment to the Company of $10 million, payable on the date the application for regulatory approval is filed. The 96-mile Cadiz-Barstow pipeline creates significant opportunities for our water resource development efforts. Once converted to water use,the pipeline can be used to directly connect the Cadiz area to northern and central California water sources, serving a growing need for additional locations forstorage of water south of the Bay Delta region. In addition, the 96-mile pipeline creates new opportunities to deliver water, either directly or via exchange, topotential customers in San Bernardino and Kern Counties, areas which do not currently have an interconnection point with the Project. When both the 96-mile line and the 43-mile pipeline to the CRA become operational, Cadiz would link the two major water delivery systems in California providing flexibleopportunities for both supply and storage. The entire EPNG pipeline was evaluated in the Water Project’s EIR during the CEQA process at a programmatic level. Any use of the linewould be conducted in conformity with the Project’s GMMMP and is subject to further CEQA evaluation (see “Water Resource Development” above).Agricultural Development Within the Cadiz/Fenner Property, 9,600 acres have been zoned for agriculture and we have developed a total of 1,920 acres of the property foragricultural operations. The infrastructure currently includes seven wells that are interconnected within a portion of this acreage, with total annual productioncapacity of approximately 13,000 acre-feet of water. Additionally, there are housing and kitchen facilities that support up to 300 employees. If the entire 9,600acres were developed and irrigated, total water usage would be approximately 40,000 – 50,000 acre-feet per year depending on the crop mix. The underlyinggroundwater, fertile soil, and desert temperatures are well suited for a wide variety of fruits and vegetables. Permanent crops currently include 160 acres of vineyard used to produce dried-on-the-vine raisins and 440 acres of lemon orchards. All cropsare farmed using sustainable agricultural practices. We currently derive our agricultural revenues through direct farming and sale of our products into the market or through the lease of ouragricultural properties to third parties for farming. The entire organic raisin crop grown at the property is farmed by the Company and we incur all costsrequired to produce and harvest the crop. The harvested raisins are then sold in bulk to a raisin processing facility. Approximately 260 acres of lemons inproduction are farmed by the Company. We incur all of the costs required to produce this lemon crop. Once harvested, the lemons are shipped in bulk to anindependent packing and sales facility. The remaining 180 acres of lemons are farmed by LA Fresh Foods under a 2009 lease agreement to develop up to 500 acres of lemonorchards. We expect to receive lease income once the new lemon orchards reach commercial production through a profit sharing component of the lease. 28back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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 July 2013, we also entered into a lease agreement with Limoneira Company (NASDAQ: LMR) (“Limoneira”) to plant up to 1,280 acres ofnew lemons at the property over the next five years. In consideration for the lease arrangements, Limoneira will provide an annual base rent and will alsoprovide a profit-sharing payment once the new lemon orchards reach commercial production. Agricultural revenues will continue to vary from year to year based on the number of acres in development, crop yields, and prices. We do notexpect that our agricultural revenues will to be material to our overall results of operations once the Water Project is fully operational. However, our agriculturaloperations are expected to be maintained in complement with the Water Project to provide added value to Project operations.Additional Eastern Mojave Properties We also own approximately 11,000 acres outside of the Cadiz/Fenner Valley area in other parts of the Mojave Desert in eastern San BernardinoCounty. Our primary landholding outside of the Cadiz area is approximately 9,000 acres in the Piute Valley. This landholding is located approximately15 miles from the resort community of Laughlin, Nevada, and about 12 miles from the Colorado River town of Needles, California. Extensive hydrologicalstudies, 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 and could be suitable for a water supply project, agricultural development or solar energy production. Certain of these properties are locatedin or adjacent to areas designated by the federal government as Critical Desert Tortoise Habitat and/or Desert Wilderness Areas and are suitable candidates forpreservation and conservation. Additionally, we own acreage located near Danby Dry Lake, approximately 30 miles southeast of our Cadiz/Fenner Valley properties. TheDanby Dry Lake property is located approximately 10 miles north of the CRA. Initial hydrological studies indicate that the area has excellent potential for awater supply project. Certain of the properties in this area may also be suitable for agricultural development and/or preservation and conservation.Land Conservation Bank As stated above, approximately 10,000 acres of our properties not currently being developed are located within areas designated by the federalgovernment as Critical Desert Tortoise Habitat and/or Desert Wilderness Areas. We are currently in a permitting process with the California Department ofFish and Wildlife to permit approximately 7,500 acres of these properties for inclusion in a land mitigation or conservation bank, which would provide creditsthat can be acquired by entities that must mitigate or offset planned development in other areas. For example, this bank could potentially service the mitigationrequirements of numerous utility-scale solar development projects being considered throughout Riverside and San Bernardino Counties, including projectswithin the recently approved federal Riverside-East Solar Energy Zone. 29back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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 Opportunities Over the longer-term, we believe the population of Southern California, Nevada and Arizona will continue to grow, and that, in time, theeconomics of commercial and residential development at our properties may become attractive. Moreover, other opportunities in business or infrastructurecomplementary to our current objectives could provide new opportunities for our business. We remain committed to the sustainable use of our land and water assets, and will continue to explore all opportunities for environmentallyresponsible development of these assets. We cannot predict with certainty which of these various opportunities will ultimately be utilized.Results of Operations(a) Year Ended December 31, 2013 Compared to Year Ended December 31, 2012 We have not received significant revenues from our water resource and real estate development activity to date. Our revenues have been limitedto our agricultural operations. As a result, we continue to incur a net loss from operations. We had revenues of $301 thousand for the year ended December31, 2013, and $362 thousand for the year ended December 31, 2012. The net loss totaled $22.7 million for the year ended December 31, 2013, comparedwith a net loss of $19.6 million for the year ended December 31, 2012. Our primary expenses are our ongoing overhead costs associated with the development of the Water Project (i.e. general and administrativeexpense) and our interest expense. We will continue to incur non-cash expense in connection with our management and director equity incentive plans. Revenues. Revenue totaled $301 thousand during the year ended December 31, 2013, compared to $362 thousand during the year endedDecember 31, 2012.Cost of Sales. Cost of sales totaled $555 thousand during the year ended December 31, 2013, compared with $521 thousand during the yearended December 31, 2012.General and Administrative Expenses. General and administrative expenses during the year ended December 31, 2013, totaled $13.5 millioncompared with $12.6 million for the year ended December 31, 2012. Non-cash compensation costs related to stock and option awards are included in generaland administrative expenses. General and administrative expenses, exclusive of stock-based compensation costs, totaled $13.0 million in the year ended December 31, 2013,compared with $12.2 million for the year ended December 31, 2012. The increase in general and administrative expense in 2013 was primarily due tolitigation costs related to the Water Project. 30back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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. Compensation costs from stock and option awards for the year ended December 31, 2013, totaled $516 thousand compared with $383thousand for the year ended December 31, 2012. The expense reflects the vesting schedules of the stock and option awards under the 2009 Equity IncentivePlan. The higher 2013 expense was primarily due to higher stock non-cash compensation costs related to shares awarded to the Brownstein law firm forcertain legal and advisory services to the Company (See Note 9 to the Consolidated Financial Statements, “Common Stock”), partially offset by a decrease instock based non-cash compensation costs related to stock and options issued in 2011 under the 2009 Equity Incentive Plan.Depreciation. Depreciation expenses totaled $254 thousand for the year ended December 31, 2013, compared to $350 thousand for the yearended December 31, 2012.Interest Expense, net. Net interest expense totaled $7.6 million during the year ended December 31, 2013, compared to $6.8 million during2012. The following table summarizes the components of net interest expense for the two periods (in thousands): Year EndedDecember 31, 2013 2012 Interest on outstanding debt $6,069 $3,589 Amortization of debt discount 223 108 Amortization of deferred loan costs 1,352 3,123 Interest income - (3) $7,644 $6,817 The interest on outstanding debt increased from $3.6 million to $6.1 million due to the increase in interest rate on a larger credit facilityassociated with our March 2013 debt refinancing and our expanded working capital facility in October 2013. See Note 6 to the Consolidated FinancialStatements, “Long-Term Debt”.Prior Debt Refinancings. Deferred loan costs, which are primarily legal fees, are amortized over the life of each loan agreement. In June 2006, werefinanced our term loan with ING Capital LLC (“ING”) with a new senior secured convertible term loan with a different lender. As a result, $408 thousandof legal fees was capitalized and amortized over the 7-year life of the loan agreement. An additional $73.5 thousand of lender fees was capitalized when theterm loan was modified in October 2010. These fees were amortized over the remaining life of the term loan. In June 2009 and October 2010, the term loanwas modified as to certain of its conversion features. As a result of these convertible debt arrangements, the change in conversion value between the originaland modified instrument totaled approximately $3.2 million, which was recorded as additional debt discount with a corresponding amount recorded asadditional paid-in capital. Such debt discount was accreted to the redemption value of the instrument over the remaining term of the loan as additional interestexpense. On March 5, 2013, we completed arrangements with our senior lenders to refinance our existing $66 million corporate term debt. As a result, werecorded a loss on extinguishment of debt in the amount of $1.06 million which consisted of the write-off of unamortized debt discount, unamortized debtissuance costs and fees paid to the lenders. We incurred $1.2 million of legal expenses and agent fees related to the negotiation and documentation of therefinancing which was capitalized and is being amortized over the life of the term loan. In October 2013, we entered into an agreement with our senior lender toincrease our existing secured mortgage loan by $10 million. In connection to this agreement, we issued 700,000 share of Cadiz Inc. common stock to the seniorlender subject to certain restrictions on resale. The fair value of the shares of common stock issued totaled approximately $2.4 million, which was recorded asadditional debt discount with a corresponding amount recorded as additional paid-in capital. Such debt discount is accreted to the redemption value of theinstrument over the remaining term of the loan as additional interest expense. In addition, we incurred $110 thousand of lender fees which was recorded asadditional debt discount and is being amortized over the remaining term of the loan. 31back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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) Year Ended December 31, 2012 Compared to Year Ended December 31, 2011 We had revenues of $0.4 million for the year ended December 31, 2012, and $1.0 million for the year ended December 31, 2011. The net losstotaled $19.6 million for the year ended December 31, 2012, compared with a net loss of $16.8 million for the year ended December 31, 2011. The higher2012 loss was primarily due to additional legal and consulting fees related to water development efforts in connection with the certification of the FinalEnvironmental Impact Report, litigation costs and due diligence costs associated with the feasibility of converting the natural gas pipeline (see “ExistingPipeline Asset” above). Our primary expenses are our ongoing overhead costs (i.e., general and administrative expense) and our interest expense. We will continue toincur non-cash expenses in connection with our management and director equity incentive compensation plans.Revenues. Revenue totaled $0.4 million during the year ended December 31, 2012, compared to $1.0 million during the year ended December 31,2011. 