CDZI 10-Q Quarterly Report June 30, 2019

CADIZ INC

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10-Q 1 form10q_june2019.htm FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 2019

united states

Securities and Exchange Commission

Washington, D. C. 20549

FORM 10-Q

(Mark One)

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

for the quarterly period ended June 30, 2019

☐ 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 South Hope Street, Suite 2850
Los Angeles, California	90071
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code: (213) 271-1600

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

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

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 and posted on its corporate Web site, if any, every Interactive Data File required to be 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 to submit and post such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 ☐ E merging 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 is a shell company (as defined in Exchange Act Rule 12b-2). Yes ☐ No ☑

As of August 5, 2019, the Registrant had 26,966,770 shares of common stock, par value $0.01 per share, outstanding.

Cadiz Inc.

Index

Fiscal Second Quarter 2019 Quarterly Report on Form 10-Q	Page


PART I – FINANCIAL INFORMATION

ITEM 1. Financial Statements

Cadiz Inc. Condensed Consolidated Financial Statements

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended June 30, 2019 and 2018	1

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the six months ended June 30, 2019 and 2018	2

Unaudited Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018	3

Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018	4

Unaudited Condensed Consolidated Statement of Stockholders' Deficit for the six months ended June 30, 2019 and 2018	5

Unaudited Notes to the Condensed Consolidated Financial Statements	6

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	17

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk	31

ITEM 4. Controls and Procedures	31

PART II – OTHER INFORMATION

ITEM 1. Legal Proceedings	32

ITEM 1A. Risk Factors	32

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	32

ITEM 3. Defaults Upon Senior Securities	32

ITEM 4. Mine Safety Disclosures	32

ITEM 5. Other Information	32

ITEM 6. Exhibits	33

Cadiz Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

	For the Three Months
	Ended June 30,
($ in thousands, except per share data)	2019			2018

Total revenues	$	111		$	109

Costs and expenses:
General and administrative		3,285			2,300
Depreciation		66			64

Total costs and expenses		3,351			2,364

Operating loss		(3,240	)		(2,255	)

Interest expense, net		(4,303	)		(3,822	)
Interest income		69			48

Loss before income taxes		(7,474	)		(6,029	)
Income tax expense		2			3

Net loss and comprehensive loss applicable to common stock	$	(7,476	)	$	(6,032	)

Basic and diluted net loss per common share	$	(0.28	)	$	(0.25	)

Basic and diluted weighted average shares outstanding		26,479			23,883

See accompanying notes to the unaudited condensed consolidated financial statements.

Cadiz Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

	For the Six Months
	Ended June 30,
($ in thousands, except per share data)	2019			2018

Total revenues	$	220		$	217

Costs and expenses:
General and administrative		6,209			4,828
Depreciation		132			130

Total costs and expenses		6,341			4,958

Operating loss		(6,121	)		(4,741	)

Interest expense, net		(8,537	)		(7,338	)
Interest income		122			80
Debt conversion expense		(197	)		-

Loss before income taxes		(14,733	)		(11,999	)
Income tax expense		3			4

Net loss and comprehensive loss applicable to common stock	$	(14,736	)	$	(12,003	)

Basic and diluted net loss per common share	$	(0.57	)	$	(0.51	)

Basic and diluted weighted average shares outstanding		25,906			23,482

See accompanying notes to the unaudited condensed consolidated financial statements.

Cadiz Inc.

Condensed Consolidated Balance Sheets (Unaudited)

	June 30,			December 31,
($ in thousands, except per share data)	2019			2018

ASSETS

Current assets:
Cash and cash equivalents	$	19,481		$	12,558
Accounts receivable		108			38
Prepaid expenses and other current assets		572			408

Total current assets		20,161			13,004

Property, plant, equipment and water programs, net		47,356			46,619
Long-term deposit/prepaid expenses		2,000			2,000
Goodwill		3,813			3,813
Other assets		4,196			3,873

Total assets	$	77,526		$	69,309

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
Accounts payable	$	1,086		$	225
Accrued liabilities		1,369			2,070
Current portion of long-term debt		53			59
Warrant derivative liabilities		-			865
Other liabilities		966			923

Total current liabilities		3,474			4,142

Long-term debt, net		137,988			136,246
Long-term lease obligations, net		15,045			14,411
Deferred revenue		750			750
Other long-term liabilities		37			-

Total liabilities		157,294			155,549

Stockholders' deficit:
Common stock - $.01 par value; 70,000,000 shares
authorized at June 30, 2019 and December 31, 2018;
shares issued and outstanding - 26,942,085 at
June 30, 2019 and 24,654,911 at December 31, 2018		269			247
Additional paid-in capital		406,762			383,521
Accumulated deficit		(486,799	)		(470,008	)
Total stockholders' deficit		(79,768	)		(86,240	)

Total liabilities and stockholders' deficit	$	77,526		$	69,309

See accompanying notes to the unaudited condensed consolidated financial statements.

Cadiz Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

	For the Six Months
	Ended June 30,
($ in thousands)	2019			2018

Cash flows from operating activities:
Net loss Adjustments to reconcile net loss to	$	(14,736	)		(12,003	)
net cash used in operating activities:
Depreciation		132			130
Amortization of debt discount and issuance costs		2,031			1,986
Interest expense added to loan principal		4,978			4,771
Interest expense added to lease liability		622			543
Loss on debt conversion		27			57
Debt conversion expense		197			-
Compensation charge for stock and share option awards		245			227
Unrealized gain on warrant derivative liabilities		-			(859	)
Changes in operating assets and liabilities:
Accounts receivable		(70	)		(70	)
Prepaid expenses and other current assets		(164	)		(193	)
Other assets		(243	)		16
Accounts payable		668			114
Accrued liabilities		(559	)		(1,138	)
Net cash used in operating activities		(6,872	)		(6,419	)

Cash flows from investing activities:
Additions to property, plant and equipment and water programs		(818	)		(927	)

Net cash used in investing activities		(818	)		(927	)

Cash flows from financing activities:
Net proceeds from issuance of stock		14,642			14,581
Principal payments on long-term debt		(29	)		(28	)

Net cash provided by financing activities		14,613			14,553

Net increase in cash, cash equivalents and restricted cash		6,923			7,207

Cash, cash equivalents and restricted cash, beginning of period		12,691			13,163

Cash, cash equivalents and restricted cash, end of period	$	19,614		$	20,370

See accompanying notes to the unaudited condensed consolidated financial statements.

Cadiz Inc.

Condensed Consolidated Statements of Stockholders' Deficit (Unaudited)

For the six months ended June 30, 2018 ( $ in thousands, except share data)

					Additional					Total
	Common Stock				Paid-in		Accumulated			Stockholders'
	Shares		Amount		Capital		Deficit			Deficit

Balance as of December 31, 2017		22,987,434	$	230	$	364,806	$	(443,735	)	$	(78,699	)
Issuance of shares pursuant to bond conversion		215,852		2		1,669		-			1,671
Stock-based compensation expense		13,249		-		105		-			105
Net loss and comprehensive loss		-		-		-		(5,971	)		(5,971	)
Balance as of March 31, 2018		23,216,535		232		366,580		(449,706	)		(82,894	)

Issuance of shares pursuant to ATM offering		1,159,718		12		14,570		-			14,582
Issuance of shares pursuant to bond conversion		42,071		-		284		-			284
Stock-based compensation expense		6,972		-		122		-			122
Net loss and comprehensive loss		-		-		-		(6,032	)		(6,032	)
Balance as of June 30, 2018		24,425,296	$	244	$	381,556	$	(455,738	)	$	(73,938	)

For the six months ended June 30, 2019 ( $ in thousands, except share data)

					Additional					Total
	Common Stock				Paid-in		Accumulated			Stockholders'
	Shares		Amount		Capital		Deficit			Deficit

Balance as of December 31, 2018		24,654,911	$	247	$	383,521	$	(470,008	)	$	(86,240	)
Issuance of shares pursuant to bond conversion		485,020		5		3,199		-			3,204
Stock-based compensation expense		17,307		-		122		-			122
Issuance of shares pursuant to ATM offerings		782,814		7		7,884		-			7,891
Reclassification of warrant liability to additional paid-in capital ⁽¹⁾		-		-		2,896		(2,031	)		865
Net loss and comprehensive loss		-		-		-		(7,260	)		(7,260	)
Balance as March 31, 2019		25,940,052		259		397,622		(479,299	)		(81,418	)

Issuance of shares pursuant to bond conversion		336,897		3		2,248		-			2,251
Stock-based compensation expense		9,403		-		123		-			123
Issuance of shares pursuant to ATM offerings		655,733		7		6,745		-			6,752
Impact of warrant down-round feature		-		-		24		(24	)		-
Net loss and comprehensive loss		-		-		-		(7,476	)		(7,476	)
Balance as of June 30, 2019		26,942,085	$	269	$	406,762	$	(486,799	)	$	(79,768	)

(1)	A cumulative effect adjustment of $2,031 thousand was recognized as of January 1, 2019, upon adoption of ASU 2017-11.

