cdzi20221231

cdzi20221231_10k.htm

united states

Securities and Exchange Commission

Washington, D. C. 20549

FORM 10-K

☑ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the fiscal year ended December 31, 2022

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the transition period from …… to …….

Commission File Number 0-12114

Cadiz Inc.

(Exact name of registrant specified in its charter)

Delaware	77-0313235
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

550 S. Hope Street, Suite 2850
Los Angeles, CA	90071
(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:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	CDZI	The NASDAQ Global Market
Depositary Shares (each representing a 1/1000^th fractional interest in share of 8.875% Series A Cumulative Perpetual Preferred Stock, par value $0.01 per share)	CDZIP	The NASDAQ Global Market

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate 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 1934 during 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 filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act, (Check One).

☐ Large accelerated filer ☐ Accelerated filer ☑ Non-accelerated filer

☑ Smaller Reporting Company ☐ Emerging growth company

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

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, 2022 was approximately $112,089,908 based on 48,107,257 shares of common stock outstanding held by nonaffiliates and the closing price on that date. Shares of common stock held by each executive officer and director and by 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. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of March 24, 2023 the Registrant had 66,541,262 shares of common stock outstanding.

Documents Incorporated by Reference

Portions of the Registrant’s definitive Proxy Statement to be filed for its 2023 Annual Meeting of Stockholders are incorporated by reference into Part III of this Report. The Registrant is not incorporating by reference any other documents within this Annual Report on Form 10-K except those footnoted in Part IV under the heading “Item 15. Exhibits, Financial Statement Schedules”.

Cadiz Inc.

TABLE OF CONTENTS

Part I

Item 1.	Description of Business	1

Item 1A.	Risk Factors	16

Item 1B.	Unresolved Staff Comments	19

Item 2.	Properties	20

Item 3.	Legal Proceedings	21

Item 4.	Mine Safety Disclosures	21

Part II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities	22

Item 6.	[Reserved]	22

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	30

Item 8.	Financial Statements and Supplementary Data	30

Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	31

Item 9A.	Controls and Procedures	31

Item 9B.	Other Information	32

Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	32

Part III

Item 10.	Directors, Executive Officers and Corporate Governance	33

Item 11.	Executive Compensation	33

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	33

Item 13.	Certain Relationships and Related Transactions, and Director Independence	33

Item 14.	Principal Accounting Fees and Services	33

Part IV

Item 15.	Exhibits, Financial Statement Schedules	34

Item 16.	Form 10-K Summary	38

SIGNATURES		39

Cadiz Inc.

PART I

ITEM 1. Description of Business

This Form 10-K contains forward-looking statements with regard to financial projections, proposed transactions such as those concerning the further development of our land and water assets, information or expectations about our business strategies, results of operations, products or markets, or otherwise 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 from these forward-looking statements. These include, among others, the cautionary statements under the caption “Risk Factors”, as well as other cautionary language contained in this Form 10-K. These cautionary statements identify important factors that could cause actual results to differ materially from those described in the forward-looking statements. When considering forward-looking statements in this Form 10-K, you should keep in mind the cautionary statements described above.

General Development of Business

We are a water solutions provider dedicated to delivering clean, reliable, and affordable water to people through a variety of innovative water supply, storage, conveyance and treatment projects. We are advancing human access to clean water with our unique combination of land, water, infrastructure and technology assets, cutting-edge innovation, and industry-leading standards of environmental stewardship.

Since our founding in 1983 we have developed our unique land assets in California for sustainable farming and groundwater management, and in recent years, we have invested in wellfield and pipeline infrastructure as well as groundwater treatment technology that will enable us to play a critical role in serving the needs of people and communities that lack access to clean, reliable and affordable water.

We own approximately 46,000 acres of land with access to high-quality, naturally-recharging groundwater resources in three areas of Southern California’s Mojave Desert – the Cadiz Valley (35,000 acres), Danby Dry Lake (2,000 acres), and the Piute Valley (9,000 acres) (“Cadiz Property”). Our land holdings with vested water rights were primarily assembled by our founders in the early 1980s, relying on NASA imagery that identified a unique desert aquifer system at the base of a vast Southern California watershed. This watershed underlying our property in the Cadiz Valley (“Cadiz Ranch”) presently holds 17-34 million acre-feet of groundwater in storage – comparable in size to the largest reservoir in the United States, Lake Mead. The aquifer system is part of a closed-basin watershed in which all water flows downgradient to desert playas where it evaporates at the surface forming what are known as “desert dry lakes”.

Water Supply – We own vested water rights to withdraw 2.5 million acre-feet of groundwater to support farming and off property uses. Because all water in the aquifer system will eventually be lost to evaporation, surplus water that is captured and withdrawn before it evaporates is a new water supply known as “conserved” water. We have completed extensive environmental review in accordance with local, state and federal laws and authorizing the management of the groundwater aquifer underlying the Cadiz Ranch to conserve an average of 50,000 acre-feet of water per year for 50 years for use in communities.

Cadiz Inc.

Groundwater Storage - The alluvium aquifer that lies beneath the Cadiz Property is also large enough for conjunctive use as a water “banking” facility, capable of storing an additional 1 million acre-feet of imported surplus water for delivery during drought periods.

Pipeline Conveyance – We also own a 30” steel natural gas pipeline (“Northern Pipeline”) that extends 220-miles from the Cadiz Ranch across Kern and San Bernardino Counties terminating in California’s Central Valley. The pipeline, originally constructed to transport fossil fuels, is idle, and we are presently preparing to convert the pipeline to transport water. The route of the Northern Pipeline intersects three water conveyance facilities that deliver water to Southern California, the California Aqueduct, the Los Angeles Aqueduct, and the Mojave River Pipeline. The capacity of the Northern Pipeline for water conveyance is 25,000 acre-feet per year (“AFY”).

We also hold a 99-year lease with the Arizona & California Railroad Company (“ARZC”) to co-locate and construct a 43-mile approximately 55-85” steel water conveyance pipeline (“Southern Pipeline”) within the existing, active railroad right-of-way that intersects the Colorado River Aqueduct (“CRA”), one of Southern California’s primary sources of drinking water. The capacity of the Southern Pipeline ranges from 75,000 AFY to 150,000 AFY depending on the pipeline diameter selected to accommodate imported water storage.

