10-Q

Unite Stated

Securities andExchangeCommission

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, 2017

OR

☐   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

CadizInc.

(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

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     ☐Emerging growth company

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

Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2).  Yes ☐     No ☑

As of August 4, 2017, the Registrant had 22,257,646 shares of common stock, par value $0.01 per share, outstanding.

Cadiz Inc.

Index

For the Six Months ended June 30, 2017	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, 2017 and 2016	1
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the six months ended June 30, 2017 and 2016	2
Unaudited Condensed Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016	3
Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016	4
Unaudited Condensed Consolidated Statement of Stockholders' Deficit for the six months ended June 30, 2017	5
Unaudited Notes to the Condensed Consolidated Financial Statements	6
ITEM 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations	14
ITEM 3.  Quantitative and Qualitative Disclosures about Market Risk	27
ITEM 4.  Controls and Procedures	27
PART II – OTHER INFORMATION
ITEM 1.  Legal Proceedings	28
ITEM 1A.  Risk Factors	28
ITEM 2.  Unregistered Sales of Equity Securities and Use of Proceeds	29
ITEM 3.  Defaults Upon Senior Securities	29
ITEM 4.  Mine Safety Disclosures	29
ITEM 5.  Other Information	29
ITEM 6.  Exhibits	30

Cadiz Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

	For the Three Months
	Ended June 30,
($ in thousands except per share data)	2017			2016
Total revenues	$	108		$	108
Costs and expenses:
General and administrative		2,141			2,641
Depreciation		72			73
Total costs and expenses		2,213			2,714
Operating loss		(2,105	)		(2,606	)
Interest expense, net		(7,963	)		(3,038	)
Loss on extinguishment of debt and debt refinancing		(3,501	)		-
Loss before income taxes		(13,569	)		(5,644	)
Income tax expense		1			1
Net loss and comprehensive loss applicable to common stock	$	(13,570	)	$	(5,645	)
Basic and diluted net loss per common share	$	(0.60	)	$	(0.31	)
Basic and diluted weighted average shares outstanding		22,451			17,949

See accompanying notes to the condensed consolidated financial statements.

1

Cadiz Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

	For the Six Months
	Ended June 30,
($ in thousands except per share data)	2017			2016
Revenues	$	216		$	183
Costs and expenses:
General and administrative		6,291			4,996
Depreciation		143			146
Total costs and expenses		6,434			5,142
Operating loss		(6,218	)		(4,959	)
Interest expense, net		(11,076	)		(7,229	)
Loss on extinguishment of debt and debt refinancing		(3,501	)		(2,250	)
Loss before income taxes		(20,795	)		(14,438	)
Income tax provision		2			2
Net loss and comprehensive loss applicable to common stock	$	(20,797	)	$	(14,440	)
Basic and diluted net loss per common share	$	(0.93	)	$	(0.81	)
Basic and diluted weighted average shares outstanding		22,275			17,923

See accompanying notes to the condensed consolidated financial statements.

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Cadiz Inc.

Condensed Consolidated Balance Sheets (Unaudited)

	June 30,			December 31,
($ in thousands, except share data)	2017			2016
ASSETS
Current assets:
Cash and cash equivalents	$	19,434		$	12,172
Accounts receivable		50			39
Prepaid expenses and other		516			3,391
Total current assets		20,000			15,602
Property, plant, equipment and water programs, net		44,659			44,182
Goodwill		3,813			3,813
Other assets		3,745			3,502
Total assets	$	72,217		$	67,099
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable	$	642		$	439
Accrued liabilities		5,799			3,953
Current portion of long-term debt		1,398			170
Total current liabilities		7,839			4,562
Long-term debt, net		117,842			102,374
Long-term lease obligations, net		12,770			12,287
Deferred revenue		750			750
Other long-term liabilities		3,683			1,443
Total liabilities		142,884			121,416
Stockholders' deficit:
Common stock - $.01 par value; 70,000,000 shares
authorized; shares issued and outstanding – 22,483,122 at
June 30, 2017 and 21,768,864 at December 31, 2016		225			218
Additional paid-in capital		359,776			355,336
Accumulated deficit		(430,668	)		(409,871	)
Total stockholders' deficit		(70,667	)		(54,317	)
Total liabilities and stockholders' deficit	$	72,217		$	67,099

See accompanying notes to the condensed consolidated financial statements.

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Cadiz Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

	For the Six Months
	Ended June 30,
($ in thousands)	2017			2016
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to	$	(20,797	)		(14,440	)
net cash used in operating activities:
Depreciation		143			146
Amortization of debt discount and issuance costs		1,835			2,574
Interest expense added to loan principal		4,534			4,188
Interest expense added to lease liability		471			330
Gain on debt conversion		55			-
Loss on early extinguishment of debt		3,501			2,250
Compensation charge for stock and share option awards		1,921			759
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable		(11	)		129
Decrease (increase) in prepaid expenses and other		2,875			(22	)
Increase in other assets		(243	)		(357	)
Increase (decrease) in accounts payable		40			(63	)
Increase (decrease) in accrued liabilities		1,464			(315	)
(Decrease) in other long-term liabilities		(655	)		-
Net cash used in operating activities		(4,867	)		(4,821	)
Cash flows from investing activities:
Additions to property, plant and equipment		(161	)		-
Net cash used in investing activities		(161	)		-
Cash flows from financing activities:
Up-front payment related to lease liability		-			11,509
Net Proceeds from the issuance of long-term debt		57,190			7,600
Debt issuance costs		-			(102	)
Principal payments on long-term debt		(44,900	)		(10,958	)
Net cash provided by financing activities		12,290			8,049
Net increase in cash and cash equivalents		7,262			3,228
Cash and cash equivalents, beginning of period		12,172			2,690
Cash and cash equivalents, end of period	$	19,434		$	5,918

See accompanying notes to the condensed consolidated financial statements.

4

Cadiz Inc.

Condensed Consolidated Statements of Stockholders' Deficit (Unaudited)

($ in thousands, except share data)					Additional					Total
	Common Stock				Paid-in		Accumulated			Stockholders'
	Shares		Amount		Capital		Deficit			Deficit
Balance as of December 31, 2016		21,768,864	$	218	$	355,336	$	(409,871	)	$	(54,317	)
Issuance of shares to lenders		29,706		-		433		-			433
Issuance of shares pursuant to bond conversion		285,480		3		1,991		-			1,994
Stock-based compensation expense		399,072		4		2,016		-			2,020
Net loss and comprehensive loss		-		-		-		(20,797	)		(20,797	)
Balance as of June 30, 2017		22,483,122	$	225	$	359,776	$	(430,668	)	$	(70,667	)

See accompanying notes to the condensed consolidated financial statements.

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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, 2016.

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, 2017 are not necessarily indicative of results for the entire fiscal year ending December 31, 2017.

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 $20.8 million for the six months ended June 30, 2017, and $14.4 million for the six months ended June 30, 2016.  The Company had working capital of $12.2 million at June 30, 2017, and used cash in its operations of $4.9 million for the six months ended June 30, 2017.

Cash requirements during the six months ended June 30, 2017 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.

On May 25, 2017, the Company entered into a new $60 million credit agreement with funds affiliated with Apollo Global Management, LLC ("Apollo") that replaced and refinanced the Company's 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 ("New Senior Secured Debt").

The Company's New 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 New 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, 2017, the Company was in compliance with its debt covenants.

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The Company's cash resources, provide the Company with sufficient funds to meet its working capital needs for a period beyond one year from this quarterly report issuance date.  The Company may meet working capital requirements beyond this period through a variety of means, including construction financing, equity or debt placements, through the sale or other disposition of assets or reductions in operating costs.  Equity placements may be made using our existing shelf registration.  Equity placements, if made, would be undertaken only to the extent necessary, so as to minimize the dilutive effect of any such placements upon the Company's existing stockholders.

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 Prior Senior Secured Debt, the Company was required to pay 50% of all quarterly interest payments in cash or stock on the Prior Senior Secured Debt, rather than in accretion to principal.  Under the terms of the New Senior Secured  Debt the Company is required to pay 25% of all future quarterly payments in cash.  No other payments are due on the corporate secured debt or convertible notes prior to their maturities. During the six months ended June 30, 2017, approximately $433 thousand in interest payments on the corporate secured debt was paid in stock.  As result, 29,706 shares of common stock were issued to the lenders.

In connection with the New Senior Secured Debt, the Company issued warrants to purchase an aggregate of 357,500 shares of its common stock.  The Company recorded a debt discount at the time of the closing of the New Senior Secured Debt in the amount of $2.9 million which was the fair value of the 357,500 warrants issued.  The fair value of the warrants will be remeasured each reporting period, and the change in warrant value will be recorded as an adjustment to the derivative liability.

During the six months ended June 30, 2017, approximately $2.05 million in convertible notes were converted by certain of the Company's lenders.  As a result, 285,480 shares of common stock were issued to the lenders.

Recent Accounting Pronouncements

Accounting Guidance Not Yet Adopted

In May 2014, the FASB issued an accounting standards update on revenue recognition including enhanced disclosures.  Under the new standard, revenue is recognized when (or as) a good or service is transferred to the customer and the customer obtains control of the good or service.  On July 9, 2015, the FASB approved a one-year deferral, updating the effective date to January 1, 2018.  The Company is currently evaluating this new guidance, and expects this new standard will not have a material impact on the consolidated financial statements.