2012 revenues included $0.1 million of revenues related to citrus crop sales, which were down $0.8 million from the prior year due to significantweather related damage to citrus crops in the 2012 growing season, and $0.3 million of revenues related to raisin sales, which were up $0.2 million from theprior year primarily due to a larger raisin crop in 2012 in comparison to the 2011 raisin crop.Cost of Sales. Cost of sales totaled $0.5 million during the year ended December 31, 2012, compared with $1.4 million during the year endedDecember 31, 2011. The lower cost of sales for the year ended December 31, 2012, related largely to the lower lemon harvesting related to the smaller size ofthe 2012 lemon crop which was due to significant weather-related damage.General and Administrative Expenses. General and administrative expenses during the year ended December 31, 2012, totaled $12.6 millioncompared with $10.4 million for the year ended December 31, 2011. Non-cash compensation costs related to stock and option awards are included in generaland administrative expenses. General and administrative expenses, exclusive of stock-based compensation costs, totaled $12.2 million in the year ended December 31, 2012,compared with $8.0 million for the year ended December 31, 2011. The increase in general and administrative expenses in 2012 was primarily due toadditional legal and consulting fees related to water development efforts in connection with the certification of the Final Environmental Impact Report, litigationcosts and due diligence costs associated with the feasibility of converting the natural gas pipelines, which we currently have an ownership right, to watertransportation facilities (see “Existing Pipeline Asset” above). 32back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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. Compensation costs from stock and option awards for the year ended December 31, 2012, totaled $0.4 million compared with $2.4 million forthe year ended December 31, 2011. The expense reflects the vesting schedules of the stock and option awards under the 2009 Equity Incentive Plan.Depreciation. Depreciation expenses totaled $0.4 million for the year ended December 31, 2012, compared to $0.4 million for 2011.Interest Expense, net. Net interest expense totaled $6.8 million during the year ended December 31, 2012, compared to $5.7 million during2011. The following table summarizes the components of net interest expense for the two periods (in thousands): Year EndedDecember 31, 2012 2011 Interest on outstanding debt $3,589 $3,261 Amortization of debt discount 3,123 2,372 Amortization of deferred loan costs 108 72 Interest income (3) (1) $6,817 $5,704 The interest on outstanding debt increased from $3.3 million to $3.6 million due to the increase in debt outstanding under our expandedworking capital facility in 2012.Prior Debt Refinancings. Deferred loan costs, which are primarily legal fees, are amortized over the life of each loan agreement. In June 2006, werefinanced our term loan with ING Capital LLC (“ING”) with a new senior secured convertible term loan with a different lender. As a result, $408 thousandof legal fees was capitalized and is amortized over the 7-year life of the loan agreement. An additional $73.5 thousand of lender fees was capitalized when theterm loan was modified in October 2010. These fees are amortized over the remaining life of the term loan. In June 2009 and October 2010, the term loan wasmodified as to certain of its conversion features. As a result of these convertible debt arrangements, the change in conversion value between the original andmodified instrument totaled approximately $3.2 million, which was recorded as additional debt discount with a corresponding amount recorded as additionalpaid-in capital. Such debt discount is accreted to the redemption value of the instrument over the remaining term of the loan as additional interest expense. Inconnection with the modification transaction in October 2010, we recorded a derivative liability related to the conversion option. The fair value of thederivative liability was marked-to-market at the end of each reporting period with the associated change in fair value recorded as other income (expense). OnJuly 25, 2011, we entered into an amendment to the facility eliminating the availability to the Company of the unused $3 million portion of the facility. As aresult, the conversion option related to the unused portion of the facility no longer exists and a derivative liability is no longer being recorded. On October 30,2012, we increased the capacity of the term loan with an additional $5 million facility. As a result of this transaction, an additional $42 thousand of lenderfees was capitalized and is amortized over the remaining term of the loan. Concurrently with the funding of the facility, we issued warrants to the lenders topurchase shares of common stock. The value of the warrants totaled approximately $533 thousand and was recorded as additional debt discount with acorresponding amount recorded as additional paid-in capital. 33back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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. Liquidity and Capital Resources(a) Current Financing Arrangements As we have not received significant revenues from our development activities to date, we have been required to obtain financing to bridge the gapbetween the time water resource and other development expenses are incurred and the time that revenue will commence. Historically, we have addressed theseneeds primarily through secured debt financing arrangements, private equity placements and the exercise of outstanding stock options and warrants. We havealso worked with our secured lenders to structure our debt in a way which allows us to continue development of the Water Project and minimize the dilution ofthe ownership interests of common stockholders. In March 2013, we refinanced our term debt. See Note 6 to the Consolidated Financial Statements, ”Long-Term Debt”. The major componentsof the March 2013 refinancing included: 1. A $30 million senior term loan secured by the underlying assets of the Company (the “Senior Secured Debt”) that accrues interest at 8% perannum and require no principal or interest payments before maturity in March 2016; and2. A $53.5 million in convertible notes (the “Convertible Notes”) that accrue interest at 7% per annum with no principal or interest paymentsrequired before maturity in March 2018; and3. $17.5 million in new working capital provided as part of the Convertible Notes issuance. We believe that by breaking our debt into two components, we now have the flexibility to incorporate project financing for the Water Project, asnecessary, into our current debt structure. While the new $30 million senior term loan would be required to be taken out by any necessary project financing,the $53.5 million Convertible Notes have been designed to allow project financing to be placed ahead of it in terms of priority. The $17.5 million of newworking capital provides us with the resources to continue to move through our pre-construction phase, including resolution of outstanding administrativeCEQA litigation, facility engineering and design, and the finalization of water supply purchase agreements with all Water Project participants. On October 30, 2013, we entered into an agreement (“Credit Agreement”) with our new majority senior lender, MSD Credit Opportunity MasterFund, L.P. (“MSD Credit”), to increase our existing $30 million senior secured mortgage loan by $10 million to fund additional working capital. MSD Creditpreviously acquired the majority interest of the $30 million portion of the debt in a private transaction. The new $10 million tranche accrues interest at 8%and requires no principal or interest payments prior to maturity on June 30, 2017. The new $10 million and the original $30 million are both secured by theunderlying assets of the Company, including all landholdings and infrastructure. The Credit Agreement also now provides that in the case of certain assetsales unrelated to the Water Project, the Company would retain for working capital purposes up to 50% of the first $10 million of sales, with the remainderrequiring mandatory prepayment of the Senior Secured Debt. In addition, as part of this transaction, we issued 700,000 shares of Cadiz Inc. common stock toMSD Credit subject to certain restrictions on resale. 34back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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. Both the Senior Secured Debt and the Convertible Notes contain representations, warranties and covenants that are typical for agreements of thistype, including restrictions that would limit our ability to incur additional indebtedness, incur liens, pay dividends or make restricted payments, dispose ofassets, make investments and merge or consolidate with another person. However, while there are affirmative covenants, there are no financial maintenancecovenants and no restrictions on our ability to issue additional common stock to fund future working capital needs. The debt covenants associated with thenew loans were negotiated by the parties with a view towards our operating and financial condition as it existed at the time the agreements were executed. AtDecember 31, 2013, we were in compliance with our debt covenants. In connection with the October 2012 additional debt facility (See Note 6 to the Consolidated Financial Statements, “Long-Term Debt”), weissued warrants to the lenders to purchase shares of common stock. The value of the warrant totaled approximately $533 thousand and was recorded asadditional debt discount with a corresponding amount recorded as additional paid in capital. In 2011, we raised a total of $15.1 million in working capital through three equity issuances. On July 8, 2011, we sold 363,636 shares ofCommon Stock at a price of $11 per share for total proceeds of $4 million. On November 30, 2011, we raised $6 million in a private placement of 666,667shares of Common Stock at a price of $9 per share. For every three (3) shares of Common Stock issued, we issued (1) Common Stock purchase warrantentitling the holder to purchase, commencing 90 days from the date of the issuance and prior to December 8, 2014, one (1) share of Common Stock at anexercise price of $13 per share. On December 14, 2011, we sold 570,000 shares of Common Stock at a price of $9 per share for total proceeds of $5.1million. As we continue to actively pursue our business strategy, additional financing may continue to be required. See “Outlook”, below. Thecovenants in the term debt do not prohibit our use of additional equity financing and allow us to retain 100% of the proceeds of any equity financing. We donot expect the loan covenants to materially limit our ability to finance our water development activities. At December 31, 2013, we had no outstanding credit facilities other than the Senior Secured Debt and the Convertible Notes.Cash Used for Operating Activities. Cash used for operating activities totaled $15.8 million for the year ended December 31, 2013, $11.4million for the year ended December 31, 2012, and $7.5 million for the year ended December 31, 2011. The cash was primarily used to fund: (i) general andadministrative expenses related to our water development efforts; (ii) litigation costs; and (iii) a $3.3 million cash payment in March 2013 related to the leaseagreement with the Arizona & California Railroad Company to use a portion of the railroad’s right-of-way to construct and operate a water conveyance pipelinewhich is reflected in the increase in other assets in the consolidated statement of cash flows. 35back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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 Investing Activities. Cash used for investing activities in the year ended December 31, 2013, was $167 thousand, comparedwith $3.3 million for the year ended December 31, 2012, and $4.1 million for the year ended December 31, 2011. The 2012 and 2011 periods includedadditional investments in environmental work related to the Water Project. .Cash Provided by Financing Activities. Cash provided by financing activities totaled $26.1 million for the year ended December 31, 2013,compared with $5.0 million for the year ended December 31, 2012, and $17.1 million for the year ended December 31, 2011. The 2013 results include $27.4million of proceeds as part of the issuance of long-term debt, offset by $1.3 million in financing costs related to debt refinancing. The 2012 results include$5.0 million in proceeds under a working capital facility. The 2011 results include $2.0 million in proceeds received under a working capital facility, $9.1million in proceeds from the issuance of shares under a shelf takedown offering, and $6.0 million in proceeds from a private placement. See “CurrentFinancing Arrangements” above.