Our unique supply, storage and pipeline assets are located in a remote area of eastern San Bernardino County that sits at the crossroads of major highway, rail, energy, and water infrastructure between California’s primary water supply systems, the Colorado River Basin and the State Water Project. As a result, our Cadiz Water Conservation and Storage Project is uniquely positioned to assist public water agencies in storing and managing unpredictable water supplies and provide reliable, affordable water supplies to chronically underserved areas of California.

We are currently in discussions with multiple public water agencies to enter into agreements whereby project participating agencies would finance and operate the Northern Pipeline and lease 25,000 AFY of annual water supply from us. In accordance with such potential agreements, we expect that we will contribute the Northern Pipeline and an annual supply of 25,000 AFY of water from us into a mutual water company to be owned jointly by the parties. In such event, we expect that a JPA (“Joint Powers Authority”) comprised of participating agencies will be able to purchase, for a 40-year term (take or pay), 25,000 AFY of water at our wellhead at an agreed upon market price estimated to start at approximately $850/AFY and subject to annual adjustment. Through a JPA, the public water agencies would fund capital costs for conversion of the pipeline from gas to water, construction of pumping stations and appurtenant facilities, and would be able to seek infrastructure funding and grants to achieve their lowest possible cost for delivered water. Any contracts and off take facility construction will be subject to standard environmental review and a project level permitting process (see Item 1. “Description of Business - Public Agency Partners/Contracts”, below). We expect that similar agreements will be negotiated and entered into for water supplies and storage delivered via the Southern Pipeline.

Cadiz Inc.

Treatment - In the fourth quarter of 2022, we completed the acquisition of the assets of ATEC Systems, Inc. into ATEC Water Systems, LLC (“ATEC”), which provides innovative water filtration solutions for impaired or contaminated groundwater sources (see Item 1. “Description of Business - Water Treatment”, below). ATEC is based in Hollister, California where it has manufactured water filtration systems since 1982. ATEC’s specialized filtration media provide cost-effective, high-rate of removal for common groundwater impairments and contaminants that pose health risks in drinking water including iron, manganese, arsenic, Chromium-6, nitrates, and other constituents of concern. ATEC has built more than 450 water filtration systems for cities, water districts, investor-owned utilities and small communities and businesses.

Market Conditions – Climate Change and Water

California and the Western United States face a persistent challenge in meeting the water needs of all residents due to increasingly volatile and unpredictable water supply conditions resulting from climate change. While the State of California has recognized a Human Right to Water, competing municipal, agricultural and environmental demands outpace the State’s available supply limiting the ability to deliver on that promise. The California State Water Resources Control Board estimates that approximately 900,000 Californians lack reliable access to water and dozens of communities are short of long-term safe, reliable and affordable drinking water supplies. According to the US Environmental Protection Agency, there are over 2 million people nationwide who lack access to clean drinking water. The World Health Organizations estimates that over 2 billion people do not have access to safely managed drinking water at home.

Extreme unpredictability resulting in frequent swings between wet and dry years, which have been exacerbated by climate change, challenge California’s traditional water management system and create an urgent demand for additional water supply, storage and conveyance solutions. Moreover, increasingly intense drought, extreme flooding, and regulatory restrictions have limited traditional water supply and water infrastructure, which has significantly increased the cost of water over the last decade.

The communities hardest hit by these challenges are California’s disadvantaged communities, where limited tax base and median household income reduce the solutions available to address reliable supply, lack of infrastructure and water quality concerns.

Our current and future operations also include activities that further our commitments to sustainable stewardship of our land and water resources, good governance and corporate social responsibility. We follow a holistic land management strategy, employ a rigorous environmental policy, and engage with our stakeholders and those impacted by our projects to verify alignment and accountability. Our farming operations at the Cadiz Ranch on 9,600 acres are one of the largest in San Bernardino County (see Item 1. “Description of Business - Agriculture & Farming”, below). More than 30,000 acres of our property are presently managed for conservation, including the reservation of 7,500 acres of our Piute property as a desert tortoise land conservation bank and we recently formed a joint venture with a farmworker organization and Native American Tribe to create economic opportunities on our properties outside the Cadiz Valley/ Cadiz Ranch (see Item 1. “Description of Business - Stewardship” and Item 2. “Properties”, below). We believe these commitments are important investments that will assist in maintenance of sustained stockholder value.

Cadiz Inc.

We believe that our water supply, storage, pipeline conveyance and treatment solutions will provide a significant source of future cash flow for the business and our stockholders. We presently rely upon debt and equity financing to support our working capital needs and development of our water solutions. In February 2023, we completed a direct offering for net proceeds of $38 million led by our largest equity shareholders to fund capital expenditures to accelerate the development of water supply, storage and conveyance infrastructure, reduce our outstanding debt from $50 million to $35 million and provide working capital to the Company. (see Item 7, “Liquidity and Capital Resources”, below).

Our strategy for implementation of our projects, current status, milestones and prospects are outlined in “Description of Business” below.

Description of Business

Our business is focused on the sustainable development of our unique land, water, and infrastructure assets for their highest and best uses. Our assets offer opportunities for a wide array of activities that could benefit those who lack reliable access to water. At present, our activities are focused on providing clean water solutions: water supply, including for agriculture and off-property uses, water storage, conveyance, and treatment. In addition, our 40-year expertise in desert conservation and groundwater management supports other opportunities also outlined below.

Water Supply & Storage

The unique attributes of the aquifer system at the Cadiz Property support our ability to offer water supply for farming and off-property uses and to support our storage and conveyance operations. Extensive, comprehensive study and analysis of the water resources at the Cadiz Property and within the surrounding topographically diverse 1,300 sq. mile watershed have been completed over the last 40 years to better understand the extent of the unique resources in the Cadiz Valley, including basin size, capacity, water quality and geology.

In summary, years of scientific research and study beginning in the late 1980s with the permitting of our agricultural development at the Cadiz Ranch have demonstrated the following characteristics of the resource:

The aquifer underlying the Cadiz Property contains between 17 – 34 million acre-feet of groundwater in storage. This is more water than is presently held in Lake Mead and Lake Powell, the largest surface reservoirs in the U.S., combined.