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In February 2016, the FASB issued an accounting standards update related to lease accounting including enhanced disclosures.  Under the new standard, a lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified assets for a period of time in exchange for consideration.  Lessees will classify leases with a term of more than one year as either operating or finance leases and will need to recognize a right-of-use asset and a lease liability.  The liability will be equal to the present value of lease payments.  The asset will be based on the liability, subject to adjustment, such as for initial direct costs. Operating leases will result in straight-line expense while finance leases will result in a front-loaded expense pattern.  This guidance is effective January 1, 2019, but early adoption is permitted. The Company is currently evaluating this new guidance and cannot determine the impact of this standard at this time.

In August 2016, the FASB issued an accounting standards update which eliminates the diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows, by adding or clarifying guidance on eight specific cash flow issues.  This guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, but early adoption is permitted.  The Company is currently evaluating this new guidance and cannot determine the impact of this standard at this time.

In January 2017, the FASB issued an accounting standards update which eliminates Step 2 from the goodwill impairment test. Entities should perform their goodwill impairment tests by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. The amendments in this update are effective prospectively during interim and annual periods beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating this new guidance and cannot determine the impact of this standard at this time.

In January 2017, the FASB issued an accounting standards update which clarifies the definition of a business and provides guidance on evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.  This guidance is effective for annual periods beginning after December 15, 2017, and interim periods within those periods, with early adoption permitted.  The Company is currently evaluating this new guidance and cannot determine the impact of this standard at this time.

In May 2017, the FASB issued an accounting standards update which clarifies which changes to terms or conditions of a share-based payment award require an entity to apply modification accounting, in accordance with Topic 218.  An entity should account for the effect of a modification unless all of the following are met:

1.	The fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified. If the modification does not affect any of the inputs of the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification.
2.	The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified.
3.	The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified.

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This guidance effective for annual periods beginning after December 15, 2017, and interim periods within those periods with early adoption permitted.  The Company is currently evaluating this new guidance and cannot determine the impact of this standard at this time.

Accounting Guidance Adopted

In March 2016, the FASB issued an accounting standards update to simplify the accounting for share-based payments.  Under this new guidance, the tax effects related to share based payments are recorded through the income statement.  Previously, tax benefits in excess of compensation cost ("windfalls") are recorded in equity, and tax deficiencies ("shortfalls") are recorded in equity to the extent of previous windfalls, and then to the income statement.  This guidance is effective January 1, 2017, but early adoption is permitted.  The new standard also revised reporting on the statement of cash flows.  The Company adopted this guidance on January 1, 2017, and the new standard did not have a material impact on the Company's condensed consolidated financial statements.

NOTE 2 – LONG-TERM DEBT

The carrying value of the Company's debt approximates fair value.  The fair value of the Company's 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.

On May 25, 2017 ("Closing Date"), 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 the Company's 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 ("New Senior Secured Debt").  The New Senior Secured Debt will mature on the earliest of (a) the four year anniversary of the Closing Date, and (b) the "Springing Maturity Date", which is defined as the date which is 91 days prior to the maturity date of the 7.00% Convertible Senior Notes of Cadiz due 2020 (the "New Convertible Notes") that were issued in December 2015 and April 2016 pursuant to the New Convertible Notes Indenture as defined in the Credit Agreement, if on the 91^st day preceding the maturity date of the New Convertible Notes, the 5-Day VWAP, as defined in the Credit Agreement, is less than 120% of the then applicable Conversion Rate, as defined in the New Convertible Notes Indenture, and at least $10,000,000 in original principal amount of the New Convertible Notes is outstanding ((a) or (b), as applicable, the "Maturity Date").

The proceeds from the Credit Agreement were used to repay the Prior Senior Secured Debt resulting in a loss on extinguishment of $3.5 million which consisted of the write-off of unamortized debt discount, unamortized debt issuance costs and fees paid to the former lenders.  In addition, the Company incurred $1.5 million in legal and finders fees which was recorded as additional debt discount and is being amortized through December 2019, which is the Springing Maturity Date as discussed above.  In connection with the repayment, the Company entered into a Payoff Agreement on May 24, 2017.  The Payoff Agreement provides for mediation and arbitration, if necessary, to determine if 357,500 penny warrants issued to the prior lenders became exercisable on May 28, 2017.  The warrants to the prior lenders are account for as a derivative liability with unrealized gains and losses reflected in interest expense.

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Interest on the New Senior Secured Debt is due quarterly on each March 31, June 30, September 30 and December 31 (each an "Interest Date") beginning on June 30, 2017.  Interest on the New Senior Secured Debt will (i) accrete to the outstanding principal amount at a rate per annum equal to 6% (the "PIK Rate") compounded quarterly on each Interest Date and (ii) accrue on the outstanding principal amount a rate per annum equal to 2% (the "Cash Rate"). The Company, in its discretion, may make any quarterly interest payment in cash on the applicable Interest Date at the PIK Rate, in lieu of accretion of such interest to the principal amount at the PIK Rate.

The Accreted Loan Value plus the Applicable Prepayment Premium will be due and payable on the Maturity Date. "Accreted Loan Value" means, as of the date of determination, the outstanding principal amount of the applicable Loan, plus all accreted interest as of the calendar day immediately prior to such date of determination. "Applicable Prepayment Premium" means with respect to any repayment of the New Senior Secured Debt (a) the Accreted Loan Value of the New Senior Secured Debt being prepaid or repaid, as applicable, multiplied by (b) 3.00%.

The Company may prepay the New Senior Secured Debt, in whole or in part, for an amount equal to the Accreted Loan Value plus the Applicable Prepayment Premium; provided that if the Springing Maturity Date has not occurred, the Company may not prepay the New Senior Secured Debt, without the prior written consent of the holders of more than 50% of the aggregate unpaid principal amount of the New Senior Secured Debt, during the period commencing on the date that is 91 days prior to the maturity date of the New Convertible Notes and ending on the maturity date of the New Convertible Notes.

The Company paid Apollo an upfront fee of 2.00% of the aggregate principal amount of the New Senior Secured Debt funded on the Closing Date.  This amount was recorded as additional debt discount and is being amortized over the remaining term of the loan.

In conjunction with the closing of the New Senior Secured Debt, the Company issued to Apollo warrants to purchase an aggregate 357,500 shares of its common stock.  The Company recorded a debt discount at the time of the closing of the New Senior Secured Debt in the amount of $2.9 million which is the fair value of the 357,500 warrants issued.  Such debt discount being amortized through December 2019, which is the Springing Maturity Date as discussed above.  The fair value of the warrants will be remeasured each reporting period, and the change in warrant value will be recorded as interest expense.  The warrant has a five year term and an exercise price of $14.94 per share, subject to adjustment.

Total unrealized losses of $4.0 million for warrant liabilities accounted for as derivatives have been recorded as interest expense in both the three and six-month periods ended June 30, 2017.

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    The Company's New 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 New 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, 2017, the Company was in compliance with its debt covenants.

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 canceled.  Following registration of the 2014 Plan on Form S-8, the Company entered into revised employment agreements with certain senior management that provide for the issuance of up to 162,500 Restricted Stock Units ("RSU's") during the period July 1, 2014 through December 31, 2016 and the issuance of up to 200,000 RSU's in connection with obtaining construction financing for the Water Project ("Milestone RSUs").  The Milestone RSUs vested in June 2017, and the Company recorded stock compensation of $1.7 million during the six months ended June 30, 2017, to reflect the issuance of these shares.

Under the 2014 Equity Incentive Plan, each outside director receives $30,000 of cash compensation and receives a deferred stock award consisting of shares of the Company's common stock with a value equal to $20,000 on June 30 of each year.  The award accrues on a quarterly basis, with $7,500 of cash compensation and $5,000 of stock earned for each fiscal quarter in which a director serves.  The deferred stock award vests automatically on January 31 in the year following 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 507,500 shares were unexercised and outstanding on June 30, 2017, under the two equity incentive plans.

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The Company recognized no stock option related compensation costs in each of the six months ended June 30, 2017 and 2016.  Additionally, no options were exercised during the six months ended June 30, 2017.

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 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 canceled.

Under the 2014 Equity Incentive Plan, 594,073 shares have been awarded to the Company directors, consultants and employees as of June 30, 2017.  Of the 594,073 shares awarded, 8,694 shares were awarded to the Company's directors for services performed during the plan year ended June 30, 2017.  These shares will vest and be issued on January 31, 2018.

The Company recognized stock-based compensation costs of $1,921,000 and $759,000 for the six months ended June 30, 2017 and 2016, respectively.

NOTE 4 – INCOME TAXES

As of June 30, 2017, the Company had net operating loss ("NOL") carryforwards of approximately $262 million for federal income tax purposes and $151 million for California state income tax purposes.  Such carryforwards expire in varying amounts through the year 2037.  Use of the carryforward amounts is subject to an annual limitation as a result of ownership changes.

As of June 30, 2017, the Company had unrecognized tax benefits totaling approximately $2.8 million.  None of these, if recognized, would affect the Company's effective tax rate because the Company has recorded a full valuation allowance against its net deferred tax assets.

The Company's tax years 2013 through 2016 remain subject to examination by the Internal Revenue Service, and tax years 2012 through 2016 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 sheets.

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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 10,777,000 and 10,299,000 for the three months ended June 30, 2017 and 2016, respectively; and 10,736,000 and 10,218,000 for the six months ended June 30, 2017 and 2016, respectively.

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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, 2016.

Overview

We are a land and water resource development company with 45,000 acres of land in three areas of eastern San Bernardino County, California.  Virtually all of this land is underlain by high-quality, naturally recharging groundwater resources, and is situated in proximity to the 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 and storage projects at our properties. Therefore, the Company has been 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-feet¹ of native groundwater currently being lost to evaporation from the aquifer system beneath our 34,000-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.

The primary factor driving the value of such projects is ongoing pressure on California's traditional water supplies and the resulting demand for new, reliable supply solutions that can meet both immediate and long-term water needs.  Available supply is constrained by environmental and 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 have been below capacity over the last several years, 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.

