Note 7 - Income Taxes

12 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Text Block]

NOTE 7 – INCOME TAXES

 Deferred taxes are recorded based upon differences between the financial statement and tax bases of assets and liabilities and available carryforwards.  Temporary differences and carryforwards which gave rise to a significant portion of deferred tax assets and liabilities as of December 31, 2012 and 2011 are as follows (in thousands):

	December 31,
	2012			2011
Deferred tax assets:
Net operating losses	$	50,502		$	44,850
Fixed asset basis difference		7,141			7,177
Contributions carryover		2			2
Deferred compensation		2,367			2,230
Accrued liabilities		29			529
Total deferred tax assets		60,041			54,788
Valuation allowance for deferred tax assets		(60,041	)		(54,788	)
Net deferred tax asset	$	-		$	-

 The valuation allowance increased $5,253,000 and $4,476,000 in 2012 and 2011, respectively, due to an increase in net operating losses.  The change in deferred tax assets resulted from current year net operating losses, expiration of prior year loss carryovers, and changes to future tax deductions resulting from terms of stock compensation plans.

 As of December 31, 2012, the Company had net operating loss (“NOL”) carryforwards of approximately $124.5 million for federal income tax purposes and $92.2 million for California income tax purposes.  Such carryforwards expire in varying amounts through the year 2032.  Use of the carryforward amounts is subject to an annual limitation as a result of ownership changes in 2005 and 2011.

 On August 26, 2005, a Settlement Agreement between Cadiz, on the one hand, and Sun World and three of Sun World’s subsidiaries, on the other hand, was approved by the U.S. Bankruptcy Court, concurrently with the Court’s confirmation of the amended reorganization plan.  The Settlement Agreement provides that following the September 6, 2005 effective date of Sun World’s plan of reorganization, Cadiz retains the right to utilize the Sun World NOL carryovers.  Sun World Federal NOLs are estimated to be approximately $58 million.

 As of December 31, 2012, the Company possessed unrecognized tax benefits totaling approximately $3.0 million.  There were no changes to unrecognized tax benefits during the 36 months ended December 31, 2012.

 None of these tax benefits, if recognized, would affect the Company's effective tax rate because the Company has recorded a full valuation allowance against these assets.

 As of December 31, 2011, the Company had accrued a total of $321,000 for state taxes, interest and penalties related to income tax positions in prior returns.  As a result of the expiration of statutes of limitation during the year ended December 31, 2012, the Company recognized a state tax benefit of $321,000.

 The Company's tax years 2009 through 2012 remain subject to examination by the Internal Revenue Service, and tax years 2008 through 2012 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.

 A reconciliation of the income tax benefit to the statutory federal income tax rate is as follows (dollars in thousands):

	Year Ended December 31,
	2012			2011			2010
Expected federal income tax benefit at 34%	$	(6,614	)	$	(5,720	)	$	(5,405	)
Loss with no tax benefit provided		5,535			4,880			4,545
State income tax		10			7			6
State tax benefit		(321	)		0			0
Stock Options		0			(6	)		154
Non-deductible expenses and other		1,079			846			706
Income (benefit) tax expense	$	(311	)	$	7		$	6

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