See accompanying notes to the unaudited condensed consolidated financial statements.

Cadiz Inc.

Notes to the Consolidated Financial Statements

NOTE 1 – BASIS OF PRESENTATION

The Condensed Consolidated Financial Statements have been prepared by Cadiz Inc., also referred to as "Cadiz" or "the Company", without audit and should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company's Form 10-K for the year ended December 31, 2018.

The foregoing Condensed Consolidated Financial Statements include the accounts of the Company and contain all adjustments, consisting only of normal recurring adjustments, which management considers necessary for a fair statement of the Company's financial position, the results of its operations and its cash flows for the periods presented and have been prepared in accordance with generally accepted accounting principles.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates and such differences may be material to the financial statements. The results of operations for the three and six months ended June 30, 2019 are not necessarily indicative of results for the entire fiscal year ending December 31, 2019.

Liquidity

The Condensed Consolidated Financial Statements of the Company have been prepared using accounting principles applicable to a going concern, which assumes realization of assets and settlement of liabilities in the normal course of business. The Company incurred losses of $14.7 million for the six months ended June 30, 2019, compared to $12.0 million for the six months ended June 30, 2018. The Company had working capital of $16.7 million at June 30, 2019, and used cash in its operations of $6.9 million for the six months ended June 30, 2019.

Cash requirements during the six months ended June 30, 2019 primarily reflect certain administrative costs related to the Company's water project development efforts. Currently, the Company's sole focus is the development of its land and water assets.

In November 2018, the Company entered into an At Market Issuance Sales Agreement under which the Company could issue and sell shares of its common stock having an aggregate offering price of up to $25 million from time to time in an "at-the-market" offering (the "November 2018 ATM Offering"). As of June 30, 2019, the Company issued 1,535,653 shares of common stock in the November 2018 ATM Offering for gross proceeds of $16.1 million and aggregate net proceeds of approximately $15.6 million. The Company has and may continue to issue equity securities pursuant to the November 2018 ATM Offering.

In March 2018, the Company entered into an At Market Issuance Sales Agreement under which the Company could issue and sell shares of its common stock having an aggregate offering price of up to $15 million from time to time in an "at the market" offering (the "March 2018 ATM Offering"). The Company completed the offering during May 2018, having issued 1,159,718 shares of common stock in the March 2018 ATM Offering for gross proceeds of $15 million and aggregate net proceeds of approximately $14.6 million.

In May 2017, the Company entered into a new $60 million credit agreement ("Credit Agreement") with funds affiliated with Apollo Global Management, LLC ("Apollo") that replaced and refinanced its then existing $45 million senior secured mortgage debt ("Prior Senior Secured Debt") and provided $15 million of new senior debt to fund immediate construction related expenditures ("Senior Secured Debt"). The Company's Senior Secured Debt and its convertible notes contain representations, warranties and covenants that are typical for agreements of this type, 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 financial maintenance covenants and no restrictions on the Company's ability to issue additional common stock to fund future working capital needs. The debt covenants associated with the Senior Secured Debt were negotiated by the parties with a view towards the Company's operating and financial condition as it existed at the time the agreements were executed. At June 30, 2019, the Company was in compliance with its debt covenants.

As of June 30, 2019, the Company had principal and interest payments aggregating approximately $73.9 million coming due in March 2020 related to its 7.00% Convertible Senior Notes ("Convertible Senior Notes") to the extent the noteholders, who have the right to convert at any time into the Company's common stock at a conversion rate of $6.75 per share, do not convert prior to March 2020 or the Company does not exercise the option agreements it currently has with parties holding 99% of its Convertible Senior Notes that allow the Company, at its sole option, at any time prior to December 5, 2019, to extend the maturity date of the Convertible Senior Notes to September 5, 2021. Additionally, the Company's Senior Secured Debt of approximately $68.1 million as of June 30, 2019, could also become due as early as December 2019 as a result of the "Springing Maturity Date" provision of that agreement, if the Company has not exercised the option agreements or the Convertible Senior Notes have not been converted by that time and the Company's stock price is less than 120% of the conversion rate. Specifically, the Springing Maturity Date is not applicable if less than $10 million of original, outstanding principal related to the Convertible Senior Notes is outstanding at that time. Further, the Company's option to acquire an additional 124-mile extension of its' Northern Pipeline will require an $18 million payment upon completion of certain conditions precedent under the purchase agreement with El Paso Natural Gas Company ("EPNG"). If the acquisition of the 124-mile segment is not completed, then the Company's Northern Pipeline opportunities will be limited to the 96-mile segment it already owns. The Company may meet its debt and working capital requirements through a variety of means, including extension, refinancing, equity placements, the sale or other disposition of assets, or reductions in operating costs.

Limitations on the Company's liquidity and ability to raise capital may adversely affect it. Sufficient liquidity is critical to meet the Company's resource development activities. Although the Company currently expects its sources of capital to be sufficient to meet its near-term liquidity needs, there can be no assurance that its liquidity requirements will continue to be satisfied. If the Company cannot raise needed funds, it might be forced to make substantial reductions in its operating expenses, which could adversely affect its ability to implement its current business plan and ultimately its viability as a company.

Supplemental Cash Flow Information

Under the terms of the Senior Secured Debt, the Company is required to pay 25% of all future quarterly interest payments in cash. During the six months ended June 30, 2019, approximately $670 thousand in interest payments on the corporate secured debt was paid in cash. No other payments are due on the Senior Secured Debt or the Company's convertible notes prior to their maturities.

During the six months ended June 30, 2019, approximately $5.44 million in convertible notes were converted by certain of the Company's lenders. As a result, 821,917 shares of common stock were issued to the lenders. This conversion activity represents a non-cash financing activity.

The balance of cash, cash equivalents, and restricted cash as shown in the condensed consolidated statements of cash flows is comprised of the following:

Cash, Cash Equivalents and Restricted Cash	June 30, 2019		December 31, 2018		June 30, 2018
(in thousands)
Cash and Cash Equivalents	$	19,481	$	12,558	$	20,237
Restricted Cash included in Other Assets		133		133		133
Cash, Cash Equivalents and Restricted Cash in the Consolidated Statement of Cash Flows	$	19,614	$	12,691	$	20,370

The restricted cash amounts included in Other Assets primarily represent a deposit from a water project participant related to a cost-sharing agreement.

Recent Accounting Pronouncements

Accounting Guidance Not Yet Adopted

In August 2018, the Financial Accounting Standards Board ("FASB") issued an accounting standards update which modifies the disclosure requirements for fair value measurements. This update is effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years, with early adoption permitted. The Company is currently assessing the impact this guidance will have on its consolidated financial statements.

In August 2018, the FASB issued an accounting standards update on a customer's accounting for implementation costs incurred in a cloud computing arrangement. This update is effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years, with early adoption permitted. The Company is currently assessing the impact this guidance will have on its consolidated financial statements.

In June 2016, FASB issued an accounting standards update which introduces new guidance for the accounting for credit losses on certain financial instruments. This update is effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years, with early adoption permitted. The Company is currently assessing the impact of this guidance will have on its consolidated financial statements.

Accounting Guidance Adopted

In February 2016, the FASB issued ASU 2016-02, Leases ("Topic 842"), which supersedes the existing guidance for lease accounting ("Topic 840"). The new standard requires lessees to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged. The Company adopted the provisions of Topic 842 on January 1, 2019, using the modified retrospective approach and the option presented under ASU 2018-11 to transition only active leases as of January 1, 2019, with a cumulative effect adjustment as of that date. All comparative periods prior to January 1, 2019, retain the financial reporting and disclosure requirements of Topic 840.