(b) Outlook Short-Term Outlook. The $10 million working capital facility which closed on October 30, 2013, together with our existing cash resources,provide us with sufficient funds to meet our expected working capital needs through the first quarter of 2015. Should we require additional working capital tofund operations, we expect to continue our historical practice of structuring our financing arrangements to match the anticipated needs of our developmentactivities. See “Long-Term Outlook”. 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 Debt or our Convertible Notes at maturity (see “Current Financing Arrangements” above). Our future working capital needs will depend upon the specific measures we pursue in the entitlement and development of our water resourcesand other developments. Future capital expenditures will depend primarily on the progress of the Water Project. We will evaluate the amount of cash needed, and the manner in which such cash will be raised, on an ongoing basis. We may meet any futurecash requirements through a variety of means, including equity or debt placements, or through the sale or other disposition of assets. Equity placementswould be undertaken only to the extent necessary, so as to minimize the dilutive effect of any such placements upon our existing stockholders. Limitations onour liquidity and ability to raise capital may adversely affect us. Sufficient liquidity is critical to meet our resource development activities. Although wecurrently expect our sources of capital to be sufficient to meet our near-term liquidity needs, there can be no assurance that our liquidity requirements willcontinue to be satisfied. If the Company cannot raise needed funds, it might be forced to make substantial reductions in its operating expenses, which couldadversely affect its ability to implement its current business plan and ultimately its viability as a company. 36back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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 our Consolidated Financial Statements, 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. (2) Goodwill. As a result of a merger in May 1988 between two companies, which eventually became known as Cadiz Inc., goodwill in theamount of $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. (3) Valuation of Goodwill and Long-Lived Assets. The Company assesses long-lived assets, excluding goodwill, for recoverabilitywhenever events or changes in circumstances indicate that their carrying value may not be recoverable through the estimated undiscounted future cash flowsresulting from the use of the assets. If it is determined that the carrying value of long-lived assets may not be recoverable, the impairment is measured by usingthe projected discounted cash-flow method. The Company tests goodwill for impairment annually as of December 31, or more frequently if events or circumstances indicate carryingvalues may not be recoverable, using the market method. The Company uses a two-step impairment test to identify potential goodwill impairment and measure the amount of a goodwill impairment lossto be recognized (if any) for the Company. The first step considers whether there are qualitative factors present such that it is more likely than not a goodwillimpairment exists. If based on qualitative factors it is more likely than not a goodwill impairment exists, the Company performs “Step 2” as described below. The step 2 calculation of the impairment test compares the implied fair value of the goodwill to the carrying value of goodwill. The implied fairvalue of goodwill represents the excess of the estimated fair value above the fair value of the Company's identified assets and liabilities. If the carrying value ofgoodwill exceeds the implied fair value of goodwill, an impairment loss is recognized in an amount equal to the excess (not to exceed the carrying value ofgoodwill). The determination of the fair value of its assets and liabilities is performed as of the measurement date using observable market data before andafter the measurement date (if that subsequent information is relevant to the fair value on the measurement date). 37back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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) Deferred Tax Assets and Valuation Allowances. To date, the Company has not generated significant revenue from its waterdevelopment programs, and it has a history of net operating losses. As such, the Company has generated significant deferred tax assets, including large netoperating loss carry forwards for federal and state income taxes for which it has recorded a full valuation allowance. Management is currently working onwater storage, water supply, agriculture and solar energy development projects, including the Water Project, that are designed to generate future taxable income,although there can be no guarantee that this will occur. If taxable income is generated in future years, some portion or all of the valuation allowance will bereversed, and an increase in net income would consequently be reported. (5) Stock-Based Compensation. The Company applies the Black-Scholes valuation model in determining the fair value of options granted toemployees and consultants. For employees, the fair value is then charged to expense on the straight-line basis over the requisite service period. Forconsultants, the fair value is remeasured at each reporting period and recorded as a liability until the award is settled. ASC 718 also requires the Company to estimate forfeitures in calculating the expense related to stock-based compensation as opposed to onlyrecognizing forfeitures and the corresponding reduction in expense as they occur. The remaining vesting periods are relatively short, and the potential impactof forfeitures is not material.(d) New Accounting Pronouncements See Note 2 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies”.(e) Off Balance Sheet Arrangements The Company 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 $98,871 $11 $32,078 $66,782 $- Interest payable 28,793 - 6,125 22,668 - Operating leases 3,062 486 776 600 1,200 $130,726 $497 $38,979 $90,050 $1,200 * The above table does not reflect unrecognized tax benefits of $2.8 million, the timing of which is uncertain. See Note 7 to the Consolidated FinancialStatements, “Income Taxes”. 38back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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. 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”. ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk As of December 31, 2013, all of our indebtedness bore interest at fixed rates; therefore, we are not exposed to market risk from changes ininterest rates 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.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 Chief Executive Officer (the “Principal Executive Officer”) and Chief FinancialOfficer (the “Principal Financial Officer”) and to our Board of Directors. Based on their evaluation as of December 31, 2013, our Principal Executive Officerand Principal Financial Officer have concluded that the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under theSecurities Exchange Act of 1934) are effective to ensure that the information required to be disclosed by the Company in the reports that it files or submitsunder the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and ExchangeCommission rules and forms, and such information is accumulated and communicated to management, including the principal executive and principalfinancial officers as appropriate, to allow timely decisions regarding required disclosures. 39back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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. 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 (1992) 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, 2013. The effectiveness of our internal control overfinancial reporting as of December 31, 2013, 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 theCompany's internal control over financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materiallyaffect, the Company's internal control over financial reporting. ITEM 9B. Other Information 2014 Annual Meeting – Stockholder Proposals On March 5, 2014, the Company established a date of June 10, 2014, for its 2014 annual meeting of stockholders. When setting this date, theCompany also voluntarily extended the date by which stockholder proposals to be included in our proxy statement for the 2014 annual meeting must bereceived from December 31, 2013 (as previously announced by the Company) until March 29, 2014. Accordingly, stockholder proposals must be receivedby the Secretary of the corporation at 550 S. Hope Street, Suite 2850, Los Angeles, California 90071 no later than March 29, 2014. For a proposal to beincluded, you must comply with the rules of the SEC governing the submission of stockholder proposals.Under our bylaws, no business may be brought before the 2014 annual meeting unless it is specified in the notice of the meeting, is otherwiseproperly brought before the meeting by or at the direction of the Board of Directors, or is properly brought before the meeting by a stockholder who hasdelivered notice to the Secretary of the corporation (containing certain information specified in the bylaws) not less than 90 days prior to the annual meeting. Ifsuch a stockholder notice is not timely but is nevertheless presented at the 2014 annual meeting, the proxies solicited for that meeting may confer discretionaryvoting authority with respect to the business proposed. These requirements are separate from and in addition to the SEC’s requirements that a stockholdermust meet in order to have a stockholder proposal included in our proxy statement. 40back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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 directorswhich we 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 31,2013.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 directorswhich we 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 31,2013. 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 directorswhich we 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 31,2013.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 directorswhich we 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 31,2013.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 directorswhich we 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 31,2013. 41back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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 Statement. 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(13) 3.10Certificate of Elimination of Series F Preferred Stock of Cadiz Inc. (as filed August 3, 2007) (15) 4.1Form of Subscription Agreement used for issuance of shares and warrants in December 2011(7) 4.2Form of Warrant Agreement (7) 42back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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. 4.3Form of Senior Indenture, between Cadiz Inc. and The Bank of New York Mellon Trust Company, N.A.(37) 4.4Form of Subordinated Indenture, between Cadiz Inc. and The Bank of New York Mellon Trust Company, N.A.(37) 4.5First Supplemental Indenture, dated as of October 30, 2013 between Cadiz Inc. and the Bank of New York Mellon Trust Company,N.A.(38) 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 (8) 10.3Amendment No. 2 dated March 5, 2013, to Limited Liability Company Agreement of Cadiz Real Estate LLC(35) 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 (9) 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(10) 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(11) 10.7Outside Director Compensation Plan (12) 10.82007 Management Equity Incentive Plan (14) 10.9Amendment 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 (16) 10.10Longitudinal Lease Agreement dated September 17, 2008 between Arizona & California Railroad Company and Cadiz Real Estate,LLC (17) 10.11Amended and Restated Employment Agreement between Keith Brackpool and Cadiz Inc. dated May 22, 2009(18) 43back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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. 