The aquifer system is composed of highly porous sands and rock allowing groundwater to easily flow. At the Cadiz Property, the groundwater table is reached at approximately 150 feet below ground surface, and fresh water extends over 1,000 feet below ground surface.

Agricultural use of groundwater at the Cadiz Property has not resulted in any significant, sustained drawdown of the water table in the Cadiz Valley.

Groundwater enters the watershed as precipitation in the high elevations of the surrounding mountain system, percolates slowly over time downgradient to the Cadiz and Fenner Valleys and exits the system at large dry lake playas (Cadiz & Bristol Dry Lakes) south of the Cadiz Ranch. Water quality is excellent at the Cadiz Ranch with very low total dissolved solids (“TDS”) and meets all state and federal requirements without treatment. Water at the dry lakes is highly-saline, 10 times saltier than the ocean and toxic/non-potable.

Cadiz Inc.

Natural recharge in the system is estimated at approximately 32,500 acre-feet per year and physical measurements of evaporation from the dry lake playas are consistent with and support the recharge estimate.

All of the groundwater not conserved at the Cadiz Ranch will be lost to high-salinity and evaporation. Actively managing the significant aquifer beneath the Cadiz Ranch can conserve a safe yield of fresh, high-quality groundwater for off-property uses. The active management of the aquifer system will also support storage of supplemental and imported water without losses to provide additional relief in future dry years.

Cadiz Water Conservation & Storage Project

In 2012, we received approvals from public agencies to implement the Cadiz Water Conservation & Storage Project (“Water Project”), a public-private partnership with California water agencies that would conserve water at the Cadiz Property as a new water supply for underserved communities in California. The project would also offer up to one million acre-feet of groundwater banking and storage.

Water Project operations will follow an extensive, state-of-the-art groundwater management plan (see Item 1. "Description of Business - Permits”, below) and withdrawals of groundwater will be limited to sustainable amounts that preserve the health of the aquifer system and safeguard the desert ecosystem. An average of 50,000 acre-feet of water per year will be captured and made available for beneficial use in Southern California communities over 50 years, an amount of annual supply that could serve approximately 400,000 people each year.

The Water Project would also utilize the managed groundwater basin to offer storage in the aquifer system for up to one-million acre-feet of fresh water that would be imported and held in storage until needed in future dry years. The total storage capacity of the aquifer system is larger than Southern California’s largest surface reservoir, Diamond Valley Lake, but unlike a surface reservoir would not suffer evaporative losses.

A combination of existing and new facilities will be required for implementation and operation of the Water Project. Facilities include a wellfield, integrating with our existing wells, a pipeline manifold system, and power facilities to support operation of the wellfield. Our wellfield pumping capacity (upon completion of our 3 wells under development) is 36,000 acre-feet of water per year (AFY), which would support maximum conveyance capacity of the Northern Pipeline (25,000 AFY), as well as existing agriculture.

Cadiz Inc.

The Water Project may also include a water treatment facility to meet water quality requirements of our partner agencies. We expect to utilize ATEC filtration media for cost-effective removal of any constituents of concern prior to delivering any conserved water to public agencies.

Finally, to deliver conserved water off-property or import water for storage at the Cadiz Ranch, at least one water conveyance pipeline would be required either via new construction or conversion of existing pipeline facilities in the area. We currently contemplate the use of two potential pipeline routes for the Water Project; one would extend southwards from the Cadiz Property to the Colorado River Aqueduct in Rice, California (the “Southern Pipeline”) and the other would extends northwards from the Cadiz Property to Wheeler Ridge, California (the “Northern Pipeline”) (see Item 1. "Description of Business - Water Conveyance, below).

Permits

We have secured permits required to construct and operate the main Water Project facilities at the Cadiz Ranch.

From 2010 – 2012, the Water Project completed a California Environmental Quality Act (“CEQA”) review process including the completion of a comprehensive Final Environmental Impact Report (“FEIR”). The FEIR concluded that Water Project operations, including the conservation of 2.5 million acre-feet of water from the aquifer system over a 50-year period (50,000 AFY for 50 years) would not cause any significant adverse environmental impacts. The FEIR was certified on July 31, 2012.

San Bernardino County, the local agency responsible for groundwater use at the Cadiz Property, has also reviewed the Water Project and in 2012 also approved its Groundwater Monitoring, Management and Mitigation Plan (‘GMMMP”), which establishes a monitoring network across the watershed and regular transparent disclosure of conditions.

The FEIR and GMMMP permits allow the conservation and delivery of 50,000 acre-feet of groundwater per year for 50 years to serve beneficial uses in California communities. These permits were upheld and sustained in their entirety by judgements in California’s Superior Court in 2014 and the California Court of Appeal in 2016 and are no longer subject to legal challenge.

In August 2019, an Addendum to the FEIR was adopted by the Fenner Valley Water Authority, a joint powers authority comprised of public water agencies participating in the Water Project, to address updates to the Water Project proposal, such as its water treatment program and pipeline route. The Addendum also assessed new studies published about natural springs in the Water Project watershed. The Addendum concluded that there are no significant adverse impacts associated with the minor changes to the Water Project and further summarized that the spring studies did not change the conclusions of the FEIR’s analysis. The Addendum was not challenged in court and the statute of limitations to challenge has expired.

Hydrological and geological study of the area has continued, and we regularly monitor and report groundwater conditions to the County of San Bernardino as part of our agricultural use. In the first quarter of 2023, the County of San Bernardino and Santa Margarita Water District ("SMWD"), the Water Project’s lead participating agency, unanimously approved their oversight roles in an inter-agency Technical Review Panel (“TRP”) mandated by the GMMMP approvals to provide scientific and environmental monitoring of the Water Project. The GMMMP requires the TRP to be in place at least 12 months before the Water Project commences to establish baseline data on aquifer and watershed conditions for the monitoring program. In accordance with the GMMMP, the County and SMWD each appointed one member to the TRP, and the third member was selected by unanimous agreement of those representatives. The TRP will meet regularly over the next 12 months to assess pre-operational data and make recommendations for monitoring protocols.