The Company elected to utilize the transition package of practical expedients permitted within the new standard, which among other things, allowed the Company to carryforward the historical lease classification. The Company made an accounting policy election that will keep leases with an initial term of 12 months or less off the Company's Consolidated Balance Sheets which resulted in recognizing those lease payments in the Consolidated Statements of Operations and Comprehensive Loss on a straight-line basis over the lease term. The Company did not elect the hindsight practical expedient when determining the lease terms.

The adoption of the new standard resulted in the recording of additional net right-of-use assets and corresponding lease liabilities of approximately $151 thousand and $100 thousand, respectively, as of January 1, 2019. The difference between the right-of-use assets and the lease liabilities was recorded to eliminate existing accrued rent balances recorded under Topic 840. The adoption of the new standard did not impact the Company's consolidated net earnings and had no impact on cash flows.

In June 2018, the FASB issued an accounting standards update which simplifies the accounting for share-based payments granted to nonemployees for goods and services. This update is effective for fiscal years beginning after December 15, 2018, and for interim periods within those fiscal years. The Company adopted this guidance on January 1, 2019, and the new standard had no impact on the Company's condensed consolidated financial statements.

In July 2017, the FASB issued an accounting standards update to provide new guidance for the classification analysis of certain equity-linked financial instruments, or embedded features, with down round features, as well as clarify existing disclosure requirements for equity-classified instruments. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity's own stock. The Company adopted this guidance on January 1, 2019. As a result, the Company reclassified a warrant liability in the amount of $865 thousand to additional paid-in capital, as the Company's Warrant no longer met the definition of a derivative. In addition, during the years ended December 31, 2018 and 2017, the Company recognized annual gains of $1.5 million and $0.5 million, respectively, related to the historical remeasurement of the warrant derivative liability at fair value. Upon adoption of this guidance as of January 1, 2019, the Company recorded $2.0 million in additional paid-in capital with a corresponding adjustment to the opening balance of accumulated deficit related to these previously recorded gains.

NOTE 2 – LONG-TERM DEBT

The carrying value of the Company's Senior Secured Debt approximates fair value. The fair value of the Company's Senior Secured Debt (Level 2) is determined based on an estimation of discounted future cash flows of the debt at rates currently quoted or offered to the Company by its lenders for similar debt instruments of comparable maturities by its lenders.

The fair value of the Company's convertible debt exceeds its carrying value of approximately $69.1 million, which includes accreted interest, by approximately $48.1 million due to the value of its conversion feature. The conversion feature's fair value increases as the Company's common stock price increases. The fair value of the conversion feature (Level 3) is determined using the Black-Scholes model. Significant inputs to the model were the conversion price ($6.75), the number of shares of common stock that could be acquired upon conversion as of June 30, 2019, the Company's stock price as of June 30, 2019 of $11.25 and stock volatility of 44%, which was determined using our publicly-traded stock price over the last year.

NOTE 3 – STOCK-BASED COMPENSATION PLANS AND WARRANTS

The Company has issued options and has granted stock awards pursuant to its 2009 Equity Incentive Plan and 2014 Equity Incentive Plan, as described below.

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 of up to 850,000 shares and options to the Company's employees and consultants. The plan became effective when the Company filed a registration statement on 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 issuance date to 24 months.

2014 Equity Incentive Plan

The 2014 Equity Incentive Plan was approved by stockholders at the June 10, 2014 Annual Meeting. The plan provides for the grant and issuance of up to 675,000 shares and options to the Company's employees, directors and consultants. Upon approval of the 2014 Equity Incentive Plan, all shares of common stock that remained available for award under the 2009 Equity Incentive Plan were cancelled.

2019 Equity Incentive Plan

The 2019 Equity Incentive Plan was approved by stockholders at the July 10, 2019 Annual Meeting. The plan provides for the grant and issuance of up to 1,200,000 shares and options to the Company's employees, directors and consultants. Upon approval of the 2019 Equity Incentive Plan, all shares of common stock that remained available for award under the 2014 Equity Incentive Plan were cancelled.

Under the 2019 Equity Incentive Plan, each outside director receives $50,000 of cash compensation and receives a deferred stock award consisting of shares of the Company's common stock with a value equal to $25,000 on June 30 of each year. The award accrues on a quarterly basis, with $12,500 of cash compensation and $6,250 of stock earned for each fiscal quarter in which a director serves. The deferred stock award vests automatically on the January 31 that first follows the award date.

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 492,500 shares were unexercised and outstanding on June 30, 2019 under the equity incentive plans.

The Company recognized no stock option related compensation costs in each of the six months ended June 30, 2019 and 2018. Additionally, no options were exercised during the six months ended June 30, 2019.

Stock Awards to Directors, Officers, and Consultants

The Company has granted stock awards pursuant to its 2009 Equity Incentive Plan and 2014 Equity Incentive Plan.

Of the total 850,000 shares reserved under the 2009 Equity Incentive Plan, 297,265 shares were issued as share grants and 507,500 were issued as options. Upon approval of the 2014 Equity Incentive Plan in June 2014, 45,235 shares remaining available for award under the 2009 Equity Incentive Plan were cancelled.

Of the total 675,000 shares reserved under the 2014 Equity Incentive Plan, 673,466 shares have been awarded to the Company directors, consultants and employees as of June 30, 2019. Of the 673,466 shares awarded, 15,312 shares were awarded to the Company's directors for services performed during the plan year ended June 30, 2019. These shares will vest and be issued on January 31, 2020.

The Company recognized stock-based compensation costs of $123,000 and $122,000 for the three months ended June 30, 2019 and 2018, respectively; and $245,000 and $227,000 for the six months ended June 30, 2019 and 2018, respectively.

Warrants

In conjunction with the closing of the Senior Secured Debt in May 2017, the Company issued to its lender a warrant to purchase an aggregate 362,500 shares of its common stock ("Warrant"). The warrant has a five-year term, and had an initial exercise price of $14.94 per share, subject to adjustment.

The Company recorded a debt discount at the time of the closing of the Senior Secured Debt in the amount of $2.9 million which was the fair value of the Warrant at the time it was issued. The debt discount is being amortized through December 2019.

On January 1, 2019, the Company adopted ASU 2017-11. As a result, the Company reclassified a warrant liability in the amount of $865 thousand to additional paid-in capital, as the Company's Warrant no longer met the definition of a derivative. In addition, during the years ended December 31, 2018 and 2017, the Company recognized annual gains of $1.5 million and $0.5 million, respectively, related to the historical remeasurement of the warrant derivative liability at fair value. Upon adoption of this guidance as of January 1, 2019, the Company recorded $2.0 million in additional paid-in capital with a corresponding adjustment to the opening balance of accumulated deficit related to these previously recorded gains.

During the second quarter of 2019, the Company sold shares of common stock under the November 2018 ATM at a per-share price less than the Warrant's initial exercise price, which triggered a down-round, reset provision and resulted in an adjusted exercise price of $14.59 as of June 30, 2019. In addition, the Company recorded an adjustment of $24 thousand in additional paid-in capital related to the increase in the value of the effect of the down-round feature as of June 30, 2019.

NOTE 4 – INCOME TAXES

As of June 30, 2019, the Company had net operating loss ("NOL") carryforwards of approximately $321 million for federal income tax purposes and $201 million for California state income tax purposes. Such carryforwards expire in varying amounts through the year 2039. For federal losses arising in tax years ending after December 31, 2017, the NOL carryforwards are allowed indefinitely. Use of the carryforward amounts is subject to an annual limitation as a result of ownership changes.

As of June 30, 2019, the Company possessed unrecognized tax benefits totaling approximately $1.8 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.

The Company's tax years 2015 through 2018 remain subject to examination by the Internal Revenue Service, and tax years 2014 through 2018 remain subject to examination by California tax jurisdictions. In addition, the Company's loss carryforward amounts are generally subject to examination and adjustment for a period of three years for federal tax purposes and four years for California purposes, beginning when such carryovers are utilized to reduce taxes in a future tax year.

Because it is more likely than not that the Company will not realize its net deferred tax assets, it has recorded a full valuation allowance against these assets. Accordingly, no deferred tax asset has been reflected in the accompanying condensed consolidated balance sheet.