10.12Employment Agreement between Timothy J. Shaheen and Cadiz Inc. dated May 22, 2009(18) 10.13Amendment 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(19) 10.142009 Equity Incentive Plan (20) 10.15Services and Exclusivity Agreement with Layne Christensen Company dated November 2, 2009, as amended by amendments datedJanuary 4, 2010, January 27, 2010(21) 10.16Form of Option Agreement with Santa Margarita Water District (23) 10.17Form of Environmental Processing and Cost Sharing Agreement with Santa Margarita Water District (22) 10.18Form of Environmental Processing and Cost Sharing Agreement with Three Valleys Municipal Water District (22) 10.19Option Agreement with Golden State Water Company dated June 25, 2010(22) 10.20Option Agreement with Suburban Water Systems dated October 4, 2010(24) 10.21Amendment No. 3 to the Credit Agreement and Amendment No. 2 to the Registration Rights Agreement among Cadiz Inc. and CadizReal Estate LLC, as Borrowers, the Several Lenders from time to time parties thereto, and LC Capital Master Fund Ltd., asAdministrative Agent, dated as of October 19, 2010(25) 10.22Amendment No. 3 to the Services and Exclusivity Agreement with Layne Christensen Company dated April 8, 2010(26) 10.23Letter agreement with Scott S. Slater dated April 12, 2011(27) 10.24Amendment No. 4 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 July 25, 2011(28) 10.25Option Agreement with California Water Service Company dated December 1, 2011(29) 10.26Option Agreement with Questar Southern Trails Pipeline Company dated August 12, 2011(30) 44back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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. 10.27Option Agreement for Purchase of Line No. 1904 Facilities with El Paso Natural Gas Company dated September 8, 2011, asamended by amendment dated February 8, 2012(31) 10.28Addendum to Employment Agreement between Timothy J. Shaheen and Cadiz Inc. dated February 14, 2012(30) 10.29Form of Memorandum of Understanding by and among Cadiz Inc., County of San Bernardino and Santa Margarita WaterDistrict(31) 10.30First Amended Agreement to Option Agreement with Questar Southern Trails Pipeline Company dated June 29, 2012(32) 10.31Amendment No. 5 to Credit Agreement and Amendment No. 3 to Registration Rights Agreement among Cadiz Inc. and Cadiz RealEstate LLC, as Borrowers, the Several Lenders from time to time parties thereto, and LC Capital Master Fund Ltd., asAdministrative Agent, dated as of August 8, 2012(32) 10.32Water Purchase and Sale Agreement among Cadiz Inc., Cadiz Real Estate LLC, Fenner Valley Mutual Water Company and SantaMargarita Water District dated July 31, 2012(33) 10.33Groundwater Management, Monitoring, and Mitigation Plan for the Cadiz Valley Groundwater Conservation, Recovery and StorageProject approved by the Santa Margarita Water District and the County of San Bernardino Board of Supervisors effective October1, 2012(33) 10.34Amendment No. 6 to Credit Agreement and Amendment No. 4 to the Registration Rights Agreement among Cadiz Inc. and CadizReal Estate LLC, as Borrowers, the Several Lenders from time to time parties thereto, and LC Capital Master Fund Ltd., asAdministrative Agent, dated as of October 30, 2012(33) 10.35Second Amended Option Agreement with El Paso Natural Gas Company dated December 7, 2012(34) 10.36Notice of Termination of Option Agreement between Cadiz Inc. and Questar Southern Trails Pipeline Company, dated August 12,2011, and as amended June 29, 1012, by Questar Southern Trails Pipeline Company dated October 26, 2012(35) 10.37Revised Terms of Engagement with Brownstein Hyatt Farber and Schreck dated January 9, 2013(35) 10.38Letter agreement with Scott Slater dated January 10, 2013(35) 45back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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. 10.39Amended and Restated Credit Agreement among Cadiz Inc. and Cadiz Real Estate LLC, as Borrowers, the Several Lenders fromtime to time parties hereto, and LC Capital Master Fund, Ltd., as Administrative Agent, dated as of March 5, 2013(35) 10.40Indenture among Cadiz Inc., as Issuer, and The Bank of New York Mellon Trust Company, N.A., as Trustee, dated as of March5, 2013(35) 10.41Private Placement Purchase Agreement among Cadiz Inc. and Purchasers (as defined therein) dated as of March 4, 2013(35) 10.42Exchange Agreement among Cadiz Inc. and Holders (as defined therein) dated March 4, 2013(35) 10.43Placement Agent Agreement with B. Riley & Co. LLC dated March 4, 2013(35) 10.44Lease Agreement, dated as of July 1, 2013, by and between Cadiz Inc. and Limoneira Company(36) 10.45Amended and Restated Credit Agreement, dated as of October 30, 2013, by and among Cadiz Inc. and Cadiz Real Estate LLC, asthe borrowers, the lenders from time to time party thereto, and Wells Fargo Bank, National Association, as administrative agent(38) 10.46Stock Issuance Agreement, dated as of October 30, 2013, by and between Cadiz Inc and MSD Credit Opportunity Master Fund,L.P.(38) 10.47Track Utilization Agreement dated September 16, 2013, between Arizona & California Railroad Company and Cadiz Real EstateLLC(39) 21.1Subsidiaries of the Registrant 23.1Consent of Independent Registered Public Accounting Firm 31.1Certification of Scott Slater, 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 Scott Slater, Chief Executive Officer of Cadiz Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant toSection 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________________________________________________________________________ 46back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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. (1)Previously filed as an Exhibit to our Registration Statement of Form S-1 (Registration No. 33-75642) declared effective May16, 1994 filed on February 23, 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 onNovember 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 (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 our Registration Statement on Form S-3 (Registration No. 333-180403) filed on April 12, 2012 (8)Previously filed as an Exhibit to our Annual Report on Form 10-K for the fiscal year ended December 31, 2004 filed on March31, 2005 (9)Previously filed as an Exhibit to our Report on Form 10-Q for the quarter ended September 30, 2005 filed on November 14,2005 (10)Previously filed as an Exhibit to our registration statement on Form S-3 (Registration No. 333-136117) filed on July 28, 2006 (11)Previously filed as an Exhibit to our Current Report on Form 8-K dated October 4, 2006 and filed October 4, 2006 (12)Previously filed as Appendix B to our definitive proxy dated October 10, 2006 and filed October 10, 2006 (13)Previously filed as an Exhibit to our Annual Report on Form 10-K for the fiscal year ended December 31, 2006 filed on March16, 2007 (14)Previously filed as Appendix A to our definitive proxy dated April 27, 2007 and filed April 27, 2007 (15)Previously filed as an Exhibit to our Report on Form 10-Q for the quarter ended June 30, 2007 filed on August 6, 2007 (16)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 (17)Previously filed as an Exhibit to our Report on Form 10-Q for the quarter ended September 30, 2008 on November 10, 2008 (18)Previously filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2009, filed on August10, 2009 (19)Previously filed as an Exhibit to the Post-Effective Amendment No. 1 to our Registration Statement on Form S-3 (RegistrationNo. 333-136117) filed on August 3, 2009 (20)Previously filed as Appendix A to our definitive proxy dated November 3, 2009, and filed on November 5, 2009 (21)Previously filed as an Exhibit to our Annual Report on Form 10-K for the fiscal year ended December 31, 2009 filed on March15, 2010 (22)Previously filed as an Exhibit to our Current Report on Form 8-K dated June 23, 2010 and filed on June 24, 2010 47back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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. (23)Previously filed as an Exhibit to our Current Report on Form 8-K dated June 25, 2010 and filed on June 30, 2010 (24)Previously filed as an Exhibit to our Current Report on Form 8-K dated October 4, 2010 and filed on October 7, 2010 (25)Previously filed as an Exhibit to our Current Report on Form 8-K dated October 19, 2010 and filed on October 20, 2010 (26)Previously filed as an Exhibit to our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, filed on March16, 2011 (27)Previously filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, filed on May 9,2011 (28)Previously filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, filed on August 8,2011 (29)Previously filed as an Exhibit to our Current Report on Form 8-K dated December 1, 2011, and filed on December 7, 2011 (30)Previously filed as an Exhibit to our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 filed on March15, 2012 (31)Previously filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, filed on May 9,2012 (32)Previously filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, filed on August 9,2012 (33)Previously filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, filed onNovember 8, 2012 (34)Previously filed as an Exhibit to our Current Report on Form 8-K dated December 7, 2012, and filed on December 12, 2012 (35)Previously filed as an Exhibit to our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, filed on March15, 2013 (36)Previously filed as an Exhibit to our Current Report on Form 8-K dated July 1, 2013 and filed on July 2, 2013 (37)Previously filed as an Exhibit to our registration statement on Form S-3 (Registration No. 333-190288) filed on July 31, 2013 (38)Previously filed as an Exhibit to our Current Report on Form 8-K dated October 30, 2013 and filed on October 31, 2013 (39)Previously filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, filed onNovember 8, 2013 48back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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 FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm50 Consolidated Statements of Operations and Comprehensive Loss for the three years ended December 31, 201352 Consolidated Balance Sheets as of December 31, 2013 and 201253 Consolidated Statements of Cash Flows for the three years ended December 31, 201354 Consolidated Statements of Stockholders’ (Deficit) Equity for the three years ended December 31, 201355 Notes to the Consolidated Financial Statements56 Financial Statement Schedule76 (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.) 49back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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 consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financialposition of Cadiz Inc. and its subsidiaries at December 31, 2013 and December 31, 2012, and the results of their operations and their cash flows for each ofthe three years in the period ended December 31, 2013 in conformity with accounting principles generally accepted in the United States of America. Inaddition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forththerein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects,effective internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control - Integrated Framework (1992)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financialstatements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Ourresponsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financialreporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financialstatements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accountingprinciples used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control overfinancial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, andtesting and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such otherprocedures as we considered necessary in the circumstances. We believe that our audits 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 financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internalcontrol over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately andfairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary topermit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding preventionor timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 50back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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 anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate. /s/ PricewaterhouseCoopers LLPLos Angeles, CaliforniaMarch 10, 2014 51back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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 AND COMPREHENSIVE LOSS Year Ended December 31, (In thousands, except per share data) 2013 2012 2011 Total revenues $301 $362 $1,019 Costs and expenses: Cost of sales (exclusive of depreciation shown below) 555 521 1,441 General and administrative 13,464 12,559 10,447 Depreciation 254 350 365 Total costs and expenses 14,273 13,430 12,253 Operating loss (13,972) (13,068) (11,234) Interest expense, net (7,644) (6,817) (5,704)Loss on extinguishment of debt and debt refinancing (1,055) - - Other income, net - - 108 Loss before income taxes (22,671) (19,885) (16,830) Income tax (benefit) expense 6 (311) 7 Net loss and comprehensive loss $(22,677) $(19,574) $(16,837) Basic and diluted net loss per share $(1.46) $(1.27) $(1.20) Weighted-average shares outstanding 15,570 15,438 14,082 See accompanying notes to the consolidated financial statements. 