Cadiz Inc.

B. Public Agency Partners/Contracts

The Water Project is a public-private partnership with California public water agencies that require supplemental water supply and storage to serve their communities.

Since 2010, we have executed Letters of Intent (“LOIs”), option agreements, or contracts reserving water supply and storage for public water agencies and private water utilities (“Participating Agencies”) that serve more than one million customers in cities throughout California’s San Bernardino, Riverside, Los Angeles, Orange, Imperial and Ventura Counties. We have pledged that the benefits of the Water Project will be realized locally in San Bernardino County, where the Cadiz Property is located, and twenty percent of Water Project supplies, or approximately 10,000 acre-feet, are reserved for San Bernardino County-based agencies.

We are currently in discussions with multiple public water agencies to enter into agreements whereby participating agencies would finance and operate the Northern Pipeline and lease 25,000 AFY of annual water supply from us. In accordance with such potential agreements, we expect that we will contribute the Northern Pipeline and an annual supply of 25,000 AFY of water from us into a mutual water company to be owned jointly by the parties. In such event, we expect that a JPA (“Joint Powers Authority”) comprised of participating agencies will be able to purchase, for a 40-year term (take or pay), 25,000 AFY of water at our wellhead at an agreed upon market price estimated to start at approximately $850/AFY, subject to annual adjustment. Through a JPA, the public water agencies would fund capital costs for conversion of the pipeline from gas to water, construction of pumping stations and appurtenant facilities, and would be able to seek infrastructure funding and grants to achieve their lowest possible cost for delivered water. Any contracts and off take facility construction will be subject to standard environmental review and a project level permitting process.

We continue to market remaining available water supply for delivery via the Southern Pipeline (average of 25,000 AFY, with maximum of 50,000 AFY delivered), as well as storage rights, and have received expressions of interest for the full capacity of the Southern Pipeline.

Our water pricing is among the lowest cost available supplemental water supplies in Southern California and the Colorado River region. We also expect final contracts with public agencies to include considerations for the service of state-designated disadvantaged communities (“DAC” or “DACs”) by a water provider. All current partners in the Water Project contain at least one community classified as a DAC. It is our objective for the cost of water supply and storage from the Water Project to be among the most affordable solutions in Southern California.

In August 2022, we agreed to dedicate 5,000 acre–feet of water per year to the Salton Sea Authority and Torres Martinez Desert Cahuilla Indians ("TMDCI"), a federal sovereign Tribe, for 50 years at no cost. The water will be used to support the restoration of the Salton Sea, satisfy health, safety and economic development needs on Tribal lands and benefit the numerous disadvantaged communities in eastern Coachella Valley.

Cadiz Inc.

In addition to existing options and contracts to water and storage from the Water Project, we also are in active discussions regarding contracting with parties that have been particularly affected by drought, climate change and regulatory restrictions on California’s traditional supplies. We expect public agency partners contracting for water and storage to form a joint powers authority that would own, operate and construct the infrastructure required to deliver water to the point of use or import for storage and fund infrastructure development through the JPA.

Contracts are subject to the approval of the elected boards of the Participating Agencies, or regulatory authority of that agency, and subject to environmental review and compliance with CEQA. Participants may also complete additional study and investigation of the Water Project prior to consideration of a contract.

Water Conveyance

We anticipate using two separate pipeline routes, outlined below, to convey water between the Cadiz Ranch and the service areas of public agencies that contract for water and storage solutions Placing either of these pipelines into service is subject to additional regulatory approval. Once fully constructed, our conveyance pipeline solutions will augment California’s water infrastructure delivery system and improve water access and diversification between rural, underserved communities. We also expect they could be utilized to move third party waters to interchange two critical water systems. We would expect to receive cost reimbursement for wheeling third party water in our conveyance pipelines.

Northern Pipeline

The 220-mile Northern Pipeline is a former segment of a 1,200 mile, 30” steel pipeline constructed in 1985 by All American Pipeline Company to convey oil. In 2001, the pipeline was acquired by El Paso Natural Gas (EPNG) and authorized for natural gas conveyance. In 2011, we reserved the segment in an option agreement with EPNG and began to explore using the pipeline for water conveyance. The pipeline could convey 25,000 acre-feet of water per year if it is no longer used for natural gas. In June 2021, we completed the acquisition of the pipeline for $19 million and own the entire 220-mile asset in fee. Changing the use of the Northern Pipeline to water conveyance is subject to applicable local, state and federal laws.

In December 2020, BLM granted to our subsidiary Cadiz Real Estate LLC two right-of-way permits to use the pipeline over federal lands. The first right-of-way was an assignment of a portion of an existing right-of-way held by EPNG and renewed by BLM under the Mineral Leasing Act (“MLA”) that enables the continued maintenance of the route and transportation of natural gas. The second right-of-way was issued under the Federal Land Policy and Management Act (“FLPMA”) and authorizes the conveyance of water in the pipeline over BLM-managed lands. In 2021, the two right-of-way grants were challenged in federal court by conservation organizations opposed to the Trump Administration’s issuance of public lands permits. In December 2021, the Biden Administration requested a voluntary remand of the permits to BLM, which was granted by the Court in September 2022. Since that time, we have worked cooperatively with the BLM to re-process the two right-of-way permits to enable its beneficial use over federal lands as soon as possible. In December 2022, we re-filed an application with the BLM for an assignment of the existing MLA right-of-way.

Cadiz Inc.

The Northern Pipeline offers California water purveyors a unique asset and corresponding opportunity to connect available supplies with rural areas of the State that are underserved. We are presently engaged in discussions with parties interested in using the Northern Pipeline for conveyance, storage and supply. The Northern Pipeline crosses a critically dry, rural and underserved part of California and it could directly augment water supply access and storage for 23 state-designated disadvantaged communities along its route. We expect to re-file an application with the BLM for a new FLPMA right-of-way in coordination with public agency parties that will use the pipeline for water conveyance.

The cost to convert the entire Northern Pipeline for delivery of water to point of use by participating agencies is estimated at approximately $100 - $130 million. We anticipate that these costs will be incurred by a joint powers authority of our public agency partners, which have a lower cost of capital than available in the private markets.