NOTE 5 – NET LOSS PER COMMON SHARE

Basic net loss per share is computed by dividing the net loss by the weighted-average common shares outstanding. Options, deferred stock units, warrants and the zero coupon term loan convertible into or exercisable for certain shares of the Company's common stock were not considered in the computation of net loss per share because their inclusion would have been antidilutive. Had these instruments been included, the fully diluted weighted average shares outstanding would have increased by approximately 11,442,000 and 11,266,000 for the three months ended June 30, 2019 and 2018, respectively; and 11,574,000 and 11,265,000 for the six months ended June 30, 2019 and 2018, respectively.

NOTE 6 – LEASES

The Company has operating leases for corporate offices, vehicles and office equipment. The Company's leases have remaining lease terms of one year to two years, some of which include options to extend or terminate the lease. However, the Company is not reasonably certain to exercise options to renew or terminate, and therefore renewal and termination options are not considered in the lease term or the right-of-use asset and lease liability balances. The Company's current lease arrangements expire from 2019 through 2021. The Company does not have any finance leases.

The Company's lease population does not include any residual value guarantees, and therefore none were considered in the calculation of the lease balances. The Company has leases with variable payments, most commonly in the form of common area maintenance charges which are based on actual costs incurred. These variable payments were excluded from the right-of-use asset and lease liability balances since they are not fixed or in-substance fixed payments.

The Company elected to utilize the transition package of practical expedients permitted within the new standard, including the practical expedient not to reassess existing land easements, which among other things, allows the Company to carryforward the historical lease classification. The Company has lease agreements with lease and non-lease components, and has elected the practical expedient to account for lease and non-lease components as a single lease component for real-estate class of leases only. For leases with terms greater than 12 months, the Company records the related asset and lease liability at the present value of lease payments over the lease term. Leases with an initial term of 12 months or less with purchase options or extension options that are not reasonably certain to be exercised are not recorded on the Consolidated Balance Sheets; the Company recognizes lease expense for these leases on a straight-line basis over the term of the lease.

Lease balances . Amounts recognized in the accompanying consolidated balance sheet as of June 30, 2019 are as follows (in thousands):

Activity	Balance Sheet Location	Balance
ROU assets	Other assets	$	80
Short-term lease liability	Other liabilities	$	43
Long-term lease liability	Other long-term liabilities	$	37

Lease cost. The Company's operating lease cost for the six months ended June 30, 2019 was $74 thousand.

Lease commitments. The table below summarizes the Company's scheduled future minimum lease payments under operating, recorded on the balance sheet as of June 30, 2019 (in thousands):

2019	$	24
2020		46
2021		15
Total lease payments		85
Less: Imputed interest		(5	)
Present value of lease payments		80
Less: current maturities of lease obligations		(43	)
Long-term lease obligations	$	37

Most of our lease agreements do not provide a readily determinable implicit rate nor is it available to us from our lessors. Instead, we estimate the Company's incremental borrowing rate based on information available at either the implementation date of Topic 842 or at lease commencement for leases entered into thereafter in order to discount lease payments to present value. The table below presents additional information related to our leases as of June 30, 2019:

Weighted Average Remaining Lease Term
Operating leases	2 years

Weighted Average Discount Rate
Operating leases		6%

From a lessor standpoint, in February 2016, the Company entered into a lease agreement with Fenner Valley Farms LLC ("FVF") (the "lessee"), a subsidiary of Water Asset Management LLC, a related party, pursuant to which FVF is leasing, for a 99-year term, 2,100 acres owned by Cadiz in San Bernardino County, California, to be used to plant, grow and harvest agricultural crops ("FVF Lease Agreement"). As consideration for the lease, FVF paid the Company a one-time payment of $12.0 million upon closing.

Under the FVF Lease Agreement, the Company has a repurchase option to terminate the lease at any time during the twenty (20) year period following the effective date of the lease ("Termination Option Period") upon (1) repayment of the one-time $12 million lease payment plus a ten percent (10%) compounded annual return (provided that the amount of such payment shall be not less than $14,400,000), (2) reimbursement of water-related infrastructure on the leased property plus 8% per annum as well as the actual costs of any farming-related infrastructure installed on the leased property and (3) reimbursement of certain pipeline-related development expenses, working in coordination with Cadiz, not to exceed $3,000,000 (such payments, the " Termination Payments "). If (x) Cadiz does not exercise its termination right within such 20-year period or (y) the Agent under Cadiz's credit agreement declares an event of default under Cadiz's Senior Secured Debt and accelerates the indebtedness due and owing thereunder by Cadiz (or such indebtedness automatically accelerates under the terms of Cadiz's Senior Secured Debt), then the lessee may purchase the leased property for $1.00. The Company has recorded the one-time payment of $12 million, before legal fees, paid by FVF as a long-term lease liability. The Company's consolidated statement of operations reflects a net charge equal to a 10% finance charge compounding annually over the 20-year Termination Option Period. The net charge to the consolidated statement of operations reflects (1) rental income associated with the use of the land by FVF over the 20-year termination option period and (2) interest expense at a market rate reflective of a 20-year secured loan transaction. As a result of this transaction, the Company incurred approximately $490 thousand of legal fees which was recorded as a debt discount and is being amortized over the 20-year Termination Option Period.

The Company expects to receive rental income of $420 thousand annually over the next five years related to the FVF Lease Agreement.

NOTE 7 – FAIR VALUE MEASUREMENTS

The following table presents information about warrant derivative liabilities, and indicate the fair value hierarchy of the valuation techniques we utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. We consider a security that trades at least weekly to have an active market. Fair values determined by Level 2 inputs utilize data points that are observable, such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

	Derivatives at Fair Value as of June 30, 2018
(in thousands)	Level 1			Level 2			Level 3			Total

Warrant derivative liabilities		$	-		$	-	$	(1,528	)	$	(1,528	)
Total warrant derivative liabilities		$	-		$	-	$	(1,528	)	$	(1,528	)

As of January 1, 2019, the warrant derivative liability was reclassified to additional paid-in capital upon the adoption of ASU 2017-11.

The following table presents a reconciliation of Level 3 activity for the six month period ended June 30, 2019:

	Level 3 Liabilities
(in thousands)	Warrant Derivative Liabilities

Balance at December 31, 2018	$	865
Reclassification of warrant liability to additional paid-in capital upon adoption of ASU 2017-11		(865	)
Balance at June 30, 2019	$	-

NOTE 8 – SUBSEQUENT EVENT

On July 31, 2019, SoCal Hemp JV LLC, a Delaware limited liability company in which the Company holds a 50% beneficial interest (the "JV"), entered into a lease agreement (the "Agreement") with the Company whereby the JV will cultivate industrial hemp on up to 9,600 acres at the Company's agricultural property in eastern San Bernardino County, California ("Cadiz Ranch"). Under the terms of the Agreement, the JV will initially lease 1,280 acres at the Cadiz Ranch and will also hold options to lease up to 8,320 additional acres by 2022. The Agreement will have an initial term of five years and the JV will have the option to extend the term for three successive periods of five years each. In consideration for the lease arrangement, the JV will provide the Company an annual rental payment equal to $500 per acre of leased property, subject to periodic CPI adjustment.

ITEM 2. 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 contains trend 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 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, our ability to maximize value from our land and water resources; and our ability to obtain new financings as needed to meet our ongoing working capital needs. See additional discussion under the heading "Risk Factors" in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018.

Overview

We are a land and water resource development company with over 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 Colorado River and the Colorado River Aqueduct ("CRA"), California's primary mode of water transportation for imports from the Colorado River into the State. Our properties are suitable for various uses, including large-scale agricultural development, groundwater storage and water supply projects. Our main objective is to realize the highest and best use of these land and water resources in an environmentally responsible way.

We believe that the long-term highest and best use of our land and water assets will be realized through the development of a combination of water supply, water storage and agricultural projects at our properties.

We have primarily focused on the development of the Cadiz Valley Water Conservation, Recovery and Storage Project ("Water Project" or "Project"), which will capture and conserve millions of acre-feet ¹ of native groundwater currently being lost to evaporation from the aquifer system beneath our 34,500-acre property in the Cadiz and Fenner valleys of eastern San Bernardino County (the "Cadiz/Fenner Property"), and deliver it to water providers throughout Southern California (see "Water Resource Development") . A second phase of the Water Project would offer storage of up to one million acre-feet of imported water in the aquifer system. We believe that the ultimate implementation of this Water Project will provide a significant source of future cash flow.