52back to topSource: CADIZ INC, 10-K, March 10, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. CADIZ INC.CONSOLIDATED BALANCE SHEETS December 31, ($ in thousands) 2013 2012 ASSETS Current assets: Cash and cash equivalents $11,887 $1,685 Accounts receivable 291 260 Prepaid expenses and other 350 404 Total current assets 12,528 2,349 Property, plant, equipment and water programs, net 43,820 44,074 Goodwill 3,813 3,813 Debt issuance costs 1,068 81 Other assets 2,945 201 Total assets $64,174 $50,518 LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable $833 $957 Accrued liabilities 1,738 1,395 Current portion of long term debt 11 11 Total current liabilities 2,582 2,363 Long-term debt 96,417 63,250 Deferred revenue 750 750 Other long-term liabilities 923 923 Total liabilities 100,672 67,286 Commitments and contingencies (Note 12) Stockholders' deficit: Common stock - $0.01 par value; 70,000,000 shares authorized; shares issued and outstanding: 16,152,756 atDecember 31, 2013, and 15,438,961 at December 31, 2012 161 154 Additional paid-in capital 303,979 301,039 Accumulated deficit (340,638) (317,961) Total stockholders' deficit (36,498) (16,768) Total liabilities and stockholders' deficit $ 64,174 $ 50,518 See accompanying notes to the consolidated financial statements. 53back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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) 2013 2012 2011 Cash flows from operating activities: Net loss $(22,677) $(19,574) $(16,837) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation 254 350 365 Amortization of deferred loan costs 223 108 72 Amortization of debt discount 1,352 3,123 2,372 Interest expense added to loan principal 6,069 3,589 3,261 Loss on early extinguishment of debt and debt refinancing 835 - - Unrealized gain on derivative liability - - (108) Compensation charge for stock awards and share options 516 383 2,376 Changes in operating assets and liabilities: (Increase) decrease in accounts receivable (31) (121) 138 Decrease (increase) in prepaid expenses and other 54 200 (305) (Increase) decrease in other assets (2,744) (109) 63 Increase in accounts payable 43 128 304 Increase in accrued liabilities 339 273 285 Increase in deferred revenue - 250 500 Net cash used for operating activities (15,767) (11,400) (7,514) Cash flows from investing activities: Additions to property, plant and equipment (167) (3,226) (4,140) Increase in other assets (restricted cash) - (63) - Net cash used for investing activities (167) (3,289) (4,140) Cash flows from financing activities: Net proceeds from issuance of common stock - - 15,129 Net proceeds from issuance of long-term debt 27,390 5,014 2,000 Debt issuance costs (1,243) - - Principal payments on long-term debt (11) (10) (16) Net cash provided by financing activities 26,136 5,004 17,113 Net increase (decrease) in cash and cash equivalents 10,202 (9,685) 5,459 Cash and cash equivalents, beginning of period 1,685 11,370 5,911 Cash and cash equivalents, end of period $11,887 $1,685 $11,370 See accompanying notes to the consolidated financial statements. 54back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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' (DEFICIT) EQUITY Additional Total Common Stock Paid-in Stockholders' Shares Amount Capital Deficit (Deficit)Equity Balance as of December 31, 2010 13,677,772 $137 $282,359 $(281,550) $946 Issuance of shares pursuant to stock awards 151,466 1 - - 1 Issuance of shares pursuant to Private Placement and ShelfTakedown 1,600,303 16 15,113 - 15,129 Convertible term loan conversion option - - 343 - 343 Stock compensation expense - - 2,348 - 2,348 Net loss - - - (16,837) (16,837)Balance as of December 31, 2011 15,429,541 154 300,163 (298,387) 1,930 Issuance of shares pursuant to stock awards 9,420 - - - - Stock compensation expense - - 343 - 343 Issuance of stock warrants - - 533 - 533 Net Loss - - - (19,574) (19,574)Balance as of December 31, 2012 15,438,961 154 301,039 (317,961) (16,768) Issuance of shares pursuant to stock awards 13,795 - - - - Issuance of stock to lenders 700,000 7 2,428 - 2,435 Stock compensation expense - - 512 - 512 Net Loss - - - (22,677) (22,677)Balance as of December 31, 2013 16,152,756 $161 $303,979 $(340,638) $(36,498) See accompanying notes to the consolidated financial statements. 55back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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 CONSOLIDATE FINANCIAL STATEMENTS NOTE 1 – DESCRIPTION OF BUSINESS Cadiz Inc. (“Cadiz” or the “Company”) is a land and water resource development company with 45,000 acres of land in three areas of easternSan Bernardino County, California. Virtually all of this land is underlain by high-quality, naturally recharging groundwater resources, and is situated inproximity to the Colorado River and the Colorado River Aqueduct (“CRA”), a major source of imported water for Southern California. The Company’s mainobjective is to realize the highest and best use of these land and water resources in an environmentally responsible way. For more than 20 years, the Company has maintained an agricultural development at its 34,000-acre property in the Cadiz Valley, relying upongroundwater from the underlying aquifer system for irrigation. In 1993, Cadiz secured permits to develop agriculture on up to 9,600 acres of the CadizValley property and withdraw more than one million acre-feet of groundwater from the underlying aquifer system. Since that time, the Company hasmaintained various levels of agriculture at the property and this operation has provided its principal source of revenue. At present, the Company’s water development efforts are primarily focused on the Cadiz Valley Water Conservation, Recovery and StorageProject (the “Water Project” or the “Project”), which will capture and conserve millions of acre-feet of native groundwater currently being lost to evaporationfrom the aquifer system beneath the Company’s Cadiz Valley property and deliver it to water providers throughout Southern California. Cadiz believes thatthe ultimate implementation of this Water Project will create the primary source of its future cash flow and, accordingly, its working capital requirements relatelargely to the development activities associated with this Water Project. The Company also continues to explore additional uses of its land and water resource assets, including additional agricultural opportunities, thedevelopment of a land conservation bank on its properties outside the Water Project area and other long-term legacy uses of the Company’s properties such ashabitat conservation and cultural uses. In addition to these development efforts, Cadiz will also pursue strategic investments in complementary business or infrastructure to meet itsobjectives. The Company cannot predict with certainty when or if these objectives will be realized.NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBasis of Presentation The Consolidated Financial Statements of the Company have been prepared using accounting principles applicable to a going concern, whichassumes realization of assets and settlement of liabilities in the normal course of business. The Company incurred losses of $22.7 million, $19.6 millionand $16.8 million for the years ended December 31, 2013, 2012 and 2011, respectively. The Company had working capital of $10.0 million at December31, 2013, and used cash in operations of $15.8 million for the year ended December 31, 2013. Currently, the Company’s sole focus is the development of itsland and water assets. 56back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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 requirements during the twelve months ended December 31, 2013, primarily reflect: (i) certain administrative costs related to theCompany’s water development efforts; (ii) litigation costs; and (iii) a $3.3 million cash payment in March 2013 related to the lease agreement with the Arizona& California Railroad Company to use a portion of the railroad’s right-of-way to construct and operate a water conveyance pipeline. In June 2006, the Company raised $36.4 million through the private placement of a five year zero coupon convertible term loan with PelotonPartners LLP (“Peloton”), as administrative agent, and an affiliate of Peloton and another investor, as lenders (the “Term Loan”). In April 2008, the Companywas advised that Peloton’s interest in the Term Loan had been assigned to an affiliate of Lampe, Conway & Company LLC (“Lampe Conway”), and LampeConway subsequently replaced Peloton as administrative agent of the loan. In June 2009, the Company completed arrangements to amend the Term Loan andextend its maturity to June 2013. This facility was further modified as to certain of its conversion features in October 2010, in connection with a new $10million working capital facility with the existing lenders. In October 2012, the Company increased the capacity of its existing Term Loan facility with anadditional $5 million facility. On March 5, 2013, the Company completed arrangements with its senior lenders to refinance its then existing $66 million Term Loan. Underthe new terms of the new arrangements, the existing lenders held $30 million of non-convertible secured debt at the time of the transaction, with the balance ofthe Company’s outstanding debt of approximately $36 million held in a convertible note instrument. Further, the Company increased the capacity of theconvertible note instrument with an additional $17.5 million to be used for working capital purposes. In July 2013, the majority of the $30 million of non-convertible secured debt was acquired in a private transaction by MSD Credit Opportunity Master Fund, L.P. (“MSD Credit”). In October 2013, theCompany completed arrangements with MSD Credit to increase the secured debt facility by $10 million to fund additional working capital (“New TermLoan”). See Note 6, “Long-Term Debt”. In July 31, 2013, the Company filed a new shelf registration statement on Form S-3 registering the issuance of up to $40 million in shares of theCompany’s common stock, preferred stock, warrants, subscription rights, units and certain debt instruments in one or more public offerings. The $10 million in additional working capital raised in October 2013, as discussed above, together with the Company’s existing cashresources, provides the Company with sufficient funds to meet its expected working capital needs through the first quarter of 2015. Based upon theCompany’s current and anticipated usage of cash resources, and depending on its progress toward implementation of the Cadiz Valley Water Conservation,Recovery and Storage Project (“Water Project” or “Project”), it may require additional working capital during 2015. The Company will evaluate the amount ofcash needed, and the manner in which such cash will be raised, on an ongoing basis. The Company may meet any future cash requirements through avariety of means, including equity or debt placements, or through the sale or other disposition of assets. Equity placements would be undertaken only to theextent necessary, so as to minimize the dilutive effect of any such placements upon the Company’s existing stockholders. Limitations on the Company’sliquidity and ability to raise capital may adversely affect it. Sufficient liquidity is critical to meet its resource development activities. Although the Companycurrently expects its sources of capital to be sufficient to meet its near-term liquidity needs, there can be no assurance that its liquidity requirements willcontinue to be satisfied. If the Company cannot raise needed funds, it might be forced to make substantial reductions in its operating expenses, which couldadversely affect its ability to implement its current business plan and ultimately its viability as a company. 57back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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. Principles of Consolidation The consolidated financial statements include the accounts of Cadiz Inc. and all subsidiaries. All significant intercompany transactions andbalances have been eliminated in consolidation.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 $0.5 million, $0.4 million and $2.4 million of stock-based compensation expenses in the yearsended December 31, 2013, 2012 and 2011, respectively. The Company applies the Black-Scholes valuation model in determining the fair value of options granted to employees and consultants. Foremployees, the fair value is then charged to expense on the straight-line basis over the requisite service period. For consultants, the fair value is remeasured ateach reporting period and recorded as a liability until the award is settled. ASC 718 also requires the Company to estimate forfeitures in calculating the expense related to stock-based compensation as opposed to onlyrecognizing forfeitures and the corresponding reduction in expense as they occur. The remaining vesting periods are relatively short, and the potential impactof forfeitures is not material. The Company is in a tax loss carryforward position and is not expected to realize a benefit from any additional compensationexpense recognized under ASC 718. See Note 7, “Income Taxes". 