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Availability of supplies in California also differs greatly from year to year due to natural hydrological variability.  Over the last several years, California has struggled through an historic drought featuring record-low winter precipitation and reservoir storage levels.  However, as a result of a series of strong storms through the 2016-2017 winter, California received record amounts of rain and snow, ending the State's multi-year drought.  The rapid swing from drought to an extremely wet year challenged California's traditional infrastructure system, and deliveries into Southern California from the State Water Project, CRA, and Los Angeles Aqueduct, although larger than in the last several drought years, have remained below capacity.

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 has permits allowing 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. 

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 the primary source of our future cash flow, we also believe there is significant additional value in our underlying agricultural assets.  Demand for agricultural land with water rights is at an all-time high; therefore, 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 and have found the site is well suited for various permanent and seasonal crops. Presently, the property has 2,100 acres leased for cultivation of a variety of crops, including citrus, dried-on-the-vine raisins and seasonal vegetables.

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.

Water Resource Development

The Water Project is designed to capture and conserve billions of gallons of renewable native groundwater currently being lost annually 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.  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 the ability to carry-over their annual supply and store it in the groundwater basin from year to year.  A second phase of the Water Project, Phase II, will offer up to one million acre-feet of storage capacity that can be used to hold imported water supplies at the project area.

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

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

· A water conveyance pipeline to deliver water from the well-field to the CRA for further delivery to Project participants; and

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

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 Cadiz to Barstow, CA; 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 has been fully reviewed and permitted in accordance with the California Environmental Quality Act (CEQA). In May 2016, all 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 provide an average of 50,000 acre-feet of water for 50 years to meet municipal and industrial (M&I) water needs in Southern California.  Prior to construction, the Water Project must (1) complete efforts to secure its pipeline right-of-way, (2) finalize contracts with Project participating agencies and secure transportation arrangements to deliver water into each participant's service area, and (3) secure and finalize private construction financing. Below is a discussion of present activities to advance these objectives.

(1)  Water Conveyance Pipeline Right-of-Way

Pipeline from Cadiz to CRA

In September 2008, we secured a 99-year lease agreement with the Arizona & California Railroad Company ("ARZC") to construct and operate the Water Project's water conveyance pipeline and related railroad improvements within a portion of the ARZC's active railroad right-of-way from Cadiz to Freda, California.  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 ARZC right-of-way was originally granted by the U.S. Congress in accordance with the General Railroad Right-of-Way Act of March 3, 1875 ("1875 Act") and, in some locations, crosses federal public lands managed by the U.S. Bureau of Land Management ("BLM").

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Our lease agreement with the ARZC expressly requires that the Project further several railroad purposes and, under the terms of the lease agreement, the ARZC reserved water supplies from the Project for its operational needs as well as access to Project facilities for the benefit of its railroad operation.  In September 2013, we also entered into a trackage rights agreement with the ARZC that would enable the operation of steam-powered, passenger excursion trains on the line powered by water made available from the pipeline.

The following benefits to the railroad, enabled by the conveyance pipeline, will be provided to the ARZC in fulfillment of our lease obligations:

· A new access road along the entire pipeline route to enable maintenance and emergency access, and to shorten routes for crew-changes,

· Remotely operated fire-suppression systems at each of the existing creosote-treated wooden trestles,

· Inline power generation for crossing operations and lighting, heating and cooling for existing railroad transloading operations,

· Fiber optic information transmission to convey track-speed and cameras for emergency situations, and to discourage vandalism; and

· Water distribution for the operation of a steam powered locomotive, fire-suppression and other miscellaneous uses.  

There is presently no power source, fire suppression or fiber optic capability otherwise available to the ARZC without the pipeline in this remote location.

Our plan to construct the Project pipeline within the ARZC right-of-way is similar to, and modeled after, thousands of other existing longitudinal uses of rail corridors across the United States today, such as telecommunications lines, natural gas and petroleum product lines and other water lines.  Since the granting of these rights-of-way by the Congress, railroads have leased their property for third party uses without additional permitting of the federal government in accordance with federal policy encouraging the co-location of infrastructure in existing corridors and consistent with the 1875 Act.

In 2009, as we began to survey the permitting required to construct and operate the Project, the federal government stated that no federal environmental review of the proposed pipeline route was required under the National Environmental Policy Act ("NEPA"), because the proposed use was within the scope of the ARZC right-of-way.

In 2011, the Solicitor of the Department of the Interior issued a Memorandum Opinion ("M-37075") that constrained the scope of 1875 Act rights-of-way but opined that such rights-of-way could be used for commercial purposes such as longitudinal utility infrastructure without additional federal permitting so long as the use also furthers a railroad purpose at least in part. As described above, our lease agreement with the ARZC expressly requires the Project facilities to provide a number of benefits to the ARZC in furtherance of railroad purposes.

Subsequently, the ARZC right-of-way route for the pipeline was fully analyzed in the Water Project's Final Environmental Impact Report ("EIR") as part of the CEQA environmental review process completed in 2012.  As an existing, disturbed transportation corridor, the route, which avoids sensitive habitats, was found to be the environmentally preferred route for the pipeline.

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However, in 2012, the BLM sent a letter to the ARZC indicating that it required additional information about the railroad purposes that would be furthered by the Project. In its letter, the BLM indicated that absent this information the BLM would consider the pipeline to be trespassing on federal lands and could challenge its construction in federal court. Subsequently, from 2012 – 2015, the Company, the ARZC and other Water Project participants had numerous meetings with the BLM and provided evidence regarding the pipeline's related railroad purposes.  During this time, the BLM also issued policy memoranda to its field offices, specifically Instruction Memorandum No. 2014-122 and Instruction Memorandum No. 2012-038 ("IMs"), which together established a framework for evaluation of third party use of 1875 Act railroad rights-of-way over federal lands. The policies established in these IMs set new criteria requiring that every existing and proposed third party use of a railroad right-of-way over federal lands in the U.S. be evaluated by a BLM field office to determine whether the use was within the permissible scope of the right of way or required additional and separate permitting. In 2014, the BLM estimated that thousands of miles of railroad corridors and more than 3,500 existing uses could be subject to new evaluation by the BLM in accordance with the IMs.

On October 2, 2015, the Director of the California Office of the BLM signed a letter that would later be sent to the ARZC and the Company taking the position that the Project pipeline is outside the scope of the ARZC right-of-way, concluding in summary that a water pipeline would not primarily further a railroad purpose or originate from a railroad purpose, and would therefore require a new federal right-of-way permit prior to construction.  We believe BLM California's October 2015 guidance evaluation of the Project pipeline ("2015 BLM Evaluation") disregarded federal law and policy and also strayed from the framework provided for in M-37075 as referenced above. The 2015 BLM Evaluation was the subject of bi-partisan congressional attention and concern. In March 2017, a bipartisan group of congressional representatives from several Western States sent a letter to the Secretary of the Department of the Interior to request that the agency (1) rescind the previous administration's IMs, (2) withdraw the 2015 BLM Evaluation and (3) issue a finding that the Project is consistent with the scope of the original ARZC right-of-way grant.

On March 29, 2017, the BLM rescinded the IMs and transferred the consideration of third party use of railroad rights-of-way over federal lands from its field offices to the Washington D.C. office.  On June 30, 2017, M-37075 was also temporarily suspended pending an evaluation of judicial precedent.

In July 2017, the Company, joined by Santa Margarita Water District and the ARZC, made a formal request to the BLM that the agency withdraw the 2015 BLM Evaluation and issue a finding that the Project is consistent with the scope of the original ARZC right-of-way grant. The BLM has not yet responded to this request.

Northern Pipeline

We currently own a 96-mile existing idle natural gas pipeline that extends from the Cadiz/Fenner Property to Barstow, California and we intend to convert this pipeline to allow for the transportation of water. The Barstow area serves as a hub for water delivered from northern and central California to communities in Southern California's High Desert.  In addition, the Company holds an option to purchase a further 124-mile segment of this pipeline from Barstow to Wheeler Ridge, California for $20 million.  This option expires in December 2018.

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Initial feasibility studies indicated that, upon conversion, the 30-inch line could transport between 20,000 and 30,000 acre-feet of water per year between the Water Project area and various points along the Central and Northern California water transportation network. As a result, this line could create significant opportunities for our water resource development efforts.

If this pipeline were to become operational, then the Water Project would link two major water delivery systems in California, 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.  It could also be used to import water to the Project area and provide additional groundwater storage for the region's water providers. Such use is currently being contemplated as part of Phase II of the Water Project.

The 96-mile pipeline segment was evaluated in the Water Project's EIR during the CEQA process.  Any use of the pipeline would be conducted in conformity with the Project's GMMMP and is subject to further CEQA evaluation and potentially federal environmental permitting.

The Northern Pipeline also represents new opportunities for the Company independent of the Water Project to offer water transportation to locations along the pipeline route that are not presently interconnected by existing water infrastructure.  The entire 220-mile 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.

(2) Agreements with Public Water Agencies or Private WaterUtilities & Conveyance Arrangements

The Company has executed Letters of Intent, option agreements and purchase agreements (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.

Santa Margarita Water District ("SMWD") 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 right to acquire an annual supply of 5,000 acre-feet of water at a $775 per acre-foot (2010 dollars, subject to adjustment), which is competitive with the incremental cost of new water.  In addition, these agencies have 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.

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Letters of Intent ("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 and we are working collaboratively with the participating water agencies to account for any oversubscription in the final definitive Purchase and Sale Agreements we enter into with these agencies.

