NOTE

–

LEASES

The Company has operating leases for corporate offices, vehicles and office equipment. The Company’s leases have remaining lease terms of

one

year to

two

years, some of which include options to extend or terminate the lease. However, the Company is

not

reasonably certain to exercise options to renew or terminate, and therefore renewal and termination options are

not

considered in the lease term or the right-of-use asset and lease liability balances. The Company's current lease arrangements expire in

2021.

The Company does

not

have any finance leases.

The Company’s lease population does

not

include any residual value guarantees, and therefore

none

were considered in the calculation of the lease balances. The Company has leases with variable payments, most commonly in the form of common area maintenance charges which are based on actual costs incurred. These variable payments were excluded from the right-of-use asset and lease liability balances since they are

not

fixed or in-substance fixed payments.

The Company elected to utilize the transition package of practical expedients permitted within the new standard, including the practical expedient

not

to reassess existing land easements, which among other things, allows the Company to carryforward the historical lease classification. The Company has lease agreements with lease and non-lease components and has elected the practical expedient to account for lease and non-lease components as a single lease component for real-estate class of leases only. For leases with terms greater than

months, the Company records the related asset and lease liability at the present value of lease payments over the lease term. Leases with an initial term of

months or less with purchase options or extension options that are

not

reasonably certain to be exercised are

not

recorded on the Consolidated Balance Sheets; the Company recognizes lease expense for these leases on a straight-line basis over the term of the lease.

Lease balances

. Amounts recognized in the accompanying consolidated balance sheet as of

September 30, 2019

are as follows (in thousands):

Activity	Balance Sheet Location	Balance
ROU assets	Other assets	$	69
Short-term lease liability	Other liabilities	$	43
Long-term lease liability	Other long-term liabilities	$	26

Lease cost.

The Company’s operating lease cost for the

nine

months ended

September 30, 2019

was

$86

thousand.

Lease commitments.

The table below summarizes the Company’s scheduled future minimum lease payments under operating, recorded on the balance sheet as of

September 30, 2019 (

in thousands):

2019	$	12
2020		46
2021		15
Total lease payments		73
Less: Imputed interest		(4	)
Present value of lease payments		69
Less: current maturities of lease obligations		(43	)
Long-term lease obligations	$	26

Most of our lease agreements do

not

provide a readily determinable implicit rate nor is it available to us from our lessors. Instead, we estimate the Company’s incremental borrowing rate based on information available at either the implementation date of Topic

842

or at lease commencement for leases entered into thereafter in order to discount lease payments to present value. The table below presents additional information related to our leases as of

September 30, 2019:

Weighted Average Remaining Lease Term
Operating leases (in years)	2

Weighted Average Discount Rate
Operating leases	6	%

From a lessor standpoint, in

February 2016,

the Company entered into a lease agreement with Fenner Valley Farms LLC (“FVF”) (the “lessee”), a subsidiary of Water Asset Management LLC, a related party, pursuant to which FVF is leasing, for a

-year term,

2,100

acres owned by Cadiz in San Bernardino County, California, to be used to plant, grow and harvest agricultural crops (“FVF Lease Agreement”). As consideration for the lease, FVF paid the Company a

one

-time payment of

$12.0

million upon closing.

Under the FVF Lease Agreement, the Company has a repurchase option to terminate the lease at any time during the

twenty

(

) year period following the effective date of the lease ("Termination Option Period") upon (

) repayment of the

one

-time

$12

million lease payment plus a

ten

percent (

10%

) compounded annual return (provided that the amount of such payment shall be

not

less than

$14,400,000

), (

) reimbursement of water-related infrastructure on the leased property plus

per annum as well as the actual costs of any farming-related infrastructure installed on the leased property and (

) reimbursement of certain pipeline-related development expenses, working in coordination with Cadiz,

not

to exceed

$3,000,000

(such payments, the " Termination Payments "). If (

) Cadiz does

not

exercise its termination right within such

-year period or (y) the Agent under Cadiz's credit agreement declares an event of default under Cadiz's Senior Secured Debt and accelerates the indebtedness due and owing thereunder by Cadiz (or such indebtedness automatically accelerates under the terms of Cadiz's Senior Secured Debt), then the lessee

may

purchase the leased property for

$1.00.

The Company has recorded the

one

-time payment of

$12

million, before legal fees, paid by FVF as a long-term lease liability. The Company's consolidated statement of operations reflects a net charge equal to a

10%

finance charge compounding annually over the

-year Termination Option Period. The net charge to the consolidated statement of operations reflects (

) rental income associated with the use of the land by FVF over the

-year termination option period and (

) interest expense at a market rate reflective of a

-year secured loan transaction. As a result of this transaction, the Company incurred approximately

$490

thousand of legal fees which was recorded as a debt discount and is being amortized over the

-year Termination Option Period.

The Company expects to receive rental income of

$420

thousand annually over the next

five

years related to the FVF Lease Agreement.

July 31, 2019,

SoCal Hemp JV LLC (the “JV”) was created by Cadiz Real Estate LLC (a fully owned subsidiary of Cadiz Inc.) and SoCal Hemp Co, LLC (a fully owned subsidiary of Glass House Farms, a division of California Cannabis Enterprises, Inc., which is an unrelated company to Cadiz Inc.) when the

two

parties entered into a Limited Liability Company Agreement (“LLC Agreement”). The JV is

50%

owned by Cadiz Real Estate LLC and

50%

owned by SoCal Hemp Co., LLC. Pursuant to the LLC Agreement, the JV profits and losses are allocated to the members based on their ownership share. The Company accounts for its investment in the JV using the equity method of accounting.

July 31, 2019,

the JV entered into a lease agreement (the “Lease Agreement”) with

the Company whereby the JV will cultivate industrial hemp on up to

9,600

acres at the Company’s agricultural property in eastern San Bernardino County, California (“Cadiz Ranch”). Under the terms of the Agreement, the JV initially leased

1,280

acres at the Cadiz Ranch and holds options to lease up to

8,320

additional acres by

2022.

The Agreement has an initial term of

five

years and the JV has the option to extend the term for

three

successive periods of

five

years each. In consideration for the lease arrangement, the JV will provide the Company an annual rental payment equal to

$500

per acre of leased property, subject to periodic CPI adjustment.