58back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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. Net Loss Per Common Share Basic earnings per share (“EPS”) is computed by dividing the net loss by the weighted-average common shares outstanding. Options, deferredstock units, warrants, and the zero coupon term loan convertible into or exercisable for certain shares of the Company’s common stock were not considered inthe computation of diluted EPS because their inclusion would have been antidilutive. Had these instruments been included, the fully diluted weighted averageshares outstanding would have increased by approximately 7,012,000 shares, 2,996,000 shares and 2,655,000 shares for the years ended December 31,2013, 2012 and 2011, 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 investsits excess cash in deposits with major international banks and government agency notes and, therefore, bears minimal risk. Such investments are stated atcost, which approximates fair value, and are considered cash equivalents for purposes of reporting cash flows.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 estimateduseful lives of the assets, generally ten to forty-five years for land improvements and buildings, and five to fifteen years for machinery andequipment. Leasehold improvements are amortized over the shorter of the term of the relevant lease agreement or the estimated useful life of the asset. Water rights, storage and supply programs are stated at cost. Certain costs directly attributable to the development of such programs have beencapitalized by the Company. These costs, which are expected to be recovered through future revenues, consist of direct labor, drilling costs, consulting feesfor various engineering, hydrological, environmental and additional feasibility studies, and other professional and legal fees. While interest on borrowedfunds is currently expensed, interest costs related to the construction of project facilities will be capitalized at the time construction of these facilitiescommences.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$7,006,000 was recorded. Approximately $3,193,000 of this amount was amortized prior to the adoption of ASC 350 on January 1, 2002. Since the adoptionof ASC 350, there have been no goodwill impairments recorded. 59back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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. Amounts (in thousands) Balance at December 31, 2011 $3,813 Adjustments - Balance at December 31, 2012 3,813 Adjustments - Balance at December 31, 2013 $3,813 Deferred loan costs represent costs incurred to obtain debt financing. Such costs are amortized over the life of the related loan on a straight linebasis which approximates the effective interest method. At December 31, 2013, the deferred loan fees relate to the corporate term loan, as described in Note 6,“Long-Term Debt”.Impairment of Goodwill and Long-Lived Assets The Company assesses long-lived assets, excluding goodwill, for recoverability whenever events or changes in circumstances indicate that theircarrying value may not be recoverable through the estimated undiscounted future cash flows resulting from the use of the assets. If it is determined that thecarrying value of long-lived assets may not be recoverable, the impairment is measured by using the projected discounted cash-flow method. The Company tests goodwill for impairment annually as of December 31, or more frequently if events or circumstances indicate carryingvalues may not be recoverable, using the market method. The Company uses a two-step impairment test to identify potential goodwill impairment and measure the amount of a goodwill impairment lossto be recognized (if any) for the Company. The first step considers whether there are qualitative factors present such that it is more likely than not a goodwillimpairment exists. If based on qualitative factors it is more likely than not a goodwill impairment exists, the Company performs “Step 2” as described below. The step 2 calculation of the impairment test compares the implied fair value of the goodwill to the carrying value of goodwill. The implied fairvalue of goodwill represents the excess of the estimated fair value above the fair value of the Company's identified assets and liabilities. If the carrying value ofgoodwill exceeds the implied fair value of goodwill, an impairment loss is recognized in an amount equal to the excess (not to exceed the carrying value ofgoodwill). The determination of the fair value of its assets and liabilities is performed as of the measurement date using observable market data before andafter the measurement date (if that subsequent information is relevant to the fair value on the measurement date). 60back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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. Income Taxes Income taxes are provided for using an asset and liability approach which requires the recognition of deferred tax assets and liabilities for theexpected future tax consequences of temporary differences between the financial statement and tax bases of assets and liabilities at the applicable enacted taxrates. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized.Fair Value of Financial Instruments Financial assets with carrying values approximating fair value include cash and cash equivalents and accounts receivable. Financial liabilitieswith carrying values approximating fair value include accounts payable and accrued liabilities due to their short-term nature. The carrying value of theCompany's debt approximates fair value, based on interest rates available to the Company for debt with similar terms. See Note 6, “Long-Term Debt”, fordiscussion of fair value of debt.Supplemental Cash Flow Information No cash payments, including interest, are due on the corporate secured debt or convertible notes prior to their maturities. In connection with the October 2013 additional debt facility, the Company issued 700,000 shares to its senior lender subject to certainrestrictions on resale. The fair value of the shares of common stock issued totaled approximately $2.4 million, which was recorded as additional debtdiscount with a corresponding amount recorded as additional paid-in capital. Such debt discount is accreted to the redemption value of the instrument over theremaining term of the loan as additional interest expense. As of December 31, 2013, the Company had $923,000 in non-cash additions to fixed assets recorded, which were accrued at year end, for thecosts directly attributable to the development of the Water Project. Non-cash additions to fixed assets recorded as of the years ended December 31, 2012 and2011 were $1,090,000 and $1,826,000 respectively. Cash payments for income taxes were $5,700, $10,000 and $6,500 in the years ended December 31, 2013, 2012, and 2011, respectively.Recent Accounting PronouncementsPresentation of Unrecognized Tax Benefits In July 2013, the FASB issued an accounting standards update which will require an unrecognized tax benefit be presented on the balance sheetas a reduction of a deferred tax asset for a net operating loss ("NOL") or tax credit carryforward under certain circumstances. The guidance is effective for allfiscal years, and interim periods within those years, beginning December 15, 2013. The Company does not expect this guidance to have a material impact onits Consolidated Financial Statements and accompanying disclosures. 61back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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, 2013 2012 Land and land improvements $24,191 $24,191 Water programs 21,324 21,324 Buildings 1,187 1,187 Leasehold improvements 570 570 Furniture and fixtures 458 458 Machinery and equipment 1,129 1,122 Construction in progress 97 103 48,956 48,955 Less accumulated depreciation (5,136) (4,881) $43,820 $44,074 NOTE 4 – OTHER ASSETS Other assets consist of the following (dollars in thousands): December 31, 2013 2012 Prepaid rent $2,812 $68 Security deposits 133 133 $2,945 $201 Prepaid fees consist of rental fees incurred to obtain the right-of-way for the Water Project. Amortization of prepaid fees was approximately$373,000, $1,088,000 and $136,000 in 2013, 2012 and 2011, respectively. 62back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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 At December 31, 2013 and 2012, accrued liabilities consist of the following (dollars in thousands): December 31, 2013 2012 Payroll, bonus, and benefits $141 $160 Legal and consulting 1,300 884 Stock-based compensation 71 67 Other accrued expenses 226 284 $1,738 $1,395 NOTE 6 – LONG-TERM DEBT At December 31, 2013 and 2012, the carrying amount of the Company’s outstanding debt is summarized as follows (dollars in thousands): December 31, 2013 2012 Zero coupon secured convertible term loan $- $65,262 Senior secured debt due March 5, 2016 Interest accrues at 8% per annum 32,055 - Senior secured debt due June 30, 2017 Interest accrues at 8% per annum 10,138 Convertible note instrument due March 5, 2018 Interest accrues at 7% per annum 56,638 - Other loans 39 50 Debt discount, net of accumulated accretion (2,442) (2,051) 96,428 63,261 Less current portion 11 11 $96,417 $63,250 The carrying value of the Company’s debt, before discount, approximates fair value. The fair value of the Company’s debt (Level 2) isdetermined based on an estimation of discounted future cash flows of the debt at rates currently quoted or offered to the Company for similar debt instrumentsof comparable maturities by its lenders. Pursuant to the Company’s loan agreements, annual maturities of long-term debt outstanding on December 31, 2013, are as follows: 63back to topSource: CADIZ INC, 10-K, March 10, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Year EndingDecember 31 ($ in thousands) 2014 $11 2015 11 2016 32,066 2017 10,144 2018 56,638 $98,870 In June 2006, the Company raised $36.4 million through the private placement of a five-year zero coupon convertible term loan with Peloton, asadministrative agent, and an affiliate of Peloton and another investor, as lenders (the “Term Loan”). In April 2008, the Company was advised that Peloton’sinterest in the Term Loan had been assigned to an affiliate of Lampe Conway and Company LLC, and Lampe Conway subsequently replaced Peloton asadministrative agent of the loan. In June 2009, the Company completed arrangements to amend the Term Loan and extend its maturity to June 2013. Thisfacility was further modified as to certain of its conversion features in October 2010, in connection with a new $10 million working capital facility with theexisting lenders. In October 2012, the Company increased the capacity of its existing Term Loan facility with an additional $5 million facility. As a result ofthis transaction, the Company issued warrants to lenders to purchase shares of common stock. The value of the warrants totaled approximately $533thousand and was recorded as additional debt discount with a corresponding amount recorded as additional paid-in capital. On March 5, 2013, the Company completed arrangements with its senior lenders to refinance the Company’s existing $66 million corporateterm debt. The new arrangements established two separate debt instruments, a $30 million senior secured mortgage loan due in three years, and a new $53.5million in new convertible notes due in five years, with no principal or interest payments due on either instrument until maturity. The new debt instrumentsreplaced all existing term debt as of March 5, 2013, and provided $17.5 million in new working capital to fund the Company’s current operations, includingpre-construction activities related to the Project. The major components of the refinancing included: · A $30 million senior term loan secured by the underlying assets of the Company, including landholdings and infrastructure (the “Senior SecuredDebt”). The instrument accrues interest at 8% per annum and requires no principal or interest payments before maturity on March 5,2016. Prepayment would be mandatory following any asset sale or voluntarily at the Company’s option, subject to a premium. The SeniorSecured Debt has a senior position to any other Company debt instrument. · A $53.5 million in convertible notes (the “Convertible Notes”). The Convertible Notes provide for convertibility into the Company’s commonstock at a price of $8.05 per share. Interest accrues at 7% per annum, with no principal or interest payments required before maturity on March5, 2018. This instrument has a junior position to the Senior Secured Debt. 64back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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. · $17.5 million in new working capital provided as part of the Convertible Notes issuance to fund Company operations. The March 2013 credit facility does not constitute a troubled debt restructuring and was accounted for as a debt extinguishment under ASC 470-50. The fair value of the new credit facility was recorded at face value. The Company recorded a loss on extinguishment of debt in the amount