In addition, prior to construction of the Water Project, 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 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.  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.  We expect arrangements would be recommended by Metropolitan staff and considered by its Board following BLM's clarification of the scope of the ARZC ROW related to the Water Project's conveyance pipeline, discussed above.  Once arrangements are reached, Metropolitan 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.

(3) Construction Financing

As described above, construction of Phase I of the Water Project would primarily consist of wellfield facilities at the Project site, a conveyance pipeline, and an energy source to pump water through the conveyance pipeline between the Project well-field and the CRA.  The construction of these facilities, which we expect would cost approximately $250 million, will require capital financing that we expect will be secured by the proceeds of our definitive Purchase and Sale Agreements and the new facility assets.   On May 25, 2017, the Company closed a strategic transaction with funds affiliated with Apollo Global Management, LLC ("Apollo"), a leading global alternative investment manager with approximately $197 billion of assets under management, to initiate financial arrangements for the construction of Phase I.  In furtherance of the strategic transaction, funds managed by affiliates of Apollo and the Company executed a series of agreements that replaced and refinanced our then existing $45 million senior secured debt, provided $15 million of new senior debt to fund immediate construction related expenditures, and conditionally committed up to $240 million for Phase I construction finance expenditures. The conditional commitment for up to $240 million is intended to provide the additional resources necessary to complete the construction of Phase I of the Water Project.   However, Cadiz is not obligated to accept such financing from Apollo, and Apollo's commitment is conditional (see "Liquidity and Capital Resources", below).

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Agricultural Development

Within the Cadiz/Fenner Property, all of the existing 34,000 acres are currently zoned for agriculture.  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 the Company a one-time payment of $12,000,000 in February 2016. The acreage that was historically farmed by the Company and the acreage that is leased to a third party to develop lemons was included within the leased acreage.  Following entry into this lease, the Company is no longer directly involved in the current agricultural operations at the site and all agricultural revenue is derived pursuant to the FVF Lease.

As part of the agricultural development to be conducted under the lease arrangements, the groundwater production capacity of the property's existing well-field is expected to be enhanced through infrastructure improvements that are complementary to the Water Project.  While any additional well-field development for agricultural use would be financed by our agricultural partners as provided under our agricultural lease arrangements, the Company retained a call feature that allows us, at any time in the initial 20 years, to acquire the well-field and integrate any new agricultural well-field infrastructure developed into the Water Project's facilities.

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 properties are located in or adjacent to 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).

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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 10,000 acres of our properties outside of the Cadiz/Fenner Valley area 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 approximately 7,500 acres of our properties located within Critical Desert Tortoise Habitat for mitigation of impacts to tortoise and other sensitive species that would be caused by development in 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 mitigation requirements for 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.

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, 2017, Compared to Three Months Ended June, 2016

We have not received significant revenues from our water resource and real estate development activity to date.  Our revenues have been limited to our agricultural operations.  As a result, we have historically incurred a net loss from operations.  We had revenues of $108 thousand for each of the three months ended June 30, 2017 and 2016.  We incurred a net loss of $13.6 million in the three months ended June 30, 2017, compared with a $5.6 million net loss during the three months ended June 30, 2016.  The higher net loss during the quarter ended June 30, 2017 was primarily due to a $3.5 million loss on extinguishment of debt and a recorded liability of $4.6 million related to other closing costs associated with the New Senior Secured Debt financing. 

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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 $108 thousand during each of the three months ended June 30, 2017 and 2016.

General and Administrative ExpensesGeneral and Administrative Expenses, exclusive of stock-based compensation costs, totaled $2.0 million for each of the three months ended June 30, 2017 and 2016. 

Compensation costs from stock and option awards for the three months ended June 30, 2017, were $105 thousand, compared with $593 thousand for the three months ended June 30, 2016.  The higher 2016 expense primarily reflects the vesting schedules of stock awards under the 2014 Equity Incentive Plan.

DepreciationDepreciation expense totaled $72 thousand during the three months ended June 30, 2017, compared to $73 thousand during the three months ended June 30, 2016.

Interest Expense, net  Net interest expense totaled $8.0 million during the three months ended June 30, 2017 compared to $3.0 million during the same period in 2016.  The following table summarizes the components of net interest expense for the two periods (in thousands):

	Three Months Ended
	June 30,
	2017			2016
Interest on outstanding debt		$	2,840	$	2,413
Unrealized gains/losses on warrants, net			3,983		-
Amortization of debt discount			1,091		562
Amortization of deferred loan costs			49		63
		$	7,963	$	3,038

See Note 2 to the Consolidated Financial Statements – "Long-Term Debt".

Income Taxes  Income tax expense was $1 thousand for each of the three months ended June 30, 2017 and 2016.  See Note 4 to the Consolidated Financial Statements – "Income Taxes".

Six Months Ended June 30, 2017, Compared to Six Months Ended June 30, 2016

We had revenues of $216 thousand for the six months ended June 30, 2017, compared with $183 thousand in revenues during the six months ended June 30, 2016.  We incurred a net loss of $20.8 million in the six months ended June 30, 2017, compared with a $14.4 million net loss during the six months ended June 30, 2016.  The higher year to date net loss in 2017 was primarily due to a $3.5 million loss on extinguishment of debt and a recorded liability of $4.6 million related to the New Senior Secured Debt financing.  The higher 2017 loss was also related to approximately $1.7 million in stock compensation related to the vesting of milestone shares earned by employees.

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Revenues  We had revenues of $216 thousand during the six months ended June 30, 2017, and $183 thousand during the six months ended June 30, 2016.  The increase in revenue in 2017 is primarily due to an increase in rental income related to the FVF Lease (see "Agricultural Development", above).

General and Administrative ExpensesGeneral and administrative expenses, exclusive of stock-based compensation costs, totaled $4.4 million for the six months ended June 30, 2017, compared with $4.2 million during the six months ended June 30, 2016. 

Compensation costs from stock and option awards for the six months ended June 30, 2017, totaled $1.9 million compared with $759 thousand for the six months ended June 30, 2016.  The higher 2017 expense primarily reflects the vesting of milestone shares earned by employees.

DepreciationDepreciation expense totaled $143 thousand for the six months ended June 30, 2017, and $146 thousand for the six months ended June 30, 2016.

Interest Expense, net  Net interest expense totaled $11.1 million during the six months ended June 30, 2017, compared to $7.2 million during the same period in 2016.  The following table summarizes the components of net interest expense for the two periods (in thousands):

	Six Months Ended
	June 30,
	2017			2016
Interest on outstanding debt		$	5,211	$	4,655
Unrealized gains/losses on warrants, net			3,983		-
Amortization of debt discount			1,783		2,454
Amortization of financing costs			99		120
		$	11,076	$	7,229

See Note 2 to the Consolidated Financial Statements, "Long-Term Debt".

Income Taxes  Income tax expense was $2 thousand for each of the six months ended June 30, 2017 and 2016.  See Note 4 to the 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, private equity placements and the exercise of outstanding stock options and warrants.  We have also worked with our secured lenders to structure our debt in a way which allows us to continue development of the Water Project and minimize the dilution of the ownership interests of common stockholders.

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On May 25, 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 ("Prior Senior Secured Debt") and provided $15 million of new senior debt to fund immediate construction related expenditures ("New Senior Secured Debt").  Additionally, funds affiliated with Apollo also executed a conditional commitment letter to fund up to $240 million in construction finance expenditures for the Cadiz Water Project, subject to the satisfaction of conditions precedent.  It is intended to provide the additional resources necessary to complete the construction of Phase I of the Water Project.  Apollo's commitment for up to $240 million is conditional and Cadiz is not obligated to accept such financing from Apollo.

The New Senior Secured Debt and the convertible 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 New 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, 2017, 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.  We currently expect our cash on hand to be sufficient to meet our working capital need for a period beyond one year from this quarterly report issuance date.  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.  Equity placements, if made, would be undertaken only to the extent necessary, so as to minimize the dilutive effect of any such placements upon our existing stockholders.

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, 2017, we had no outstanding credit facilities other than the New Senior Secured Debt and the convertible notes.

Cash Used in Operating Activities.  Cash used in operating activities totaled $4.9 million and $4.8 million for the six months ended June 30, 2017 and 2016, respectively.  The cash was primarily used to fund general and administrative expenses related to our water development efforts and litigation costs for the six month periods ended June 30, 2017 and 2016.  During the six months ended June 30, 2017, a previously recorded liability of $3 million related to a legal cash settlement was eliminated upon payment by our insurance carrier.  Additionally, a $4.6 liability was recorded during the six months ended June 30, 2017 related to the New Senior Secured Debt financing.

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Cash Used in Investing Activities.  Cash used in investing activities totaled $161 thousand for the six months ended June, 2017, and zero for the six months ended June 30 2016.

Cash Provided By Financing Activities.  Cash provided by financing activities for the six months ended June 30, 2017 was $12.3 million compared to $8.0 million in cash provided by financing activities during the six months ended June 30, 2016.  The 2017 results include $12.3 million of net proceeds from the issuance of long term debt.  The 2016 results include proceeds of approximately $11.5 million related to the FVF Lease (see Agricultural Development, above) and $7.6 million in net proceeds related to convertible note financing offset by $100 thousand in recorded debt issuance costs and a principal payment on senior secured debt of approximately $11.0 million.

Outlook

Short-Term Outlook.  Our cash resources provide us sufficient funds to meet any of our short term working capital needs.  Should 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".  No assurances can be given, however, as to the availability or terms of any new financing.

Long-Term Outlook. In the longer term, we may need to raise additional capital to finance working capital needs, capital expenditures and any payments due under our Senior Secured Debt or our convertible notes at maturity (see "Current Financing Arrangements", above).  Our future working capital needs will depend upon the specific measures we pursue in the entitlement and development of our water 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 construction financing to be provided by the Apollo conditional commitment letter described above, 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.  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".