By making new water and storage available in Southern California, we believe we can be part of the solution to the State's persistent water challenge. Available water supply in Southern California is constrained every day by regulatory restrictions on each of the State's three main water sources: the CRA, the State Water Project, which provides water supplies from Northern California to the central and southern parts of the state, and the Los Angeles Aqueduct, which delivers water from the eastern Sierra Nevada mountains to Los Angeles. Southern California's water providers rely on imports from these systems for a majority of their water supplies, but deliveries from all three into the region are consistently below capacity, even in wet years.

¹ One acre-foot is equal to approximately 326,000 gallons or the volume of water that will cover an area of one acre to a depth of one-foot. An acre-foot is generally considered to be enough water to meet the annual water needs of one average California household.

Further, the availability of supplies in California differs greatly from year to year due to natural hydrological variability. Over the last decade, California struggled through a historic drought featuring record-low winter precipitation. Then, following a series of strong storms that delivered record amounts of rain and snow during the 2016-2017 winter, state officials declared an end to the drought. The 2017-2018 winter was abnormally dry for a majority of the State, yet the 2018-2019 winter was a wet year, with snowpack and rainfall well above average through July 2019. The rapid swings between wet and dry years challenges California's traditional supply system and supports the need for reliable storage and local supply.

Given the variety of challenges and limitations faced by the State's existing infrastructure, Southern California water providers are presently pursuing investments in storage, supply and infrastructure to meet long-term demand. The Cadiz Water Project is a local supply option in Southern California that could help address the region's water supply challenges by providing new reliable supply and local groundwater storage opportunities (see "Water Resource Development" below) in both dry and wet years. Following a multi-year California Environmental Quality Act ("CEQA") review and permitting process, the Water Project received permits that allow the capture and conservation of 2.5 million acre-feet of groundwater over 50 years in accordance with the terms of a groundwater management plan approved by San Bernardino County, the public agency responsible for groundwater use at the project area.

In addition to our Water Project proposal, we are engaged in agricultural joint ventures at the Cadiz/Fenner Property that put some of the groundwater currently being lost to evaporation from the underlying aquifer system to immediate beneficial use. We have farmed portions of the Cadiz/Fenner Property since the late 1980s relying on groundwater from the aquifer system for irrigation. The site is well-suited for various permanent and seasonal crops. Presently, the property has 2,100 acres leased to third parties for cultivation of citrus, and 1,280 acres leased to the Company's joint venture, SoCal Hemp JV LLC, for the cultivation of hemp (see "Agricultural Development", below).

Our current working capital requirements relate largely to the final development activities associated with the Water Project and those activities consistent with the Water Project related to further development of our land and agricultural assets. While we continue to believe that the ultimate implementation of the Water Project will provide a significant source of future cash flow, we also believe there is substantial additional value in our underlying agricultural assets and cash-flow potential in our current agricultural ventures and lease arrangements.

We also continue to explore additional uses of our land and water resource assets, including renewable energy development, the marketing of our approved desert tortoise land conservation bank, which is located on our properties outside the Water Project area, and other long-term legacy uses of our properties, such as habitat conservation and cultural development.

W ater Resource Development

The Water Project is designed to capture and conserve renewable native groundwater currently being lost to evaporation from the aquifer system underlying our Cadiz/Fenner Property, and provide a new reliable water supply for approximately 400,000 people in Southern California. In this first phase, Phase I, the total quantity of groundwater to be recovered and conveyed to Water Project participants will not exceed a long-term annual average of 50,000 acre-feet per year for 50 years. The Water Project also offers participants in Phase I the ability to carry-over their annual supply and store it in the groundwater basin from year to year. Up to 150,000 acre-feet can be stored as part of Phase I. A second phase of the Water Project, Phase II, will offer an additional 850,000 acre-feet of capacity that can store imported water supplies at the project area for future dry years.

Water Project facilities required for Phase I primarily include, among other things:

·	High-yield wells designed to efficiently recover available native groundwater at the Water Project area;

·	A water conveyance pipeline to deliver water from the well-field to Project participants;

·	An energy source to provide power to the well-field, pipeline and pumping facilities; and

·	A water treatment facility at the wellfield to meet anticipated water quality requirements set by the operator of the CRA.

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:

·	Facilities to pump water through the conveyance pipeline from the CRA to the Water Project well-field and/or through the Company's pipeline from Barstow, CA, to our Cadiz Valley property; and

·	Spreading basins, which are shallow settling ponds that will be configured to efficiently percolate water from the ground surface down to the water table using subsurface storage capacity for the storage of water.

Phase I

Phase I has been fully reviewed and permitted in accordance with the California Environmental Quality Act (CEQA). The Project was also separately reviewed and approved by the County of San Bernardino in accordance with its local ordinances regulating groundwater. In May 2016, all CEQA and County permits and approvals were sustained in the California Court of Appeal and are no longer subject to further litigation. As a result, the Project presently is permitted to conserve an average of 50,000 acre-feet of water for 50 years at Cadiz to meet municipal and industrial (M&I) water needs in Southern California.

In October 2017, the US Bureau of Land Management ("BLM") provided a letter finding that the Project's proposed use of a portion of the Arizona & California Railroad Company ("ARZC") right-of-way from our Cadiz Valley property to Freda, California to construct and operate the Water Project's water conveyance pipeline and related railroad improvements is within the scope of the original right-of-way grant and not subject to additional permitting. The buried pipeline would be constructed parallel to the railroad tracks and be used to convey water between our Cadiz Valley property and the CRA. The letter was challenged in Los Angeles Central District Federal Court in 2018 by national environmental organizations, which claimed it violated the law. In a June 2019 procedural ruling, the Court remanded the letter back to BLM, concluding that the agency needed to explain more explicitly why it withdrew and reversed specific findings previously made in 2015 on the same issue. However, the Court did not find that the conclusions of the 2017 evaluation were in error. We expect that BLM will swiftly prepare an amended evaluation compliant with the Court's direction.

Construction of Water Project facilities that would allow for the delivery of up to 75,000 acre-feet in any one year is expected to cost approximately $310 million and will require capital financing that we expect will be secured by definitive Purchase and Sale Agreements with Project participants and the new facility assets.

In addition to finalizing construction financing terms, prior to construction, the Water Project must (1) finalize contracts with Project participating agencies, (2) secure transportation arrangements to deliver water into each participant's service area, and (3) complete final design, engineering and construction permitting. Below is a discussion of present activities to advance these objectives.

(1) Contracts with Public Water Agencies or Private Water Utilities

The Company has executed Letters of Intent ("LOIs"), option agreements and purchase agreements, or contracts (collectively, "Agreements") with public water agencies and private water utilities in California during the Project's development. These participating agencies serve more than one million customers in cities throughout California's San Bernardino, Riverside, Los Angeles, Orange, Imperial and Ventura Counties. Twenty percent of Water Project supplies have been reserved for San Bernardino County-based agencies.

Santa Margarita Water District ("SMWD"), Orange County's second largest water provider, was the first participant to convert its option agreement and adopt resolutions approving a Water Purchase and Sale Agreement for 5,000 acre-feet of water. The structure of the SMWD purchase agreement calls for an annually adjusted water supply payment, plus a pro rata portion of the capital recovery charge and operating and maintenance costs. The capital recovery charge is calculated by amortizing the total capital investment by the Company over a 30-year term.

Agreements entered into prior to the beginning of the CEQA review process provide the participants the right to acquire an annual supply of 5,000 acre-feet of water at $775 per acre-foot (2010 dollars, subject to adjustment), which is competitive with the incremental cost of new water. In addition, these agencies received options to acquire storage rights in the Water Project to allow for the management of their Water Project supplies in complement with their own water resources. Up to 150,000 acre-feet of carry-over storage is available for reservation by the agencies prior to construction commencement. Participants that elect to achieve year-to-year flexibility in their use of Project water by utilizing carry-over storage will reserve storage capacity for $1,500 per acre-foot prior to construction.

LOIs that have been entered into since completion of the CEQA review process reserve supplies from the Water Project at $960 per acre-foot (2014 dollars, subject to adjustment). These LOIs also include the option to reserve carry-over storage capacity for $1,500 per acre-foot prior to construction.