Southern Pipeline

In 2008, we entered into a 99-year lease agreement with the Arizona & California Railroad (ARZC) to utilize a portion of its existing right-of-way southwest from the Cadiz Property to the Colorado River Aqueduct for a conveyance pipeline and related facilities. As part of the lease arrangement, we agreed to provide necessary railroad improvements in furtherance of railroad purposes. This includes providing water and power to the railroad for fire protection and improving access roads and transloading operations, among other things. By co-locating the conveyance pipeline within this existing railroad right-of-way, Water Project construction would avoid impacts to desert habitats. The route and construction within the railroad right-of-way were evaluated and approved during the Water Project’s CEQA permitting process in 2012.

Our proposed co-location in the right-of-way was also separately assessed by the US Bureau of Land Management (“BLM”) to determine the need for any federal permitting related to the proposed use of the ARZC railroad right-of-way, which is a federal right-of-way originally granted to the railroad in accordance with the General Railroad Right-of-Way Act of 1875 (“1875 Act”). BLM’s evaluation, which was issued in February 2020, concluded that the proposed Southern Pipeline will further railroad purposes at least in part, is within the scope of the right-of-way, and requires no additional BLM approvals. In February 2022, the US Department of the Interior’s Solicitor Office issued a new legal opinion regarding third party use of 1875 Act rights-of-way that preserved the railroad purposes assessment for third party uses. The opinion was not specific to any railroad and did not alter our 2020 evaluation.

Construction of the Southern Pipeline and related facilities is estimated to cost approximately $400 - $450 million. We anticipate these costs will be incurred by a joint powers authority of our public agency partners, which have a lower cost of capital than available in the private markets, that would operate the pipeline to deliver water to point of use.

To deliver water from the Southern Pipeline to any point of use, the operating parties will require (i) an agreement with Metropolitan Water District of Southern California to move water supplies from the Water Project in the CRA; and (ii) a finding by the California State Lands Commission that conveying water from the Water Project in the CRA will not adversely affect the desert environment.

Cadiz Inc.

●

MWD Authorization

Water supplies conserved by the Water Project would enter the CRA, which is owned by MWD, at the terminus of the Southern Pipeline in Rice, California. The 2012 CEQA process considered a variety of options for the interconnection to the CRA and conveyance of Water Project supplies in the CRA for the benefit of Participating Agencies. Final terms and conditions for entry and conveyance will be determined by MWD in consultation with the joint powers authority.

MWD is required to convey water for a third party subject to provisions in California Water Code sections 1810 – 1815, Joint Use of Capacity in Water Conveyance Facilities (also known as “the Wheeling Statutes”) provided that supplies entering the CRA comply with MWD’s published engineering, design and water quality standards. Water supplies conveyed in the CRA are also subject to all applicable fees and charges routinely established by MWD for the conveyance of water within its service territory. Any wheeling fees will be payable by participants in the Water Project.

Adding our groundwater to the CRA offers a water quality benefit to MWD and its member agencies that may also be considered when establishing terms and conditions for entry and conveyance in the CRA. Our water presently meets all state and federal water quality requirements without treatment and TDS or salts in our water supply are substantially lower than the water in the CRA. Adding our water to the CRA could lower its TDS and provide a reduction in treatment costs. Some naturally occurring constituents in our water are lower than state and federal drinking water standards, but potentially higher than the water in the CRA; however, based on extensive pilot testing, they can be lowered via treatment to ambient levels or removed entirely with use of cost-effective treatment technologies.

Any use of the CRA to transport our water to its participating agencies would be subject to approval by the MWD Board. We expect a formal application to MWD for consideration of terms and conditions would be filed in coordination with interest from MWD member agencies.

●

State Lands Commission Review under Water Code Section 1815

Water Code Section 1815, which is a component of California’s “Wheeling Statutes” referenced above, requires desert groundwater projects to apply for a review by the California State Lands Commission (“SLC”) prior to moving water in facilities like the CRA. This review must determine whether such projects would have “unreasonable effects on the environment and water dependent ecosystems in the surrounding watersheds.” Any application to the SLC for review of the Water Project’s plans to convey water in the CRA from the Cadiz Property will be accompanied by evidence of the Water Project’s extensive record of environmental sustainability as well as data and reports that we expect will withstand critical scrutiny. We expect a formal application with the SLC would be filed in coordination with final contractual arrangements with Participating Agencies.

Cadiz Inc.

When the Northern Pipeline becomes operational for water conveyance, and the Southern Pipeline is built, the Water Project would interconnect Southern California’s primary water delivery systems for the first time, enabling more flexible trading among participants on these systems.

We have engaged engineering and environmental consultants to complete design plans for all remaining necessary facilities in coordination with public agency partners. This work is ongoing and expected to proceed in coordination with the approval of contracts and conveyance arrangements.

Agriculture & Farming

Development of our groundwater aquifer supply for farming began in the 1980s with the initial acquisition of our land assets. Today, all of our land is zoned for agricultural uses. A total of 9,600 acres has been permitted for agricultural use, allowing for planting, irrigation and related infrastructure.

The Cadiz Ranch features worker housing and commissary for 300 people, as well as office and equipment facilities. Irrigation is currently supported by 9 wells, with capacity to deliver up to 27,000 acre-feet of water per year. Three additional wells under construction will bring total capacity to 36,000 acre-feet. All of our wells have been designed and outfitted to be able to integrate into the Water Project supply, storage and conveyance systems upon implementation of those components. The current wellfield capacity could support all agricultural demand and full capacity of the Northern Pipeline for off-property beneficial uses.

Approximately 3,500 acres are currently used for farming via a combination of lease arrangements and direct farming by the Company as follows:

●

2,100 acres have been leased for lemons and other crops by Fenner Valley Farms LLC. Of this total, 640 acres of lemon orchards that are sub-leased and farmed by Limoneira Company. All farming expenses are borne by the lessee.

●

760 acres have been developed by the Company for alfalfa through planting made during 2022. The acreage is harvested between March and November. Revenues from farming alfalfa totaled $861 thousand in 2022.