26

ITEM 3.  Quantitative and Qualitative Disclosures about Market Risk

As of June 30, 2017, all of the Company's indebtedness bore interest at fixed rates; therefore, the Company is not exposed to market risk from changes in interest rates on long-term debt obligations.

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, 2017, 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.

27

PART II - OTHER INFORMATION

ITEM 1.     Legal Proceedings

Not applicable.

ITEM 1A.     Risk Factors

Our Conditional Commitment From Apollo Remain Subject to Closing Conditions

As previously reported by the Company on Form 8-K filed on May 2, 2017, on May 1, 2017, funds affiliated with Apollo Global Management, LLC ("Apollo") executed a conditional commitment letter to fund up to $240 million in construction finance expenditures for the Cadiz Water Project, subject to the satisfaction of conditions precedent.  The conditional commitment is intended to provide additional resources necessary to complete the construction of Phase I of the Water Project.  Apollo's commitment for up to $240 million is conditional and subject to a number of conditions, many of which are not within the Company's control, and the Company is not obligated to accept such financing from Apollo.  If the $240 million commitment does not close, the Company will need to seek financing from other sources.

The Development of Our Properties Is Heavily Regulated, Requires Governmental Approvals and Permits That Could Be Denied, and May Have Competing Governmental Interests and Objectives

In developing our land assets and related water resources, we are subject to local, state, and federal statutes, ordinances, rules and regulations concerning zoning, resource protection, environmental impacts, infrastructure design, subdivision of land, construction and similar matters.  Our development activities are subject to the risk of adverse interpretations or changes to U.S. federal, state and local laws, regulations and policies.  Further, our development activities require governmental approvals and permits.  If such permits were to be denied or granted subject to unfavorable conditions or restrictions, our ability to successfully implement our development programs would be adversely impacted.  

In this regard, federal government regulations currently require the U.S. Department of the Interior (the "DOI"), Bureau of Land Management ("BLM") Washington Office to evaluate the Company's use of railroad rights-of-way over federal lands for the Company's planned water conveyance pipeline from the Project to the CRA.  In October 2015, the Director of the BLM's California State Office notified the Company and the ARZC that, in spite of the railroad purposes shown by the Company to be furthered by the Project pipeline, he had determined that the Project's pipeline is outside the scope of the ARZC right-of-way because the benefits derive from a pipeline that is not an original railroad purpose (the 2015 BLM Evaluation").  Several Members of Congress raised concerns about the 2015 BLM Evaluation and, during the first half of 2017, the BLM and the DOI rescinded the underlying policies that led to the 2015 BLM Evaluation.  In July 2017, the Company requested confirmation from the BLM that the 2015 BLM Evaluation is now invalid and that the Project's proposed pipeline and related facilities are within the scope of the ARZC right-of-way. BLM is not required to respond to the Company's request within a certain time period and we do not at this time know when we may receive a response, or what the response will be.

28

In addition, prior to construction of the Water Project, terms for moving water supplies in the CRA must be negotiated with Metropolitan, which owns and controls the CRA.  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.  The Metropolitan Board must consider and approve the terms and conditions of the Water Project's use of the CRA to transport water to its participating agencies.  We expect such arrangements to be considered by the Metropolitan Board following resolution of BLM discussions related to the conveyance pipeline, discussed above.  In July 2017, the California State Senate Committee on Natural Resources and Water passed Assembly Bill 1000 ("AB 1000"), which would add new permitting requirements for the conveyance of water from the Cadiz area within California's conveyance facilities, including the CRA.  AB 1000 must still be considered by the California Senate Committee on Appropriations, the full California State Senate, as well as the California State Assembly and the California Governor's office prior to becoming law.  We cannot be certain whether AB 1000 will be adopted and, if so, to what extent 1000 may affect the permitting requirements for the Project.

Finally, the statutes, regulations and ordinances governing the approval processes provide third parties the opportunity to challenge proposed plans and approvals.  Opposition from third parties will cause delays and increase the costs of our development efforts or preclude such development entirely.  While we have worked with representatives of various environmental and third party interests and agencies to minimize and mitigate the impacts of our planned projects, certain groups may remain opposed to our development plans and pursue legal action. 

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.

29

ITEM 6.     Exhibits

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

4.1 Warrant issued to Apollo Special Situations Fund, L.P. ⁽¹⁾

10.1 Amended and Restated Payoff Agreement and Stipulation dated as of May 24, 2017, by Cadiz Inc., a Delaware corporation, Cadiz Real Estate LLC, a Delaware limited liability company, MSD Credit Opportunity Master Fund, L.P., Milfam II L.P., WPI-Cadiz Farm CA, LLC and Wells Fargo Bank, National Association, as administrative agent ⁽¹⁾

10.2 Security Agreement ⁽¹⁾

10.3 Deed of Trust, Assignment of Lease and Rents, Security Agreement, Financing Statement and Fixture Filing ⁽¹⁾

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 May 24, 2017 filed on May 26, 2017

30

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:	/s/ Scott S. Slater	August 9, 2017
	Scott S. Slater	Date
	Chief Executive Officer and President
	(Principal Executive Officer)
By:	/s/ Timothy J. Shaheen	August 9, 2017
	Timothy J. Shaheen	Date
	Chief Financial Officer and Secretary
	(Principal Financial Officer)

31

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Scott S. Slater, certify that:

     1.  I have reviewed this quarterly report on Form 10-Q of Cadiz Inc.;

     2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4.  The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant's internal control over financial reporting; and

     5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated: August 9, 2017

/s/ Scott S. Slater

Scott S. Slater

Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Timothy J. Shaheen, certify that:

     1.  I have reviewed this quarterly report on Form 10-Q of Cadiz Inc.;

     2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4.  The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant's internal control over financial reporting; and

     5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated:  August 9, 2017

/s/ Timoth J. Shaheen

Timothy J. Shaheen

Chief Financial Officer and Secretary

EX-32.1

                                                   EXHIBIT 32.1

STATEMENT PURSUANT TO SECTION 906 THE SARBANES-OXLEY ACT OF 2002

BY PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER

      I, Scott S. Slater, herby certify, to my knowledge, that:

      1. the accompanying Quarterly Report on Form 10-Q of Cadiz Inc. for the period ended June 30, 2017 (the "Report") fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities and Exchange Act of 1934, as amended; and

      2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Cadiz Inc.

      IN WITNESS WHEREOF, the undersigned has executed this Statement as of the date first written above.

Dated:  August 9, 2017

/s/ Scott S. Slater

Scott S. Slater

Chief Executive Officer

EX-32.2

                                                           EXHIBIT 32.2

STATEMENT PURSUANT TO SECTION 906 THE SARBANES-OXLEY ACT OF 2002

BY PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER

      I, Timothy J. Shaheen, herby certify, to my knowledge, that:

      1. the accompanying Quarterly Report on Form 10-Q of Cadiz Inc. for the period ended June 30, 2017 (the "Report") fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities and Exchange Act of 1934, as amended; and

      2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Cadiz Inc.

      IN WITNESS WHEREOF, the undersigned has executed this Statement as of the date first written above.

Dated:  August 9, 2017

/s/ Timothy J. Shaheen

Timothy J. Shaheen

Chief Financial Officer and Secretary

XML

Document And Entity Information - shares	6 Months Ended
	Jun. 30, 2017	Aug. 04, 2017
Document Information [Line Items]
Entity Registrant Name	CADIZ INC
Entity Central Index Key	0000727273
Trading Symbol	cdzi
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)		22,257,646
Document Type	10-Q
Document Period End Date	Jun. 30, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q2
Amendment Flag	false

XML

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Revenues	$ 108	$ 108	$ 216	$ 183
Costs and expenses:
General and administrative	2,141	2,641	6,291	4,996
Depreciation	72	73	143	146
Total costs and expenses	2,213	2,714	6,434	5,142
Operating loss	(2,105)	(2,606)	(6,218)	(4,959)
Interest expense, net	(7,963)	(3,038)	(11,076)	(7,229)
Loss on extinguishment of debt and debt refinancing	(3,501)		(3,501)	(2,250)
Loss before income taxes	(13,569)	(5,644)	(20,795)	(14,438)
Income tax expense (provision)	1	1	2	2
Net loss and comprehensive loss applicable to common stock	$ (13,570)	$ (5,645)	$ (20,797)	$ (14,440)
Basic and diluted net loss per common share (in dollars per share)	$ (0.60)	$ (0.31)	$ (0.93)	$ (0.81)
Basic and diluted weighted average shares outstanding (in shares)	22,451	17,949	22,275	17,923

XML

Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
ASSETS
Cash and cash equivalents	$ 19,434	$ 12,172
Accounts receivable	50	39
Prepaid expenses and other	516	3,391
Total current assets	20,000	15,602
Property, plant, equipment and water programs, net	44,659	44,182
Goodwill	3,813	3,813
Other assets	3,745	3,502
Total assets	72,217	67,099
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Accounts payable	642	439
Accrued liabilities	5,799	3,953
Current portion of long-term debt	1,398	170
Total current liabilities	7,839	4,562
Long-term debt, net	117,842	102,374
Long-term lease obligations, net	12,770	12,287
Deferred revenue	750	750
Other long-term liabilities	3,683	1,443
Total liabilities	142,884	121,416
Stockholders’ deficit:
Common stock - $.01 par value; 70,000,000 shares authorized; shares issued and outstanding – 22,483,122 at June 30, 2017 and 21,768,864 at December 31, 2016	225	218
Additional paid-in capital	359,776	355,336
Accumulated deficit	(430,668)	(409,871)
Total stockholders’ deficit	(70,667)	(54,317)
Total liabilities and stockholders’ deficit	$ 72,217	$ 67,099