of $1.06million which consisted of the write-off of unamortized debt discount, unamortized debt issuance costs and fees paid to the lenders. The Company incurred $1.2 million of legal expenses and placement agent fees related to the negotiation and documentation of the refinancingwhich was capitalized and is being amortized over the life of the Convertible Notes. In July 2013, the majority interest of the Senior Secured Debt was acquired in a private transaction by MSD Credit Opportunity Master Fund,L.P. (“MSD Credit”). On October 30, 2013, the Company entered into an agreement (“Credit Agreement”) with its new majority senior lender, MSD CreditOpportunity Master Fund, L.P. (“MSD Credit”), to increase its existing $30 million senior secured mortgage loan by $10 million to fund additional workingcapital. MSD Credit previously acquired the majority interest of the $30 million portion of the debt in a private transaction. The new $10 million trancheaccrues interest at 8% and requires no principal or interest payments prior to maturity on June 30, 2017. The new $10 million and the original $30 million areboth secured by the underlying assets of the Company, including all landholdings and infrastructure. The Credit Agreement also now provides that in thecase of certain asset sales unrelated to the Water Project, the Company would retain for working capital purposes up to 50% of the first $10 million of sales,with the remainder requiring mandatory prepayment of the Senior Secured Debt. In addition, as part of this transaction, the Company issued 700,000 sharesof Cadiz Inc. common stock to MSD Credit subject to certain restrictions on resale. The fair value of the shares of common stock issued totaledapproximately $2.4 million, which was recorded as additional debt discount with a corresponding amount recorded as additional paid-in capital. Such debtdiscount is accreted to the redemption value of the instrument over the remaining term of the loan as additional interest expense. In addition, the Companyincurred $110,000 of lender fees which was recorded as additional debt discount and is being amortized over the remaining term of the loan. Both the Senior Secured Debt and the Convertible Notes contain representations, warranties and covenants that are typical for agreements of thistype, including restrictions that would limit the Company’s ability to incur additional indebtedness, incur liens, pay dividends or make restricted payments,dispose of assets, make investments and merge or consolidate with another person. However, while there are affirmative covenants, there are no financialmaintenance covenants and no restrictions on the Company’s ability to issue additional common stock to fund future working capital needs. The debtcovenants were negotiated by the parties with a view towards the Company’s operating and financial condition as it existed at the time the agreements wereexecuted. At December 31, 2013, the Company was in compliance with its debt covenants. 65back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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 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 31,2013 and 2012 are as follows (dollars in thousands): December 31, 2013 2012 Deferred tax assets: Net operating losses $56,294 $50,502 Fixed asset basis difference 6,559 7,141 Contributions carryover 2 2 Deferred compensation 2,354 2,367 Accrued liabilities 63 29 Total deferred tax assets 65,272 60,041 Valuation allowance for deferred tax assets (65,272) (60,041) Net deferred tax asset $- $- The valuation allowance increased $5,231,000 and $5,253,000 in 2013 and 2012, respectively. The change in deferred tax assets resultedfrom current year net operating losses, expiration of prior year loss carryovers, and changes to future tax deductions resulting from terms of stockcompensation plans. As of December 31, 2013, the Company had net operating loss (“NOL”) carryforwards of approximately $204.5 million for federal income taxpurposes and $111.2 million for California income tax purposes. Such carryforwards expire in varying amounts through the year 2033. Use of thecarryforward amounts is subject to an annual limitation as a result of ownership changes. As of December 31, 2013, the Company possessed unrecognized tax benefits totaling approximately $2.8 million. None of these, if recognized,would affect the Company's effective tax rate because the Company has recorded a full valuation allowance against these assets. As of December 31, 2011, the Company had accrued a total of $321,000 for state taxes, interest and penalties related to income tax positions inprior returns. As a result of the expiration of statutes of limitation during the year ended December 31, 2012, the Company recognized a state tax benefit of$321,000. The Company's tax years 2010 through 2013 remain subject to examination by the Internal Revenue Service, and tax years 2009 through 2013remain 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. 66back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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 reconciliation of the income tax benefit to the statutory federal income tax rate is as follows (dollars in thousands): Year Ended December 31, 2013 2012 2011 Expected federal income tax benefit at 34% $(7,698) $(6,614) $(5,720)Loss with no tax benefit provided 7,108 5,535 4,880 State income tax 6 10 7 State tax benefit - (321) - Stock Options - - (6) Non-deductible expenses and other 590 1,079 846 Income tax (benefit) expense $6 $(311) $7 Because it is more likely than not that the Company will not realize its deferred tax assets, it has recorded a full valuation allowance againstthese assets. Accordingly, no deferred tax asset has been recorded in the accompanying balance sheet.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 and50% of the next two percent of annual base salary contributed by an employee to the plan. The Company contributed approximately $54,000, $62,000 and$55,000 to the plans in 2013, 2012 and 2011, respectively.NOTE 9 – COMMON STOCK On January 9, 2013, Cadiz revised its existing agreement with the law firm of Brownstein Hyatt Farber Schreck LLP (“Brownstein”). Underthis agreement, Brownstein provides certain legal and advisory services to the Company, including the services of Mr. Scott Slater, the Company’s ChiefExecutive Officer. As previously disclosed, the Company had agreed to pay to Brownstein an amount of up to 1% of the net present value of the Water Projectas incentive compensation in consideration of the services provided by Brownstein under the original agreement. The revised agreement replaced the net present-value-based incentive compensation provisions of the original agreement with an agreement toissue up to a total of 400,000 shares of the Company’s common stock, with 100,000 shares earned upon the achievement of each of four enumerated milestonesas follows: 67back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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. i. 100,000 shares earned upon the execution of the revised agreement;ii. 100,000 shares earned upon receipt by the Company of a final judicial order dismissing all legal challenges to the Final EnvironmentalImpact Report for the Project;iii. 100,000 shares earned upon the signing of binding agreements for more than 51% of the Project’s annual capacity; andiv. 100,000 shares earned upon the commencement of construction of all of the major facilities contemplated in the Final EnvironmentalImpact Report necessary for the completion and delivery of the Project. All shares earned upon achievement of any of the four milestones will be payable three years from the date earned. The agreement also providesfor base cash compensation payments to Brownstein of $25,000 per month. In accordance with ASC 505, the Company recognized stock compensation in the amount of $373,000 for the first of the four milestones whichwas satisfied on January 9, 2013. Because the shares are payable three years from the date earned, the fair value of these shares was estimated by discountingthe current market price of the Company’s common stock by the fair value of a protective put using the Black-Scholes model. As discussed in Note 6, “Long-Term Debt”, principal and accrued interest on the Convertible Notes 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.NOTE 10 – STOCK-BASED COMPENSATION PLANS AND WARRANTS The Company has issued options and has granted stock awards pursuant to its 2003 Management Equity Incentive Plan, 2007 ManagementEquity Incentive Plan, and 2009 Equity Incentive Plan. The Company also has granted stock awards pursuant to its 2009 Equity Incentive Plan and OutsideDirector Compensation Plan, as described below.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. As of December 31, 2013, a total of 315,000 common stock options remainoutstanding under this plan. 68back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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 the Company’s stockholders in November 2006. Under the plan, eachoutside director receives $30,000 of cash compensation and receives a deferred stock award consisting of shares of the Company’s common stock with a valueequal to $20,000 on June 30 of each year. The award accrues on a quarterly basis, with $7,500 of cash compensation and $5,000 of stock earned for eachfiscal quarter in which a director serves. The deferred stock award vests automatically on the January 31 that first follows the award date.2007 Management Equity Incentive Plan The 2007 Management Equity Incentive Plan was approved by stockholders at the 2007 Annual Meeting. In November 2013, unexercisedoptions to purchase 10,000 shares were forfeited and became available for future awards under the terms of the 2007 Management Equity Incentive Plan. As ofDecember 31, 2013, no common stock options remain outstanding under this plan.2009 Equity Incentive Plan The 2009 Equity Incentive Plan was approved by stockholders at the 2009 Annual Meeting. The plan provides for the grant and issuance ofup to 850,000 shares and options to the Company’s employees and consultants. The plan became effective when the Company filed a registration statementon Form S-8 on December 18, 2009. All options issued under the 2009 Equity Incentive Plan have a ten-year term with vesting periods ranging from issuancedate to 24 months. Under the plan, a total of 537,500 common stock purchase options have been issued. In November 2013, unexercised options to purchase10,000 shares were forfeited and became available for future awards under the terms of the 2009 Management Equity Incentive Plan. As of December 31,2013, 527,500 common stock options remain outstanding under this plan. All options that have been issued under the above plans have been issued to officers, employees and consultants of the Company. In total,options to purchase 842,500 shares were unexercised and outstanding on December 31, 2013, under the three equity incentive plans. For consultants of the Company, the fair value of each option granted under the 2009 Equity Incentive Plan is estimated at each reporting periodusing the Black-Scholes option pricing model and recorded as a liability until the award is settled. For officers and employees of the Company, the fair value of each option granted under the plans was estimated on the date of grant using theBlack-Scholes option pricing model based on the following weighted-average assumptions:Risk-free interest rate3.90%Expected life9.4 yearsExpected volatility52%Expected dividend yield0.0% The risk-free interest rate is assumed to be equal to the yield of a U.S. Treasury bond of comparable maturity, as published in the FederalReserve Statistical Release for the relevant date. The expected life estimate is based on an analysis of the employees receiving option grants and the expectedbehavior of each employee. The expected volatility is derived from an analysis of the historical volatility of the trading price per share of the Company’scommon stock on the NASDAQ Global Market. The Company does not anticipate that it will pay dividends to common stockholders in the future. 69back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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 recognized stock option related compensation costs of $43,000, $284,000, and $1,245,000 in the years ended December 31,2013, 2012, and 2011, respectively, relating to these options. No stock options were exercised during 2013. A summary of option activity under the plans as of December 31, 2013, and changes during the year ended are presented below: Weighted- Average Aggregate Average Remaining Intrinsic Exercise Contractual ValueOptions Shares Price Term ($000’s) Outstanding January 1, 2013 862,500 $11.92 5.5 $ 7,499 Granted - $- - - Exercised - $ - - - Forfeited or expired (20,000) $ 15.25 4.2 175Outstanding at December 31, 2013 842,500 $ 11.84 4.5 7,316Exercisable at December 31, 2013 842,500 $11.84 4.3 $7,316 The weighted-average grant-date fair value of options granted during the years ended December 31, 2011 was $7.28 per share. No options weregranted in 2013 and 2012. The following table summarizes stock option activity for the periods noted: Weighted- Average Amount Exercise Price Outstanding at January 1, 2011 727,500 $11.86 Granted 135,000 $12.23 Expired or canceled - $- Exercised - $- Outstanding at December 31, 2011 862,500 $11.92 Granted - $- Expired or canceled - $- Exercised - - Outstanding at December 31, 2012 862,500 $11.92 Granted - $- Expired or canceled 20,000 15.25 Exercised - - Outstanding at December 31, 2013 842,500(a) $11.84 Options exercisable at December 31, 2012 842,500 $11.84 Weighted-average years of remaining contractual life ofoptions outstanding at December 31, 2013 4.5 (a) Exercise prices vary from $9.88 to $13.95, and expiration dates vary from May 2015 toDecember 2021. 