Previously, 242 acres have been leased for the farming of industrial hemp by SoCal Hemp JV LLC, our 50/50 joint venture partnership with SoCal Hemp Co. LLC, owned by Glass House Brands, Inc. No plantings were made in 2022 due to poor market conditions for hemp prices and the parties dissolved the joint venture in December 2022.

To address climate change, maintain a natural environment and support habitat for local flora and fauna, we and our farming partners follow best practices that minimize water use, improve soil fertility, and reduce pesticides and other applications that could adversely impact soil, water or food quality.

All farming at the Cadiz Ranch is conducted in accordance with permits and a management plan overseen by San Bernardino County. We report our crop mix, groundwater use, water quality, well levels, and other trends annually to the County.

Cadiz Inc.

Efficient use of water by agriculture is critical to long-term sustainability and our agricultural operations. The Cadiz/Fenner groundwater basins, which underlie our farming operations, are classified as “low/very low” priority in accordance with the California Sustainable Groundwater Management Act (“SGMA”) demonstrating the sustainability of the groundwater basins that support our ongoing irrigation.

All Cadiz Ranch agriculture is developed to be compatible with anticipated Water Project operations. Overlying farming demands will be coordinated with Water Project operations and existing permits to utilize available water for its highest and best use.

Water Treatment

In the fourth quarter of 2022, we completed the acquisition of the assets of ATEC Systems, Inc. into ATEC Water Systems, LLC ("ATEC"), which provides innovative water filtration solutions for impaired or contaminated groundwater sources. Adding the ATEC filtration products to our business portfolio diversifies our range of innovative, sustainable clean water solutions offered in support of our mission to provide safe, affordable drinking water to underserved communities. ATEC is based in Hollister, California, where they have produced water filtration systems since 1982. It initially pioneered technology to provide cost-effective high-rate removal of iron and manganese and then expanded its reach to a full range of contaminants, including, arsenic, Chromium-6, nitrates, and other contaminants found in groundwater that limit drinking water access.

ATEC has built more than 450 water filtration systems for cities, water districts, investor-owned utilities and small communities and businesses in 10 U.S. states, as well as Canada and Sri Lanka, with system treatment capacities up to 60 million gallons per day (MGD). ATEC systems can be scaled in size to serve small, rural communities as well as larger municipalities, and require less maintenance and upkeep than traditional filtration systems. In March 2023, ATEC was awarded a $10 million contract to build filtration systems to remove iron and manganese from groundwater supply for the Central Utah Water Conservancy District's Vineyard Wellfield Groundwater Polishing Project, a treatment facility that will deliver 60 MGD or approximately 54,000 acre-feet of groundwater per year to central Utah communities.

There are more than 3,000 public water systems in California with two or more water quality violations per system and 78,000 groundwater wells operating in contaminated basins in California alone. More than 800 California community water systems are out of compliance with, at risk or consistently fail to meet primary drinking water standards. The California State Water Resources Control Board has estimated that the cost of curing this problem is more than $10 billion. This problem extends across the West and globally, wherever groundwater is relied upon for drinking water.

Stewardship

Our mission includes managing our desert properties for their highest and best use. Approximately 30,000 acres of our total 46,000 acres are presently managed for permanent open space.

Cadiz Inc.

In 2014, we permanently dedicated approximately 7,500 acres of our Piute Valley properties to conservation. These properties, which are not associated with the Water Project or Cadiz Ranch agricultural operations, are located within terrain designated by the federal government as Critical Desert Tortoise Habitat and/or Desert Wilderness Areas. In February 2015, the California Department of Fish and Wildlife approved our establishment of the Fenner Valley Desert Tortoise Conservation Bank (“Fenner Bank”), a land conservation bank that makes available these properties for mitigation of impacts to tortoise and other sensitive species that would be caused by any development across the Southern California desert. Under its enabling documents, the Fenner Bank offers credits that can be acquired by entities that must mitigate or offset impacts linked to planned development. For example, this bank can service the mitigation requirements of renewable energy, military, residential and commercial development projects being considered throughout the Mojave Desert. Credits sold by the Fenner Bank are dedicated to funding the permanent preservation of the land by the San Diego Habitat Conservancy and research by San Diego Zoo Global into desert tortoise health and species protection.

In January 2023, we entered into an agreement with the TMDCI and the Farmworkers Institute of Education & Leadership Development (“FIELD”), to form a joint venture partnership to develop 11,000-acres of Cadiz-owned properties not in the Cadiz Valley (see Item 2. "Properties", below), including the lands approved in the Fenner Bank. The joint venture envisions developing the property for conservation easements and to sustainably manage the groundwater basins and make surplus groundwater available for beneficial uses, including farming, housing, and economic development in less fortunate communities. Subject to conditions precedent, including the construction of the Southern Pipeline, water and proceeds from the project will be shared equally among the parties.

The joint venture follows an MOU that we entered into with FIELD in September 2022 to create a state-of-the-art Innovation Campus at Cadiz Ranch to offer work-based training, education and business opportunities for farmworkers. FIELD launched an English as a Second Language program at Cadiz Ranch for ranch staff in Fall 2022, led by FIELD’s EPIC de Cesar Chavez High School Career Technical Education (CTE) program.

Social Impact

We are committed to providing positive social impact across all our solutions:

Water for disadvantaged communities. All public agency participants with options to contract for water from the Water Project must serve at least one disadvantaged community within their service area.

Improve local water quality. The introduction of our low TDS groundwater in the CRA, which is known to be high in TDS, would provide a water softening benefit that would reduce treatment costs for the metropolitan southern California service area. Water Project partners have also established a $5 million fund for small water systems in disadvantaged communities to support local water quality improvements.

Repurposing carbon contributing assets. The use of the Northern Pipeline for water conveyance will convert a former oil and gas pipeline for the beneficial use of water conveyance. The recycling of an existing pipeline will reduce greenhouse gas emissions and reduce the load on the state’s current water transportation sources.

Cadiz Inc.

Creation of new renewable energy. The Cadiz Southern Pipeline and Northern Pipeline will feature in-line turbines that will generate renewable hydropower. The Water Project wells and pump stations are expected to be powered at least in part by solar energy and natural gas.