XML

Condensed Consolidated Balance Sheets (Unaudited) (Parentheticals) - $ / shares	Jun. 30, 2017	Dec. 31, 2016
Common stock - par value (in dollars per share)	$ 0.01	$ 0.01
Common stock - shares authorized (in shares)	70,000,000	70,000,000
Common stock - shares issued (in shares)	22,483,122	21,768,864
Common stock - shares outstanding (in shares)	22,483,122	21,768,864

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Cash flows from operating activities:
Net loss	$ (20,797)	$ (14,440)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	143	146
Amortization of debt discount and issuance costs	1,835	2,574
Interest expense added to loan principal	4,534	4,188
Interest expense added to lease liability	471	330
Gain on debt conversion	55
Loss on early extinguishment of debt	3,501	2,250
Compensation charge for stock and share option awards	1,921	759
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable	(11)	129
Decrease (increase) in prepaid expenses and other	2,875	(22)
Increase in other assets	(243)	(357)
Increase (decrease) in accounts payable	40	(63)
Increase (decrease) in accrued liabilities	1,464	(315)
(Decrease) in other long-term liabilities	(655)
Net cash used in operating activities	(4,867)	(4,821)
Cash flows from investing activities:
Additions to property, plant and equipment	(161)
Net cash used in investing activities	(161)
Cash flows from financing activities:
Up-front payment related to lease liability		11,509
Net Proceeds from the issuance of long-term debt	57,190	7,600
Debt issuance costs		(102)
Principal payments on long-term debt	(44,900)	(10,958)
Net cash provided by financing activities	12,290	8,049
Net increase in cash and cash equivalents	7,262	3,228
Cash and cash equivalents, beginning of period	12,172	2,690
Cash and cash equivalents, end of period	$ 19,434	$ 5,918

XML

Condensed Consolidated Statement of Stockholders' Deficit (Unaudited) - 6 months ended Jun. 30, 2017 - USD ($) $ in Thousands	Shares Issued to Lenders [Member] Common Stock [Member]	Shares Issued to Lenders [Member] Additional Paid-in Capital [Member]	Shares Issued to Lenders [Member] Retained Earnings [Member]	Shares Issued to Lenders [Member]	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Total
Balance (in shares) at Dec. 31, 2016					21,768,864
Balance at Dec. 31, 2016					$ 218	$ 355,336	$ (409,871)	$ (54,317)
Issuance of shares to lenders (in shares)	29,706							29,706
Issuance of shares to lenders		$ 433		$ 433
Issuance of shares pursuant to bond conversion (in shares)					285,480			285,480
Issuance of shares pursuant to bond conversion					$ 3	1,991		$ 1,994
Stock-based compensation expense (in shares)					399,072
Stock-based compensation expense					$ 4	2,016		2,020
Net loss and comprehensive loss							(20,797)	(20,797)
Balance as of June 30, 2017 at Jun. 30, 2017					$ 225	$ 359,776	$ (430,668)	$ (70,667)
Balance as of June 30, 2017 (in shares) at Jun. 30, 2017					22,483,122

XML

Note 1 - Basis of Presentation

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Significant Accounting Policies [Text Block]

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, 2016.

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, 2017

are

not

necessarily indicative of results for the entire fiscal year ending

December 

31,

2017.

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

$20.8

million for the

six

months ended

June 30, 2017,

and

$14.4

million for the

six

months ended

June 30, 2016.

The Company had working capital of

$12.2

million at

June 30, 2017,

and used cash in its operations of

$4.9

million for the

six

months ended

June 30, 2017.

Cash requirements during the

six

months ended

June 30, 2017

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.

            On

May 25, 2017,

the Company entered into a new

$60

million credit agreement with funds affiliated with Apollo Global Management, LLC (“Apollo”) that replaced and refinanced the Company’s 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 (“New Senior Secured Debt”).

    The Company’s New 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 New 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, 2017,

the Company was in compliance with its debt covenants.

The Company’s cash resources, provide the Company with sufficient funds to meet its working capital needs for a period beyond

one

year from this quarterly report issuance date. The Company

may

meet working capital requirements beyond this period through a variety of means, including construction financing, equity or debt placements, through the sale or other disposition of assets or reductions in operating costs. Equity placements

may

be made using our existing shelf registration. Equity placements, if made, would be undertaken only to the extent necessary, so as to minimize the dilutive effect of any such placements upon the Company’s existing stockholders.

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 Prior Senior Secured Debt, the Company was required to pay

50%

of all quarterly interest payments in cash or stock on the Prior Senior Secured Debt, rather than in accretion to principal. Under the terms of the New Senior Secured Debt the Company is required to pay

25%

of all future quarterly payments in cash.

No

other payments are due on the corporate secured debt or convertible notes prior to their maturities. During the

six

months ended

June 30, 2017,

approximately

$433

thousand in interest payments on the corporate secured debt was paid in stock. As result,

29,706

shares of common stock were issued to the lenders.

In connection with the New Senior Secured Debt, the Company issued warrants to purchase an aggregate of

357,500

shares of its common stock. The Company recorded a debt discount at the time of the closing of the New Senior Secured Debt in the amount of

$2.9

million which was the fair value of the

357,500

warrants issued. The fair value of the warrants will be remeasured each reporting period, and the change in warrant value will be recorded as an adjustment to the derivative liability.

During the

six

months ended

June 30, 2017,

approximately

$2.05

million in convertible notes were converted by certain of the Company’s lenders. As a result,

285,480

shares of common stock were issued to the lenders.     

Re

c

ent

Accounting Pronouncements

Accounting Guidance

Not

Yet Adopted

 

In

May 2014,

the FASB issued an accounting standards update on revenue recognition including enhanced disclosures. Under the new standard, revenue is recognized when (or as) a good or service is transferred to the customer and the customer obtains control of the good or service. On

July 9, 2015,

the FASB approved a

one

-year deferral, updating the effective date to

January 1, 2018.

The Company is currently evaluating this new guidance, and expects this new standard will

not

have a material impact on the consolidated financial statements.

In

February 2016,

the FASB issued an accounting standards update related to lease accounting including enhanced disclosures. Under the new standard, a lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified assets for a period of time in exchange for consideration. Lessees will classify leases with a term of more than

one

year as either operating or finance leases and will need to recognize a right-of-use asset and a lease liability. The liability will be equal to the present value of lease payments. The asset will be based on the liability, subject to adjustment, such as for initial direct costs. Operating leases will result in straight-line expense while finance leases will result in a front-loaded expense pattern. This guidance is effective

January 1, 2019,

but early adoption is permitted. The Company is currently evaluating this new guidance and cannot determine the impact of this standard at this time.

In

August 2016,

the FASB issued an accounting standards update which eliminates the diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows, by adding or clarifying guidance on

eight

specific cash flow issues. This guidance is effective for fiscal years beginning after

December 15, 2017,

and interim periods within those fiscal years, but early adoption is permitted. The Company is currently evaluating this new guidance and cannot determine the impact of this standard at this time.

In

January 2017,

the FASB issued an accounting standards update which eliminates Step

2

from the goodwill impairment test. Entities should perform their goodwill impairment tests by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The amendments in this update are effective prospectively during interim and annual periods beginning after

December 15, 2019,

with early adoption permitted. The Company is currently evaluating this new guidance and cannot determine the impact of this standard at this time.

In

January 2017,

the FASB issued an accounting standards update which clarifies the definition of a business and provides guidance on evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance is effective for annual periods beginning after

December 15, 2017,

and interim periods within those periods, with early adoption permitted. The Company is currently evaluating this new guidance and cannot determine the impact of this standard at this time.

In

May 2017,

the FASB issued an accounting standards update which clarifies which changes to terms or conditions of a share-based payment award require an entity to apply modification accounting, in accordance with Topic

218.

An entity should account for the effect of a modification unless all of the following are met:

1. The fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified. If the modification does not affect any of the inputs of the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification.

2. The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified.

3. The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified.

This guidance effective for annual periods beginning after

December 15, 2017,

and interim periods within those periods with early adoption permitted. The Company is currently evaluating this new guidance and cannot determine the impact of this standard at this time.

Accounting Guidance Adopted

In

March 2016,

the FASB issued an accounting standards update to simplify the accounting for share-based payments. Under this new guidance, the tax effects related to share based payments are recorded through the income statement. Previously, tax benefits in excess of compensation cost ("windfalls") are recorded in equity, and tax deficiencies ("shortfalls") are recorded in equity to the extent of previous windfalls, and then to the income statement.  This guidance is effective

January 1, 2017,

but early adoption is permitted. The new standard also revised reporting on the statement of cash flows.  The Company adopted this guidance on

January 1, 2017,

and the new standard did

not

have a material impact on the Company’s condensed consolidated financial statements.

XML

Note 2 - Long-term Debt

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Debt Disclosure [Text Block]

NOTE

2

– LONG-TERM DEBT

The carrying value of the Company’s debt approximates fair value. The fair value of the Company’s 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.

On

May 25, 2017 (

“Closing Date”), 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 the Company’s 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 (“New Senior Secured Debt”). The New Senior Secured Debt will mature on the earliest of (a) the

four

year anniversary of the Closing Date, and (b) the “Springing Maturity Date”, which is defined as the date which is

91

days prior to the maturity date of the

7.00%

Convertible Senior Notes of Cadiz due

2020

(the “New Convertible Notes”) that were issued in

December 2015

and

April 2016

pursuant to the New Convertible Notes Indenture as defined in the Credit Agreement, if on the

91

st

day preceding the maturity date of the New Convertible Notes, the

5

-Day VWAP, as defined in the Credit Agreement, is less than

120%

of the then applicable Conversion Rate, as defined in the New Convertible Notes Indenture, and at least

$10,000,000

in original principal amount of the New Convertible Notes is outstanding ((a) or (b), as applicable, the “Maturity Date”).