Presently, total reservations of supplies from the Water Project via these Agreements are in excess of Water Project capacity. Prior to construction of the Water Project, we expect to convert existing option agreements and LOIs to purchase agreements. We are working collaboratively with the participating water agencies to account for any oversubscription in the final definitive Purchase and Sale Agreements and allow for inclusive participation across Southern California.

(2) Conveyance Arrangements

Prior to construction of the Water Project, and in coordination with final participation contracts described in (1) above, an agreement and terms for moving water supplies in the CRA must be negotiated with Metropolitan Water District of Southern California ("Metropolitan"), which owns and controls the CRA.

Water supplies conserved by the Project would enter the CRA at the termination of the project's conveyance pipeline near Rice, CA. The CEQA process considered a variety of options to enter the CRA and assumed final entry into the CRA would be determined by MWD in consultation with the Project's participating agencies. Once arrangements are reached, the Metropolitan Board would take action as a responsible agency under CEQA regarding the terms and conditions of the Water Project's use of the CRA to transport water to its participating agencies.

There is no application yet before Metropolitan related to entry and transportation of Project supplies, but we expect such a formal application will be filed by SMWD, the Project's lead agency, when the Project's contractual arrangements with participants are finalized. Any agreement as to the terms and conditions of the Water Project's use of the CRA will be negotiated between and entered into by Metropolitan and the Project participating agencies, not the Company. Discussions with Metropolitan regarding conveyance of Project water in the CRA have been led by SMWD, the Water Project's CEQA lead agency, and are ongoing.

Water Project supplies entering the CRA will comply with Metropolitan's published engineering, design and water quality standards and will be subject to all applicable fees and charges routinely established by Metropolitan for the conveyance of water within its service territory. Cadiz water presently meets all state and federal water quality requirements without treatment and total dissolved solids or salts in the Cadiz water supply are substantially lower than the water in the CRA, offering a water quality benefit. Project water also has no PFAs, a recently added constituent of concern by California water regulators, improving its attractiveness for the service area. Some naturally occurring constituents are lower than State and Federal 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. This year-long pilot testing of treatment options at the Project area confirmed the capability of cost-effective treatment technologies. We believe there are multiple benefits that can be realized by MWD and its service area, such as water quality improvements, upon making space reasonably available for the Cadiz water supplies and providing the region the flexibility of relying on the Cadiz Project in both wet and dry years.

On July 31, 2019, California Governor Gavin Newsom signed into law Senate Bill 307 ("SB 307"), which added terms to the section of the California Water Code known as the "wheeling statutes" that regulate the conveyance of water by third parties in facilities such as the CRA. When the SB 307 provisions become effective on January 1, 2020, the wheeling statutes will now require water projects in a section of the Mojave Desert where our Cadiz Valley property is located to apply for a review by the California State Lands Commission ("SLC") prior to wheeling water in public conveyance facilities. Upon receiving an application, this review will determine whether such projects would have "unreasonable effects on the environment and water dependent ecosystems in the surrounding watersheds." The review by SLC must be conducted within 15 months of application, with an option to extend an additional 9 months upon public notice and explanation. Any application will be accompanied by the project's extensive record of environmental sustainability as well as data and reports that can withstand critical scrutiny.

Northern Pipeline

We currently own a 96-mile long, 30-inch wide existing idle natural gas pipeline that extends northwest from the Cadiz/Fenner Property terminating in Barstow, California, and have entered into a purchase agreement for a further 124-mile segment connecting this line from Barstow to Wheeler Ridge, California. The pipeline crosses San Bernardino, Los Angeles and Kern counties, including the Barstow and Bakersfield areas, which serve as hubs for water delivered from northern and central California to communities in Southern California.

Initial feasibility studies indicated that, upon conversion, the 30-inch pipeline could transport between 18,000 and 30,000 acre-feet of water per year between the Water Project area and the Central and Northern California water transportation networks. As a result, this pipeline could diversify delivery opportunities for the Water Project and the Company's broader water resource development efforts.

If this pipeline were to become operational, then the Water Project would link the Colorado River Aqueduct and State Water Project systems - two of Southern California's main water delivery systems - providing flexible opportunities for both supply and storage. The Northern Pipeline could deliver Phase I supplies, either directly or via exchange, to existing and potential customers of Phase I of the Project. Any use of the pipeline would be conducted in conformity with the Water Project's groundwater management plan and is subject to further CEQA evaluation and potentially federal environmental permitting.

In December 2018, the Company entered into an amendment (the "Amendment") to its option agreement ("Option Agreement") with El Paso Natural Gas Company ("EPNG") to purchase the 124-mile segment of the pipeline. The Option Agreement, as amended, allows the Company to purchase the 124-mile pipeline segment with an initial payment of $2 million and a subsequent payment of $18 million ("Deferred Payment"). Following entry into the Amendment, the Company exercised the option and entered into a purchase agreement for the 124-mile pipeline, providing to EPNG the initial consideration of $2 million.

Under our purchase agreement with EPNG, the Deferred Payment is due to EPNG within 30 days of satisfaction of certain conditions precedent by EPNG. We do not currently have the cash resources on hand to satisfy the Deferred Payment. If we do not complete the purchase of the additional 124-mile pipeline, then our Northern Pipeline opportunities will be limited to the 96-mile segment that we own.

(3) Final Design and Permitting

As a component of completing contract terms with participating agencies, wheeling arrangements with Metropolitan and review by SLC, we must also finalize design of Project facilities and acquire relevant construction permits with state and local agencies. Together with SMWD we have engaged engineering and environmental consultants to complete design plans for the 43-mile pipeline, Project wellfield, any necessary water treatment facilities, and facilities required to connect to the Metropolitan system at and near the CRA. SMWD, in coordination with the Fenner Valley Water Authority, has also conducted supplemental CEQA analysis to incorporate updated studies and project plans. This work is ongoing and expected to proceed in coordination with the negotiation of contracts and wheeling arrangements.

In coordination with facility design and layout, we may need to obtain additional permits and approvals from state or local entities prior to construction. This may include, but is not limited to, confirmation of existing access rights, easements and rights-of-way, for areas that may be crossed by Project facilities in the Project area subject to final pipeline configuration.

Phase II

In a second phase of the Water Project, we expect to make available up to one million acre-feet of capacity in the aquifer system for storage of surplus water conveyed to the Project area. Under the Imported Water Storage Component, or Phase II, water from the Colorado River or the State Water Project, via some or all of an existing 220-mile pipeline that extends from Wheeler Ridge, California southeast to Barstow and there onwards to our Cadiz/Fenner property (see "Northern Pipeline", above), could be conveyed to spreading basins that would be constructed on our private property to percolate into the aquifer system and held in storage. When needed, previously stored water would be returned to Phase II participating agencies via the Project's 43-mile conveyance pipeline to the CRA, described above, or the Northern Pipeline.

Phase II has already been the subject of programmatic environmental review in accordance with CEQA, but still requires project-level environmental review and permitting once participating agencies are identified. Phase II may also require federal permits subject to the National Environmental Policy Act, or NEPA.

Agricultural Development

Our Cadiz/Fenner Property, consisting of approximately 34,500 acres of desert land, is zoned for agricultural development. In 1993, we secured conditional use permits to develop agriculture on up to 9,600 acres of the property and withdraw groundwater from the underlying aquifer system for irrigation. We have since maintained various levels of crops on the Property as we developed the Water Project. In 2013, we entered into a lease agreement with a third party to develop up to 1,480 acres of lemons at the site, 640 acres of which have been planted to date.

In February 2016, we entered into a lease agreement with Fenner Valley Farms LLC ("FVF"), a subsidiary of Water Asset Management LLC, a related party, pursuant to which FVF leased, for a 99-year term, 2,100 acres at the Cadiz/Fenner property to be used to plant, grow and harvest agricultural crops ("FVF Lease"). As consideration for the lease, FVF paid us a one-time payment of $12,000,000 in February 2016. The acreage that was historically farmed by us and the acreage that is leased to a third party to develop lemons was included within the acreage leased to FVF.

In June 2019, we planted 5 acres of hemp to research the potential for large-scale commercial production of hemp at our Cadiz Valley property. Following the passage of the U.S. Farm Bill in December 2018, hemp is legal to grow in all fifty states and demand for American-grown hemp is robust. Based on the initial success of the trial, in August 2019, we entered into a joint venture ("JV") that will operate under the name SoCal Hemp JV LLC to sustainably cultivate organic, sun-grown, industrial hemp on up to 9,600 acres at our Cadiz Valley property. In compliance with all state, federal and local regulatory requirements, the JV will expand its operation to a total of 60 acres in September 2019, 1,280 acres in 2020 and up to 9,600 acres over the next three years, depending on the exercise of further lease options held by the JV.