Farmworker training. The Cadiz Ranch has a 35-year history of sustainable agriculture and best practices irrigation technologies. We offer farmworker training, partnerships with local high schools and colleges for irrigation and groundwater management training, and business and language education programs at no cost.

Protection of habitats. All Water Project facilities will be built on private lands, disturbed public lands or within existing transportation corridors to avoid any impacts on habitats.

Support stable water rates. The addition of new reliable supply, groundwater storage, improved water quality and system efficiency should support lower water rates in the service area of water agency participants. Reliability is associated with more stable rates and lower costs.

Create and support good-paying jobs. The Water Project is expected to create and support nearly 6,000 jobs across the local economy during two phases of construction; 10% of jobs are reserved for veterans. We maintain a Project Labor Agreement with two building trades unions to employ their members during all construction of Water Project facilities.

Other Opportunities

We remain committed to the sustainable use of our land, water and infrastructure assets and will continue to explore all opportunities for sustainable development in an environmentally responsible way, including the exploration of land use for carbon capture and green hydrogen transportation opportunities via our conveyance pipelines. We cannot estimate which of these opportunities will ultimately be realized.

Seasonality

Our water resource development activities are not seasonal in nature.

Farming operations on the leased land at the Cadiz Ranch include the year-round cultivation of lemons and alfalfa. These operations have been subject to general seasonal trends that are characteristic of the agricultural industry.

Competition

We face competition in the acquisition, development and sale of water and land assets from a variety of parties. We also experience competition in our development of water projects and agriculture associated with our properties. Since California has scarce water resources and an increasing demand for available water, we believe that location, price and reliability of delivery are the principal competitive factors affecting transfers of water in California. We believe our projects are competitive with other sources of water and farmland.

Cadiz Inc.

In the water treatment market, we compete with companies that offer products similar to ours. Some of these companies have greater financial resources, operational experience, and technical capabilities than we do. When bidding for water treatment projects, however, our current experience suggests that there is no clear dominant or preferred competitor in the markets in which we compete.

Human Capital Resources

As of December 31, 2022, we employed 9 full-time employees (i.e. those individuals working more than 1,000 hours per year). The ATEC Water Systems, LLC subsidiary has 8 full-time employees. Our business operations also rely on third party contracted seasonal and temporary workers, as well as consultants and vendors to help augment specialized human capital and talent needs. Our full-time and third party contracted workers, as well as consultants and vendors, must follow our code of conduct and ethics policy, as well as our whistleblower and information security policies.

We appreciate the importance of retention, growth and development of our employees. The average tenure of our full-time employees is more than 10 years, reflecting our positive work environment that offers opportunities to develop new skills and advance to new positions. We believe we offer competitive compensation (including salary, incentive bonus, and equity) and benefits packages to our employees, including a 401(k) plan. Further, we urge professional development opportunities and mentorship to cultivate talent throughout the Company.

As a small workforce, we focus on skill sharing and experience diversity in the workplace. Our full-time employees have regular opportunities to work with senior leadership and/or Board members in pursuit of business objectives. Management and leadership provide annual reviews of employee performance. Human capital is generally managed by our CEO and CFO, and employment policies are overseen by the Board, particularly the Compensation Committee.

We are focused on both executing on a strategy to support progress and evaluating our diversity and inclusion strengths and opportunities to ensure our workforce reflects the communities in which we operate.

COVID-19

We remained open throughout the COVID-19 pandemic as a member of the agricultural products industry. Our employees were provided opportunities to telework and flexibility to manage the unique demands of the situation. We expect to continue to support work-from-home arrangements for our employees even as the pandemic eases, as it has created new flexibility that is favored by our workforce.

Cadiz Inc.

Regulation

Our operations are subject to varying degrees of federal, state and local laws and regulations, as detailed throughout Item 1. As we proceed with the development of our properties, including the Water Project, we will be required to demonstrate to various regulatory authorities that we are in compliance with the laws, regulations and policies enforced by such authorities. Groundwater development, and the import and export of conserved groundwater by public water agencies, is subject to regulation by specific existing statutes pertaining to water supply, but also general environmental statutes applicable to all forms of development. Agricultural operations are also generally subject to regulation by local agencies, such as county governments, as well as state environmental and water statutes. For example, we must obtain a variety of approvals and permits from state and federal governments with respect to assessment of environmental impact, particularly given the location of our assets in the California desert and in proximity to public lands. Because of the discretionary nature of these approvals, concerns raised by governmental officials, public interest groups and/or other interested parties during both the development and the approval process may impact our ability to develop our properties in the manner we believe would fulfill their highest and best use. The realization of income from our projects, including the Water Project, could be delayed, reduced or eliminated based on regulatory restrictions and/or processes.

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 on the internet through our website, http://www.cadizinc.com, as soon as reasonably practical after electronic filing of such material with the SEC. Our website address provided in this Annual Report on Form 10-K is not intended to function as a hyperlink and the information on our website is not, nor should it be considered, part of this report or incorporated by reference into this report.

Our SEC filings are also available to the public on the internet at the SEC’s website http://www.sec.gov.

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 (supply, storage and conveyance) and agricultural development at our San Bernardino County properties. We have not received significant revenues from our development activities to date and we do not know when, if ever, we will receive operating revenues sufficient to offset the costs of our development activities. As a result, we continue to incur a net loss from operations.

Cadiz Inc.

We May Never Generate Significant Revenues or Become Profitable Unless We Are Able to Successfully Implement Programs to Develop Our Land Assets and Related Water Resources

We do not know the terms, if any, upon which we may be able to proceed with our water supply, storage, and conveyance programs or successfully implement our treatment or agricultural plans. Regardless of the form of our business solutions, the circumstances under which water supply, storage, conveyance, water treatment or sustainable agriculture can be developed and the profitability of any such project are subject to significant uncertainties, including the risk of variable water supplies and changing water allocation priorities. Additional risks include our ability to obtain all necessary regulatory approvals and permits, litigation by environmental or other groups, unforeseen technical difficulties, general market conditions for agricultural and water supplies, and the time needed to generate significant operating revenues from such programs after operations commence.