The proceeds from the Credit Agreement were used to repay the Prior Senior Secured Debt resulting in a loss on extinguishment of

$3.5

million which consisted of the write-off of unamortized debt discount, unamortized debt issuance costs and fees paid to the former lenders. In addition, the Company incurred

$1.5

million in legal and finders fees which was recorded as additional debt discount and is being amortized through

December 2019,

which is the Springing Maturity Date as discussed above. In connection with the repayment, the Company entered into a Payoff Agreement on

May 24, 2017.

The Payoff Agreement provides for mediation and arbitration, if necessary, to determine if

357,500

penny warrants issued to the prior lenders became exercisable on

May 28, 2017.

The warrants to the prior lenders are accounted for as a derivative liability with unrealized gains or losses reflected in interest expense.

Interest on the New Senior Secured Debt is due quarterly on each

March 31,

June 30,

September 30

and

December 31 (

each an “Interest Date”) beginning on

June 30, 2017.

Interest on the New Senior Secured Debt will (i) accrete to the outstanding principal amount at a rate per annum equal to

6%

(the “PIK Rate”) compounded quarterly on each Interest Date and (ii) accrue on the outstanding principal amount a rate per annum equal to

2%

(the “Cash Rate”). The Company, in its discretion,

may

make any quarterly interest payment in cash on the applicable Interest Date at the PIK Rate, in lieu of accretion of such interest to the principal amount at the PIK Rate.

The Accreted Loan Value plus the Applicable Prepayment Premium will be due and payable on the Maturity Date. “Accreted Loan Value” means, as of the date of determination, the outstanding principal amount of the applicable Loan, plus all accreted interest as of the calendar day immediately prior to such date of determination. “Applicable Prepayment Premium” means with respect to any repayment of the New Senior Secured Debt (a) the Accreted Loan Value of the New Senior Secured Debt being prepaid or repaid, as applicable, multiplied by (b)

3.00%.

The Company

may

prepay the New Senior Secured Debt, in whole or in part, for an amount equal to the Accreted Loan Value plus the Applicable Prepayment Premium; provided that if the Springing Maturity Date has

not

occurred, the Company

may

not

prepay the New Senior Secured Debt, without the prior written consent of the holders of more than

50%

of the aggregate unpaid principal amount of the New Senior Secured Debt, during the period commencing on the date that is

91

days prior to the maturity date of the New Convertible Notes and ending on the maturity date of the New Convertible Notes.

The Company paid Apollo an upfront fee of

2.00%

of the aggregate principal amount of the New Senior Secured Debt funded on the Closing Date. This amount was recorded as additional debt discount and is being amortized over the remaining term of the loan.

In conjunction with the closing of the New Senior Secured Debt, the Company issued to Apollo warrants to purchase an aggregate

357,500

shares of its common stock. The Company recorded a debt discount at the time of the closing of the New Senior Secured Debt in the amount of

$2.9

million which is the fair value of the

357,500

warrants issued. Such debt discount being amortized through

December 2019,

which is the Springing Maturity Date as discussed above. The fair value of the warrants will be remeasured each reporting period, and the change in warrant value will be recorded as interest expense. The warrant has a

five

year term and an exercise price of

$14.94

per share, subject to adjustment.

Total unrealized losses of

$4.0

million for warrant liabilities accounted for as derivatives have been recorded in interest expense in both the

three

and

six

-month period ended

June 30, 2017.

    The Company’s New 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 New 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, 2017,

the Company was in compliance with its debt covenants.

XML

Note 3 - Stock-based Compensation Plans and Warrants

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

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. Following registration of the

2014

Plan on Form S-

8,

the Company entered into revised employment agreements with certain senior management that provide for the issuance of up to

162,500

Restricted Stock Units (“RSU’s”) during the period

July 1, 2014

through

December 31, 2016

and the issuance of up to

200,000

RSU’s in connection with obtaining construction financing for the Water Project (“Milestone RSUs”). The Milestone RSUs vested in

June 2017,

and the Company recorded stock compensation of

$1.7

million during the

six

months ended

June 30, 2017,

to reflect the issuance of these shares.

Under the

2014

Equity Incentive Plan, each outside director receives

$30,000

of cash compensation and receives a deferred stock award consisting of shares of the Company’s common stock with a value equal to

$20,000

on

June 30

of each year. The award accrues on a quarterly basis, with

$7,500

of cash compensation and

$5,000

of stock earned for each fiscal quarter in which a director serves. The deferred stock award vests automatically on

January 31

in the year following 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

507,500

shares were unexercised and outstanding on

June 30, 2017,

under the

two

equity incentive plans.

The Company recognized

no

stock option related compensation costs in each of the

six

months ended

June 30, 2017

and

2016.

Additionally,

no

options were exercised during the

six

months ended

June 30, 2017.

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

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.

Under the

2014

Equity Incentive Plan,

594,073

shares have been awarded to the Company directors, consultants and employees as of

June 30, 2017.

Of the

594,073

shares awarded,

8,694

shares were awarded to the Company’s directors for services performed during the plan year ended

June 30, 2017.

These shares will vest and be issued on

January 31, 2018.

The Company recognized stock-based compensation costs of

$1,921,000

and

$759,000

for the

six

months ended

June 30, 2017

and

2016,

respectively.

XML

Note 4 - Income Taxes

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Income Tax Disclosure [Text Block]

NOTE

4

– INCOME TAXES

As of

June 30, 2017,

the Company had net operating loss (“NOL”) carryforwards of approximately

$262

million for federal income tax purposes and

$151

million for California state income tax purposes. Such carryforwards expire in varying amounts through the year

2037.

Use of the carryforward amounts is subject to an annual limitation as a result of ownership changes.

As of

June 30, 2017,

the Company had unrecognized tax benefits totaling approximately

$2.8

million.

None

of these, if recognized, would affect the Company's effective tax rate because the Company has recorded a full valuation allowance against its net deferred tax assets.

The Company's tax years

2013

through

2016

remain subject to examination by the Internal Revenue Service, and tax years

2012

through

2016

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 sheets.

XML

Note 5 - Net Loss Per Common Share

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Earnings Per Share [Text Block]

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

10,777,000

and

10,299,000

for the

three

months ended

June 30, 2017

and

2016,

respectively; and

10,736,000

and

10,218,000

for the

six

months ended

June 30, 2017

and

2016,

respectively.

XML

Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2017

Accounting Policies [Abstract]

Liquidity Accounting Policy Disclosure [Policy Text Block]

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

$20.8

million for the

six

months ended

June 30, 2017,

and

$14.4

million for the

six

months ended

June 30, 2016.

The Company had working capital of

$12.2

million at

June 30, 2017,

and used cash in its operations of

$4.9

million for the

six

months ended

June 30, 2017.

Cash requirements during the

six

months ended

June 30, 2017

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.

            On

May 25, 2017,

the Company entered into a new

$60

million credit agreement with funds affiliated with Apollo Global Management, LLC (“Apollo”) that replaced and refinanced the Company’s 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 (“New Senior Secured Debt”).

    The Company’s New 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 New 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, 2017,

the Company was in compliance with its debt covenants.

The Company’s cash resources, provide the Company with sufficient funds to meet its working capital needs for a period beyond

one

year from this quarterly report issuance date. The Company

may

meet working capital requirements beyond this period through a variety of means, including construction financing, equity or debt placements, through the sale or other disposition of assets or reductions in operating costs. Equity placements

may

be made using our existing shelf registration. Equity placements, if made, would be undertaken only to the extent necessary, so as to minimize the dilutive effect of any such placements upon the Company’s existing stockholders.

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.

Cash Flow Supplemental [Policy Text Block]

Supplemental Cash Flow Information

Under the terms of the Prior Senior Secured Debt, the Company was required to pay

50%

of all quarterly interest payments in cash or stock on the Prior Senior Secured Debt, rather than in accretion to principal. Under the terms of the New Senior Secured Debt the Company is required to pay

25%

of all future quarterly payments in cash.

No

other payments are due on the corporate secured debt or convertible notes prior to their maturities. During the

six

months ended

June 30, 2017,

approximately

$433

thousand in interest payments on the corporate secured debt was paid in stock. As result,

29,706

shares of common stock were issued to the lenders.

In connection with the New Senior Secured Debt, the Company issued warrants to purchase an aggregate of

357,500

shares of its common stock. The Company recorded a debt discount at the time of the closing of the New Senior Secured Debt in the amount of

$2.9

million which was the fair value of the

357,500

warrants issued. The fair value of the warrants will be remeasured each reporting period, and the change in warrant value will be recorded as an adjustment to the derivative liability.

During the

six

months ended

June 30, 2017,

approximately

$2.05

million in convertible notes were converted by certain of the Company’s lenders. As a result,

285,480

shares of common stock were issued to the lenders.     

New Accounting Pronouncements, Policy [Policy Text Block]

Re

c

ent

Accounting Pronouncements

Accounting Guidance

Not

Yet Adopted

 

In

May 2014,

the FASB issued an accounting standards update on revenue recognition including enhanced disclosures. Under the new standard, revenue is recognized when (or as) a good or service is transferred to the customer and the customer obtains control of the good or service. On

July 9, 2015,

the FASB approved a

one

-year deferral, updating the effective date to

January 1, 2018.

The Company is currently evaluating this new guidance, and expects this new standard will

not

have a material impact on the consolidated financial statements.