70back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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 Awards to Directors, Officers, Consultants and Employees The Company has granted stock awards pursuant to its 2007 Management Equity Incentive Plan, 2009 Equity Incentive Plan and OutsideDirector Compensation Plan. Under the 2007 Management Equity Incentive Plan 250,000 shares were issued. A 150,000-share award was issued that vested in three equalinstallments on January 1, 2008, January 1, 2009 and January 1, 2010. Of the remaining 100,000 shares reserved under the 2007 Management EquityIncentive Plan, 10,000 were issued as options as described above, and 90,000 were issued as shares that vested in May 2009 consistent with the terms of theagreements pursuant to which those executives provided services to the Company. Of the total 850,000 shares reserved under the 2009 Equity Incentive Plan, 115,000 restricted shares of common stock were granted on January14, 2010, and 140,000 restricted shares of common stock were granted on January 10, 2011, consistent with the terms of the agreements pursuant to whichthose executives provide services to the Company and which contemplate that such executives will participate in the Company’s long-term incentiveplans. The recipients of these restricted shares have a contractual agreement not to sell any of these shares for a period of three years following the effectivedate. Of the remaining 595,000 shares reserved under the 2009 Equity Incentive Plan, 42,265 shares of common stock were awarded to directors, 527,500were issued as options as described above and 25,235 are available for future distribution. Under the Outside Director Compensation Plan, 92,265 shares have been awarded for the plan years ended June 30, 2006, through June 30,2013. Of the 92,782 shares awarded, 19,483 shares were awarded for service during the plan year ended June 30, 2013, became effective on that date andvested on January 31, 2014. The accompanying consolidated statements include approximately $100,000, $99,000 and $1,130,000 of stock-based compensation expenserelated to stock awards in the years ended December 31, 2013, 2012 and 2011, respectively. A summary of stock awards activity under the plans during the years ended December 31, 2013 and 2012 is presented below: 71back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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 Grant-date Shares Fair Value ($000’s) Nonvested at December 31, 2011 9,420 $102 Granted 13,795 99 Forfeited or canceled - - Vested (9,420) (102) Nonvested at December 31, 2012 13,795 99 Granted 19,483 90 Forfeited or canceled - - Vested (13,795) (99) Nonvested at December 31, 2013 19,483 $90 Stock Purchase Warrants Issued to Non-Employees The Company accounts for equity securities issued to non-employees in accordance with the provisions of ASC 505. On November 30, 2011, the Company raised $6 million with a private placement of 666,667 shares of Common Stock at a price of $9 pershare. For every three (3) shares of Common Stock issued, the Company issued one (1) Common Stock purchase warrant entitling the holder to purchase,commencing 90 days from the date of the issuance and prior to December 8, 2014, one (1) share of Common Stock at an exercise price of $13 per share. On October 30, 2012, the Company increased the capacity of its existing Term Loan facility with an additional $5 millionfacility. Concurrently with the funding of the facility, the Company issued warrants to the lenders to purchase an aggregate of 250,000 shares of its commonstock. These warrants have an exercise price of $10 per share and must be exercised not later than two years from the date of issuance. As of December 31, 2013, 472,222 warrants remain outstanding.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 arereported in a single segment.NOTE 12 – COMMITMENTS AND CONTINGENCIES The Company leases equipment and office facilities under operating leases that expire through January 2016. Aggregate rental expense under alloperating leases was approximately $219,000, $343,000 and $338,000 in the years ended December 31, 2013, 2012 and 2011, respectively. At December 31,2013, the future minimum rental commitments under existing non-cancelable operating leases are as follows: 72back to topSource: CADIZ INC, 10-K, March 10, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Year EndingDecember 31 ($ in thousands) 2014 $186 2015 176 $362 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 $923,000 for work performed. This amount continues to be recorded as an other long-term liability asof December 31, 2013, and will be credited toward future work performed during the construction phase of the Water Project. Pursuant to cost sharing agreements that have been entered into by participants in the Company’s Water Project, $750,000 in funds have offsetcosts incurred in the environmental analysis of the Water Project. These funds may either be reimbursed or credited to participants participation in the WaterProject and, accordingly, are fully reflected as deferred revenue as of December 31, 2013. In California, third parties have the ability to file litigation challenging the approval of a water project. As a result, the Company is and expectsto continue to be party to various legal proceedings arising in the general course of its business, including, in particular, the development of the Water Project. The Company is currently named as a real party in interest in six (6) lawsuits related to the Water Project approvals granted last year by theSanta Margarita Water District and County of San Bernardino in accordance with the California Environmental Quality Act (“CEQA”). The six lawsuitshave been brought by two plaintiffs and have been coordinated in Orange County Superior Court. The cases seek various forms of relief, but are primarilyfocused on causing a reconsideration of the environmental documents and limitation of the Project approvals. Administrative trial for the six cases began inDecember 2013 and was carried over until later January 2014. Final arguments in the cases concluded on February 5, 2014. Rulings on all six cases areexpected in the second quarter of 2014. The Company cannot predict the outcome of any of the proceedings. Three (3) additional cases filed last year havebeen dismissed and are no longer pending, including one case dismissed in October 2013. 73back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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. There are no other material legal proceedings pending to which the Company is a party or of which any of the Company’s property is thesubject.NOTE 13 – QUARTERLY FINANCIAL INFORMATION (UNAUDITED)(in thousands, except per share data) Quarter Ended March 31, June 30, September 30, December 31, 2013 2013 2013 2013 Revenues $4 $4 $182 $111 Gross profit (loss) 4 4 (110) (152)Operating loss (3,944) (2,871) (3,107) (4,050)Net loss (7,439) (4,461) (4,797) (5,980) Basic and diluted net loss per common share $(0.48) $(0.29) $(0.31) $(0.38) Quarter Ended March 31, June 30, September 30, December 31, 2012 2012 2012 2012 Revenues $31 $6 $287 $381 Gross profit (loss) 31 4 (6) (188)Operating loss (2,885) (2,986) (3,068) (4,129)Net loss (4,448) (4,584) (4,736) (5,806) Basic and diluted net loss per common share $(0.29) $(0.30) $(0.31) $(0.38) NOTE 14 – FAIR VALUE MEASUREMENTS At December 31, 2013, the Company did not have any investments. The following table presents information about the Company’s assets thatare measured at fair value as of December 31, 2012, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine suchfair value: Investments at Fair Value as of December 31, 2012 ($ in thousands)Level 1 Level 2 Level 3 Total Certificates of Deposit $250 $- $- $250 Total investments at fair value $250 $- $- $250 74back to topSource: CADIZ INC, 10-K, March 10, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. TheCompany considers a security that trades at least weekly to have an active market. Fair values determined by Level 2 inputs utilize data points that areobservable, such as quoted prices, interest rates and yield curves. Fair value determined by Level 3 inputs are unobservable data points for the asset orliability, and include situations where there is little, if any, market activity for the asset or liability. 75back to topSource: CADIZ INC, 10-K, March 10, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. CADIZ INC.SCHEDULE 1 - VALUATION AND QUALIFYING ACCOUNTS For the years ended December 31, 2013, 2012 and 2011 ($ in thousands) Balance at Additions Charged to Balance Year ended Beginning Costs and Other at End December 31, 2013 of Period Expenses Accounts Deductions of Period Deferred tax asset valuation allowance $60,041 $5,231 $- $- $65,272 Year ended December 31, 2012 Deferred tax asset valuation allowance $54,788 $5,253 $- $- $60,041 Year ended December 31, 2011 Deferred tax asset valuation allowance $50,312 $4,476 $- $- $54,788 76back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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. SIGNATURESPursuant 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 on its behalfby the undersigned, thereto duly authorized.CADIZ INC. By:/s/ Scott Slater Scott Slater, Chief Executive Officer Date:March 10, 2014Pursuant 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 Brackpool March 10, 2014Keith Brackpool, Chairman /s/ Scott SlaterMarch 10, 2014Scott Slater, Chief Executive Officer, President and Director(Principal Executive Officer) /s/ Timothy J. ShaheenMarch 10, 2014Timothy J. Shaheen, Chief Financial Officer and Director (Principal Financial and Accounting Officer) /s/ Geoffrey GrantMarch 10, 2014Geoffrey Grant, Director /s/ Winston H. HickoxMarch 10, 2014Winston H. Hickox, Director /s/ Murray H. HutchisonMarch 10, 2014Murray H. Hutchison, Director /s/ Raymond J. PaciniMarch 10, 2014Raymond J. Pacini, Director /s/ Stephen E. CourterMarch 10, 2014Stephen E. Courter, Director /s/ Bryant RileyMarch 10, 2014Bryant Riley, Director 77back to topSource: CADIZ INC, 10-K, March 10, 2014Powered 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 CompanySWI Estate, Inc.Source: CADIZ INC, 10-K, March 10, 2014Powered 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 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-188734, 333-190288, 333-180403, 333-156502, 333-163321 and 333-130338), and Form S-8 (Nos. 333-163823, 333-144862, 333-124626, and 333-138674) of Cadiz Inc. of our report dated March 10, 2014relating to the financial statements, financial statement schedule and the effectiveness of internal control over financial reporting, which appears in this Form10-K.PricewaterhouseCoopers LLPLos Angeles, CaliforniaMarch 10, 2014 Source: CADIZ INC, 10-K, March 10, 2014Powered 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, Scott Slater, 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 oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles.c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the 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 10, 2014 /s/ Scott SlaterScott SlaterChief Executive OfficerSource: CADIZ INC, 10-K, March 10, 2014Powered 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 J. 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 oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles.c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the 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 10, 2014 /s/ Timothy J. ShaheenTimothy J. ShaheenChief Financial Officer and SecretarySource: CADIZ INC, 10-K, March 10, 2014Powered 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, Scott Slater, herby certify, to my knowledge, that: 1. the accompanying Annual Report on Form 10-K of Cadiz Inc. for the year ended December 31, 2013 (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 10, 2014 /s/ Scott SlaterScott SlaterChief Executive OfficerSource: CADIZ INC, 10-K, March 10, 2014Powered 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, 2013 (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 10, 2014/s/ Timothy J. ShaheenTimothy J. ShaheenChief Financial Officer and SecretarySource: CADIZ INC, 10-K, March 10, 2014Powered 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.Source: CADIZ INC, 10-K, March 10, 2014Powered 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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