The JV intends to bring to market hemp and hemp-derived products at a commercial scale to meet growing business and consumer market demands. The Company has a 50% share of the JV proceeds.

As part of the agricultural development to be conducted under the lease arrangements, the groundwater production capacity of the property's existing well-field will be enhanced through infrastructure improvements that are complementary to the Water Project. All agricultural production is fully compatible with the Cadiz Water Project. Overlying farming demands will be coordinated with project operations and existing Court-validated permits.

Additional Eastern Mojave Properties

We also own approximately 11,000 acres outside of the Cadiz/Fenner Valley area in two locations within the Mojave Desert in eastern San Bernardino County.

Our primary landholding outside of the Cadiz area is approximately 9,000 acres in the Piute Valley. This landholding is located approximately 15 miles from the resort community of Laughlin, Nevada, and about 12 miles from the Colorado River town of Needles, California. Extensive hydrological studies, including the drilling and testing of a full-scale production well, have demonstrated that this landholding is underlain by high-quality groundwater. The aquifer system underlying this property is naturally recharged by precipitation (both rain and snow) within a watershed of approximately 975 square miles and could be suitable for a water supply project, agricultural development or solar energy production. These private properties are proximate to or border areas designated by the federal government as National Monument, Critical Desert Tortoise Habitat and/or Desert Wilderness Areas and are suitable candidates for preservation and conservation (see "Land Conservation Bank" below).

Additionally, we own acreage located near Danby Dry Lake in Ward Valley, approximately 30 miles southeast of our Cadiz/Fenner Valley properties. The Danby Dry Lake property is located approximately 10 miles north of the CRA. Initial hydrological studies indicate that the area has excellent potential for a water supply project. Certain of the properties in this area may also be suitable for agricultural development and/or preservation and conservation.

Land Conservation Bank

Approximately 7,500 acres of our properties outside of the Cadiz/Fenner Valley area in the Piute Valley are located within terrain designated by the federal government as Critical Desert Tortoise Habitat and/or Desert Wilderness Areas and have limited development opportunities. 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 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 desert. Credits sold by the Fenner Bank will fund our permanent preservation of the land as well as research by outside entities, including San Diego Zoo Global, into desert tortoise health and species protection.

Northern Pipeline

The Northern Pipeline, described above, also represents new opportunities for the Company independent of the Water Project to offer water transportation to locations along the 220-mile pipeline route that are not presently interconnected by existing water infrastructure. The pipeline crosses California's major water infrastructure as well as urban and agricultural centers and can be utilized to transport water, independent of the Water Project, between users who presently lack direct interconnections along the pipeline route. We are presently engaged in discussions with parties that may be interested in such transportation. The ability to serve points along the 124-mile portion of the pipeline from Barstow to Wheeler Ridge is dependent upon completion of certain conditions precedent under our purchase agreement with EPNG, described above. If the acquisition of the 124-mile segment is not completed, then our Northern Pipeline opportunities will be limited to the 96-mile segment that we own.

Other Opportunities

Other opportunities in the water and agricultural or related infrastructure business complementary to our current objectives could provide new opportunities for our Company.

Over the longer-term, we believe the population of Southern California, Nevada and Arizona will continue to grow, and that, in time, the economics of commercial and residential development at our properties may become attractive.

We remain committed to the sustainable use of our land and water assets and will continue to explore all opportunities for environmentally responsible development of these assets. We cannot estimate which of these opportunities will ultimately be utilized.

Results of Operations

Three Months Ended June 30, 2019, Compared to Three Months Ended June 30, 2018

We have not received significant revenues from our water resource and real estate development activity to date. Our revenues have been limited to rental income from the FVF Lease (see "Agricultural Development", above). As a result, we have historically incurred a net loss from operations. We had revenues of $111 thousand for the three months ended June 30, 2019 and $109 thousand for the three months ended June 30, 2018. We incurred a net loss of $7.5 million in the three months ended June 30, 2019, compared to a $6.0 million net loss during the three months ended June 30, 2018. The higher 2019 loss was primarily due to higher general and administrative expenses related to our water development efforts, higher proxy costs, and higher interest expense, combined with $0.3 million in unrealized gains recorded for warrant liabilities in 2018.

Our primary expenses are our ongoing overhead costs associated with the development of the Water Project (i.e., general and administrative expense) and our interest expense. We will continue to incur non-cash expenses in connection with our management and director equity incentive compensation plans.

Revenues Revenue totaled $111 thousand for the three months ended June 30, 2019 and $109 thousand for the three months ended June 30, 2018. Revenues primarily related to rental income from the FVF Lease (see "Agricultural Development", above).

General and Administrative Expenses General and Administrative Expenses, exclusive of stock-based compensation costs, totaled $3.2 million in the three months ended June 30, 2019, compared to $2.2 million in the three months ended June 30, 2018.

Compensation costs for stock and option awards for the three months ended June 30, 2019, were $123 thousand, compared to $122 thousand for the three months ended June 30, 2018.

Depreciation Depreciation expense totaled $66 thousand during the three months ended June 30, 2019, compared to $64 thousand during the three months ended June 30, 2018.

Interest Expense, net Net interest expense totaled $4.3 million during the three months ended June 30, 2019 compared to $3.8 million during the same period in 2018. The following table summarizes the components of net interest expense for the two periods (in thousands):

	Three Months Ended
	June 30,
	2019			2018

Interest on outstanding debt		$	3,255	$	3,116
Unrealized gains on warrants, net			-		(343	)
Amortization of debt discount			1,028		1,028
Amortization of deferred loan costs			20		21

		$	4,303	$	3,822

Income Taxes Income tax expense was $2 thousand for the three months ended June 30, 2019, compare to $3 thousand for the three months ended June 30, 2018. See Note 4 to the Condensed Consolidated Financial Statements – "Income Taxes".

Six Months Ended June 30, 2019, Compared to Six Months Ended June 30, 2018

We had revenues of $220 thousand for the six months ended June 30, 2019 and $217 thousand for the six months ended June 30, 2018. We incurred a net loss of $14.7 million in the six months ended June 30, 2019, compared to a $12.0 million net loss during the six months ended June 30, 2018. The higher 2019 loss was primarily due to higher general and administrative expenses related to our water development efforts, higher proxy costs, and higher interest expense, combined with $0.9 million in unrealized gains recorded for warrant liabilities in 2018.

Revenues Revenue totaled $220 thousand for the six months ended June 30, 2019 and $217 thousand for the six months ended June 30, 2018. Revenues primarily related to rental income from the FVF Lease (see "Agricultural Development", above).

General and Administrative Expenses General and Administrative Expenses, exclusive of stock-based compensation costs, totaled $6.0 million in the six months ended June 30, 2019, compared to $4.6 million in the six months ended June 30, 2018.

Compensation costs for stock and option awards for the six months ended June 30, 2019, were $245 thousand, compared to $227 thousand for the six months ended June 30, 2018.

Depreciation Depreciation expense totaled $132 thousand during the six months ended June 30, 2019, compared to $130 thousand during the six months ended June 30, 2018.

Interest Expense, net Net interest expense totaled $8.5 million during the six months ended June 30, 2019 compared to $7.3 million during the same period in 2018. The following table summarizes the components of net interest expense for the two periods (in thousands):

	Six Months Ended
	June 30,
	2019			2018

Interest on outstanding debt		$	6,480	$	6,156
Unrealized gains on warrants, net			-		(859	)
Amortization of debt discount			2,016		1,981
Amortization of deferred loan costs			41		60

		$	8,537	$	7,338

Income Taxes Income tax expense was $3 thousand for the six months ended June 30, 2019, compare to $4 thousand for the six months ended June 30, 2018. See Note 4 to the Condensed Consolidated Financial Statements – "Income Taxes".

Liquidity and Capital Resources

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 gap between the time water resource and other development expenses are incurred and the time that revenue will commence. Historically, we have addressed these needs primarily through secured debt financing arrangements and private equity placements.