The Development of Our Properties Is Heavily Regulated, Requires Governmental Approvals and Permits That Could Be Denied, and May Have 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 regulations concerning zoning, resource protection, environmental impacts, infrastructure design, subdivision of land, construction and similar matters. Our development activities are subject to the risk of adverse interpretations of such U.S. federal, state and local laws, regulations and policies and/or the adoption of new and amended laws, regulations and policies that prohibits, restrict, modify or delay our development activities.

Further, our development activities require governmental approvals and permits. If such permits were to be denied or granted subject to unfavorable conditions or restrictions, our ability to successfully implement our development programs as planned would be adversely impacted and could delay returns on our investments in the development of our assets.

For example, while we are presently in discussions with multiple public water agencies to enter agreements whereby participating agencies would finance, own and operate the Northern Pipeline and lease 25,000 AFY of annual supply from us, any contracts and off take facility construction will be subject to standard environmental review and a project level permitting process. There is no assurance that we can enter into any of these contracts and even if we do, there is no assurance that we can receive the needed permits in a timely manner.

We cannot predict the terms, if any, which may be imposed in order to proceed with our water and other development programs.

Current regulation that could impact our water resources development activities are generally related to water conveyance functions, particularly the conversion of existing pipelines and construction of new pipelines and related facilities necessary to move water to and from the Cadiz Property, or between points along these pipelines for the benefit of California water users. In this regard, we will need to obtain certain permits and approvals from public water agencies in California, the California State Lands Commission, and agencies of the federal government, such as the US Department of the Interior. Such regulatory requirements will be determined by any contractual obligation to transport water between parties via our pipeline infrastructure.

Generally, opposition from third parties expressed at any regulatory venue can cause delays and increase the costs of our development efforts or preclude such development entirely. While we have worked with representatives of various environmental and third-party stakeholders to address any concerns about our projects, certain groups may remain opposed to our development plans regardless of our engagement and pursue legal and other actions.

Cadiz Inc.

Governmental approvals and permits granted authorizing our development activities may be challenged in court and such litigation could adversely impact our timelines, development plans, and ultimately the return on our investments.

A Portion of Our Total Assets Consists of Goodwill and Intangibles, Which Are Subject to a Periodic Impairment Analysis, and a Significant Impairment Determination in Any Future Period Could Have an Adverse Effect on Our Statement of Operations Even Without a Significant Loss of Revenue or Increase in Cash Expenses Attributable to such Period

We have goodwill of approximately $5.7 million including $1.9 million associated with the acquisition of assets of ATEC Systems, Inc. into ATEC Water Systems, LLC. We will be required to continue to evaluate this goodwill and intangibles for impairment based on the fair value of the operating business units to which the goodwill and intangible assets relate, at least once a year. These estimated fair values could change if we are unable to achieve revenue or operating results at the levels that have been forecasted, the market valuation of that business unit decreases based on transactions involving similar companies, or if there is a permanent, negative change in the market demand for the services offered by the business unit. These changes could result in further impairment of the existing goodwill and intangible balances and that could require a material non-cash charge to our results of operations.

Our Failure to Make Timely Payments of Principal and Interest on Our Indebtedness or To Obtain Additional Financing Will Impact our Ability to Implement Our Asset Development Programs

As of December 31, 2022, we had total indebtedness outstanding to our lenders of approximately $50.3 million which is secured by our assets. On February 2, 2023, we entered into a First Amendment to Credit Agreement with our lenders which, among other things, provided for a repayment of $15 million in principal, and provided for a right to convert up to $15 million of outstanding principal (“Convertible Debt’), plus any accrued and unpaid interest, into shares of our common stock once an increase in authorized shares is approved by the shareholders. (see Note 15 to the Condensed Consolidated Financial Statements – “Subsequent Events”). The remaining $35.0 million of our indebtedness currently matures in June 2025 with an automatic extension to June 2026 following shareholder approval of the increase in authorized shares. Interest payable quarterly in cash at a 7% annual rate on $20 million of principal with PIK interest accruing quarterly at a 7% annual rate on the $15 million of Convertible Debt. To the extent that we do not make principal and interest payments on the indebtedness when due, or if we otherwise fail to comply with the terms of agreements governing our indebtedness, we may default on our obligations.

We will continue to require additional working capital to meet our cash resource needs until such time as our asset development programs, including the Water Project, produce revenues sufficient to fund operations. If we cannot raise funds if and when needed, we might be forced to make substantial reductions in our operating expenses, which could adversely affect our ability to implement our current business plan and ultimately our viability as a company. We cannot assure you that our current lenders, or any other lenders, will give us additional credit should we seek it. If we are unable to obtain additional credit, we may engage in further financings. Our ability to obtain financing will depend, among other things, on the status of our asset development programs and general conditions in the capital markets at the time funding is sought. Any further equity or convertible debt financings would result in the dilution of ownership interests of our current stockholders.

Cadiz Inc.

The Issuance of Equity Securities and Management Equity Incentive Plans Will Cause Dilution

We have and may continue to issue equity securities pursuant to at the market issuance sales agreements or direct placements. Further, our compensation programs for management emphasize long-term incentives, primarily through the issuance of equity securities and options to purchase equity securities. It is expected that plans involving the issuance of shares, options, or both will be submitted from time to time to our stockholders for 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 dilution of the ownership interest of other stockholders and will, under currently applicable accounting rules, result in a charge to earnings based on the value of our common 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 stock and option grant.

The Volatility of the Stock Price of our Equity Securities Could Adversely Affect Current and Future Stockholders

The market price of our common stock and depositary shares is volatile and fluctuates in response to various factors which are beyond our control. Such fluctuations are particularly common in companies such as ours, which have not generated significant revenues. The following factors, in addition to other risk 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;

●	disruptions to the market and industry as a result of the global COVID-19 pandemic and related events;

●	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 to the operating performance of companies. These broad fluctuations may adversely affect the market price of our common stock. Price volatility could be worse if the trading volume of our common stock is low.

ITEM 1B. Unresolved Staff Comments

Not applicable at this time.

Cadiz Inc.

ITEM 2. Properties

SEC Form 10-K filed by CADIZ Inc.