In

February 2016,

the FASB issued an accounting standards update related to lease accounting including enhanced disclosures. Under the new standard, a lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified assets for a period of time in exchange for consideration. Lessees will classify leases with a term of more than

one

year as either operating or finance leases and will need to recognize a right-of-use asset and a lease liability. The liability will be equal to the present value of lease payments. The asset will be based on the liability, subject to adjustment, such as for initial direct costs. Operating leases will result in straight-line expense while finance leases will result in a front-loaded expense pattern. This guidance is effective

January 1, 2019,

but early adoption is permitted. The Company is currently evaluating this new guidance and cannot determine the impact of this standard at this time.

In

August 2016,

the FASB issued an accounting standards update which eliminates the diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows, by adding or clarifying guidance on

eight

specific cash flow issues. This guidance is effective for fiscal years beginning after

December 15, 2017,

and interim periods within those fiscal years, but early adoption is permitted. The Company is currently evaluating this new guidance and cannot determine the impact of this standard at this time.

In

January 2017,

the FASB issued an accounting standards update which eliminates Step

2

from the goodwill impairment test. Entities should perform their goodwill impairment tests by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The amendments in this update are effective prospectively during interim and annual periods beginning after

December 15, 2019,

with early adoption permitted. The Company is currently evaluating this new guidance and cannot determine the impact of this standard at this time.

In

January 2017,

the FASB issued an accounting standards update which clarifies the definition of a business and provides guidance on evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance is effective for annual periods beginning after

December 15, 2017,

and interim periods within those periods, with early adoption permitted. The Company is currently evaluating this new guidance and cannot determine the impact of this standard at this time.

In

May 2017,

the FASB issued an accounting standards update which clarifies which changes to terms or conditions of a share-based payment award require an entity to apply modification accounting, in accordance with Topic

218.

An entity should account for the effect of a modification unless all of the following are met:

1. The fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified. If the modification does not affect any of the inputs of the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification.

2. The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified.

3. The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified.

This guidance effective for annual periods beginning after

December 15, 2017,

and interim periods within those periods with early adoption permitted. The Company is currently evaluating this new guidance and cannot determine the impact of this standard at this time.

Accounting Guidance Adopted

In

March 2016,

the FASB issued an accounting standards update to simplify the accounting for share-based payments. Under this new guidance, the tax effects related to share based payments are recorded through the income statement. Previously, tax benefits in excess of compensation cost ("windfalls") are recorded in equity, and tax deficiencies ("shortfalls") are recorded in equity to the extent of previous windfalls, and then to the income statement.  This guidance is effective

January 1, 2017,

but early adoption is permitted. The new standard also revised reporting on the statement of cash flows.  The Company adopted this guidance on

January 1, 2017,

and the new standard did

not

have a material impact on the Company’s condensed consolidated financial statements.

XML

Note 1 - Basis of Presentation (Details Textual) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	May 25, 2017
Net Income (Loss) Attributable to Parent	$ (13,570,000)	$ (5,645,000)	$ (20,797,000)	$ (14,440,000)
Working Capital	$ 12,200,000		12,200,000
Net Cash Provided by (Used in) Operating Activities			$ (4,867,000)	$ (4,821,000)
Percentage of Future Quarterly Interest Payments	25.00%		25.00%		50.00%
Interest Payments in Stock			$ 433,000
Stock Issued During Period, Shares, New Issues			29,706
Debt Conversion, Original Debt, Amount			$ 2,050,000
Stock Issued During Period, Shares, Conversion of Convertible Securities			285,480
Warrants Issued to Lenders [Member]
Warrants and Rights Outstanding	$ 2,900,000		$ 2,900,000		$ 2,900,000
Class of Warrant or Right, Number of Securities Called by Warrants or Rights	357,500		357,500		357,500
Senior Secured Debt [Member]
Debt Instrument, Face Amount					$ 60,000,000
Debt Instrument, Amount to be Refinanced					45,000,000
Debt Instrument, Additional Amount after Refinance					$ 15,000,000

XML

Note 2 - Long-term Debt (Details Textual) - USD ($)		3 Months Ended		6 Months Ended
	May 25, 2017	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Debt Instrument, Maturity Date, Percentage of Conversion Rate,	120.00%
Gain (Loss) on Extinguishment of Debt		$ (3,501,000)		$ (3,501,000)	$ (2,250,000)
Warrants [Member] | Interest Expense [Member]
Unrealized Gain (Loss) on Derivatives		(4,000,000)		(4,000,000)
Warrants Issued to Prior Lenders [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights	357,500
Warrants Issued to Lenders [Member]
Warrants and Rights Outstanding	$ 2,900,000	$ 2,900,000		$ 2,900,000
Class of Warrant or Right, Number of Securities Called by Warrants or Rights	357,500	357,500		357,500
Warrant Term	5 years
Class of Warrant or Right, Exercise Price of Warrants or Rights	$ 14.94
Senior Secured Debt [Member]
Debt Instrument, Fee Amount	$ 60,000,000
Debt Instrument, Additional Amount after Refinance	15,000,000
Debt Instrument, Maturity Date, Minimum Principal Outstanding Amount	$ 10,000,000
Debt Instrument, Payment-in-kind Rate	6.00%
Debt Instrument, Cash Rate	2.00%
Upfront Fee, Recorded as Additional Debt Discount, Percentage	2.00%
Debt Instrument, Maturity Date, Description	The New Senior Secured Debt will mature on the earliest of (a) the four year anniversary of the Closing Date, and (b) the “Springing Maturity Date”, which is defined as the date which is 91 days prior to the maturity date of the 7.00% Convertible Senior Notes of Cadiz due 2020 (the “New Convertible Notes”) that were issued in December 2015 and April 2016 pursuant to the New Convertible Notes Indenture As defined in the Credit Agreement, if on the 91st day preceding the maturity date of the New Convertible Notes, the 5-Day VWAP, as defined in the Credit Agreement, is less than 120% of the then applicable Conversion Rate, as defined in the New Convertible Notes Indenture, and at least $10,000,000 in original principal amount of the New Convertible Notes is outstanding ((a) or (b), as applicable, the “Maturity Date”).
Senior Secured Debt [Member] | Legal and Finders fees [Member]
Debt Instrument, Unamortized Discount	$ 1,500,000
Prior Senior Secured Debt [Member]
Extinguishment of Debt, Amount	45,000,000
Gain (Loss) on Extinguishment of Debt	$ (3,500,000)
2020 Convertible Senior Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage	7.00%

XML

Note 3 - Stock-based Compensation Plans and Warrants (Details Textual) - USD ($)			1 Months Ended	6 Months Ended		12 Months Ended	37 Months Ended	54 Months Ended
	Jun. 10, 2014	Dec. 18, 2009	Jun. 30, 2014	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2017	Jun. 09, 2014	Dec. 31, 2016
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period				0
Allocated Share-based Compensation Expense				$ 1,921,000	$ 759,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number				507,500		507,500	507,500
Employee Stock Option [Member]
Allocated Share-based Compensation Expense				$ 0	$ 0
Two Thousand Nine Equity Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Forfeitures in Period			45,235
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized	850,000	850,000
Two Thousand Nine Equity Incentive Plan [Member] | Common Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Shares Issued in Period								297,265
Two Thousand Nine Equity Incentive Plan [Member] | Employee Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period		10 years
Share-based Compensation Arrangement by Share-based Payment Award, Shares Issued in Period								507,500
Two Thousand Nine Equity Incentive Plan [Member] | Employee Stock Option [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period		2 years
Two Thousand Nine Equity Incentive Plan [Member] | Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized	162,500
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period				1,700,000
Twenty Fourteen Equity Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized	675,000
Twenty Fourteen Equity Incentive Plan [Member] | Outside Director [Member] | Accrues Yearly [Member]
Officers' Compensation	$ 30,000
Allocated Share-based Compensation Expense	20,000
Twenty Fourteen Equity Incentive Plan [Member] | Outside Director [Member] | Accrues Quarterly [Member]
Officers' Compensation	7,500
Allocated Share-based Compensation Expense	$ 5,000
Twenty Fourteen Equity Incentive Plan [Member] | Restricted Stock Units (RSUs) [Member] | Water Project [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized									200,000
Two Thousand Fourteen Equity Incentive Plan [Member] | Directors and Consultants [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Shares Issued in Period							594,073
Two Thousand Fourteen Equity Incentive Plan [Member] | Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Shares Issued in Period						8,694

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Note 4 - Income Taxes (Details Textual) $ in Thousands	6 Months Ended
	Jun. 30, 2017 USD ($)
Unrecognized Tax Benefits	$ 2,800
Deferred Tax Assets, Net	0
Domestic Tax Authority [Member] | Internal Revenue Service (IRS) [Member]
Operating Loss Carryforwards	$ 262,000
Open Tax Period	3 years
Domestic Tax Authority [Member] | Internal Revenue Service (IRS) [Member] | Earliest Tax Year [Member]
Open Tax Year	2013
Domestic Tax Authority [Member] | Internal Revenue Service (IRS) [Member] | Latest Tax Year [Member]
Open Tax Year	2016
State and Local Jurisdiction [Member] | Internal Revenue Service (IRS) [Member]
Open Tax Period	4 years
State and Local Jurisdiction [Member] | California Franchise Tax Board [Member]
Operating Loss Carryforwards	$ 151,000
State and Local Jurisdiction [Member] | California Franchise Tax Board [Member] | Earliest Tax Year [Member]
Open Tax Year	2012
State and Local Jurisdiction [Member] | California Franchise Tax Board [Member] | Latest Tax Year [Member]
Open Tax Year	2016

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Note 5 - Net Loss Per Common Share (Details Textual) - shares	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	10,777,000	10,299,000	10,736,000	10,218,000