In May 2017, we entered into a new $60 million credit agreement with funds affiliated with Apollo Global Management, LLC ("Apollo") that replaced and refinanced our then existing $45 million senior secured mortgage debt and provided $15 million of new senior debt to fund immediate construction related expenditures ("Senior Secured Debt"). The Senior Secured Debt and the 7.00% Convertible Senior Notes due March 2020 ("Convertible Senior Notes") contain representations, warranties and covenants that are typical for agreements of this type, including restrictions that would limit our 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 financial maintenance covenants and no restrictions on our ability to issue additional common stock to fund future working capital needs. The debt covenants associated with the Senior Secured Debt were negotiated by the parties with a view towards our operating and financial condition as it existed at the time the agreements were executed. At June 30, 2019, we were in compliance with our debt covenants.

Limitations on our liquidity and ability to raise capital may adversely affect us. Sufficient liquidity is critical to meet our resource development activities. As discussed further in "Outlook" below, we do not have adequate resources on hand to meet the obligations related to the (1) Senior Secured Debt which could come due as early as December 2019 or (2) the Convertible Senior Notes coming due in March 2020 to the extent these notes are not converted. However, we have entered into option agreements with parties holding 99% of the Convertible Senior Notes that allow us, at our sole option, at any time prior to December 5, 2019, to extend the maturity date of the Convertible Senior Notes to September 5, 2021. Additionally, the completion of the acquisition of the 124-mile extension of our Northern Pipeline will require an $18 million payment within thirty days of satisfaction of certain conditions precedent under our purchase agreement with EPNG. We do not currently have the cash resources on hand to make this payment in full. To the extent additional capital is required, we may increase liquidity through a variety of means, including equity or debt placements, through the lease, sale or other disposition of assets or reductions in operating costs. If additional capital is required, no assurances can be given as to the availability and terms of any new financing.

As we continue to actively pursue our business strategy, additional financing may continue to be required. See "Outlook" below. The covenants 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 do not expect the loan covenants to materially limit our ability to finance our water development activities.

At June 30, 2019, we had no outstanding credit facilities other than the Senior Secured Debt and the Convertible Senior Notes.

Cash Used in Operating Activities . Cash used in operating activities totaled $6.9 million and $6.4 million for the six months ended June 30, 2019 and 2018, respectively. The cash was primarily used to fund general and administration expenses related to our water development efforts.

Cash Used in Investing Activities . Cash used in investing activities totaled $818 thousand for the six months ended June 30, 2019, and $927 thousand for the six months ended June 30, 2018. The costs primarily consisted of engineering and design related to the development of the Water Project.

Cash Provided by Financing Activities . Cash provided by financing activities totaled $14.6 million for each of the six months ended June 30, 2019, and June 30, 2018. Proceeds from financing activities for both periods reported are related to the issuance of shares under at-the-market offerings.

Outlook

Short-Term Outlook. We have principal and interest payments aggregating approximately $73.9 million as of June 30, 2019 coming due in March 2020 relating to our Convertible Senior Notes to the extent the noteholders, who have the right to convert at any time into our common stock at a conversion rate of $6.75 per share, do not convert prior to March 2020 or we do not exercise the option agreements we currently have with parties holding 99% of our Convertible Senior Notes that allow us, at our sole option, at any time prior to December 5, 2019, to extend the maturity date of the Convertible Senior Notes to September 5, 2021. Our Senior Secured Debt of approximately $68.1 million as of June 30, 2019 could also become due as early as December 2019 if we have not exercised the option agreements or the Convertible Senior Notes have not been converted by that time and the Company's stock price is less than 120% of the conversion rate. We do not currently have adequate resources on hand to meet these obligations should they come due. Additionally, to complete our acquisition of an additional 124-mile extension of our Northern Pipeline, we will require a further $18 million to fund the payment that will be due upon completion of certain conditions precedent under our purchase agreement with EPNG (see "Water Resource Development", above). If the acquisition of the 124-mile segment is not completed, then our Northern Pipeline opportunities will be limited to the 96-mile segment we already own. As we require additional working capital to fund operations, we expect to continue our historical practice of structuring our financing arrangements to match the anticipated needs of our development activities. See "Long-Term Outlook" below. No assurances can be given, however, as to the availability or terms of any new financing.

Long-Term Outlook . In the longer term, we will need to raise additional capital to finance working capital needs, capital expenditures and any payments due under our Senior Secured Debt or our Convertible Senior 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 resources and other developments. Future capital expenditures will depend primarily on the progress of the Water Project.

We are evaluating the amount of cash needed, and the manner in which such cash will be raised, on an ongoing basis. We may meet any future cash requirements through a variety of means, including equity or debt placements, or through the sale or other disposition of assets. Equity placements would be undertaken only to the extent necessary, so as to minimize the dilutive effect of any such placements upon our existing stockholders. No assurances can be given, however, as to the availability or terms of any new financing. Limitations on our liquidity and ability to raise capital may adversely affect us. Sufficient liquidity is critical to meet our resource development activities.

Recent Accounting Pronouncements

See Note 1 to the Condensed Consolidated Financial Statements – "Basis of Presentation".

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

We are a smaller reporting company as defined by Reg. 240.12b-2 of the Securities and Exchange Act of 1934 and are not required to provide the information under this item.

ITEM 4. Controls and Procedures

Disclosure Controls and Procedures

The Company established disclosure controls and procedures to ensure that material information related to the Company, including its consolidated entities, is accumulated and communicated to senior management, including the Chief Executive Officer (the "Principal Executive Officer") and Chief Financial Officer (the "Principal Financial Officer") and to its Board of Directors. Based on their evaluation as of June 30, 2019, the Company's Principal Executive Officer and 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 the Securities 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 submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and such information is accumulated and communicated to management, including the principal executive and principal financial officers as appropriate, to allow timely decisions regarding required disclosures.

Changes in Internal Controls Over Financial Reporting

In connection with the evaluation required by paragraph (d) of Rule 13a-15 under the Exchange Act, there was no change identified in the Company's internal controls over financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal controls over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings

Not applicable.

ITEM 1A. Risk Factors

There have been no material changes to the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2018.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

ITEM 3. Defaults Upon Senior Securities

Not applicable.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information

Not applicable.

ITEM 6. Exhibits

The following exhibits are filed or incorporated by reference as part of this Quarterly Report on Form 10-Q.

3.1

Amendment No. 2 to the Bylaws of Cadiz Inc. effective June 11, 2019 ⁽¹⁾

10.1

Agricultural Lease dated as of July 31, 2019 between Cadiz Real Estate LLC and SoCal Hemp JV LLC ⁽²⁾

10.2

Limited Liability Company Agreement of SoCal Hemp JV LLC ⁽²⁾

31.1

Certification of Scott S. Slater, Chief Executive Officer of Cadiz Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Timothy J. Shaheen, Chief Financial Officer and Secretary of Cadiz Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification of Scott S. Slater, Chief Executive Officer of Cadiz Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2	Certification of Timothy J. Shaheen, Chief Financial Officer and Secretary of Cadiz Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

___________________________

(1)	Previously filed as an Exhibit to our Current Report on Form 8-K dated June 11, 2019 and filed on June 17, 2019

(2)	Previously filed as an Exhibit to our Current Report on Form 8-K dated July 31, 2019 and filed on August 6, 2019

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Cadiz Inc.

By:	/a/ Scott S. Slater	August 8, 2019
	Scott S. Slater	Date
	Chief Executive Officer and President
	(Principal Executive Officer)

By:	/a/ Timothy J. Shaheen	August 8, 2019
	Timothy J. Shaheen	Date
	Chief Financial Officer and Secretary
	(Principal Financial Officer)

TABLE OF CONTENTS

Note 1 Basis Of Presentation Note 2 Long-term Debt Note 3 Stock-based Compensation Plans and Warrants Note 4 Income Taxes Note 5 Net Loss Per Common Share Note 6 Leases Note 7 Fair Value Measurements Note 8 Subsequent Event Item 2. Management's Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II - Other Information Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Mine Safety Disclosures Item 5. Other Information Item 6. Exhibits

Exhibits

31.1 Certification of Scott S. Slater, Chief Executive Officer of Cadiz Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Timothy J. Shaheen, Chief Financial Officer and Secretary of Cadiz Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Scott S. Slater, Chief Executive Officer of Cadiz Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of Timothy J. Shaheen, Chief Financial Officer and Secretary of Cadiz Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

CDZI 10-Q Quarter ended June 30, 2019

Exhibits