CADIZ INC

Business Overview

We are a water solutions provider with a unique combination of land, water, pipeline and water filtration technology assets located in Southern California between major water systems serving population centers in the Southwestern United States. Our portfolio of assets includes 2.5 million acre-feet of water supply (permits complete), 220 miles of existing, buried pipeline, 1 million acre-feet of groundwater storage capacity, and versatile, scalable and cost-effective water filtration technology. We will provide products and services to public water systems, government agencies and commercial clients.

We own approximately 46,000 acres of land with high-quality, naturally recharging groundwater resources in Southern California’s Mojave Desert (“Cadiz Property”). Our land holdings with vested water rights were assembled by our founders in the early 1980s, relying on NASA imagery that identified a desert aquifer system at the base of a vast Southern California watershed. The aquifer system underlying our property in the Cadiz Valley (“Cadiz Ranch”) presently holds 17 - 34 million acre-feet of groundwater in storage – comparable in size to the largest reservoir in the United States, Lake Mead.

In 2008, we entered into a 99-year lease with the Arizona & California Railroad Company (“ARZC”) that will allow us to co-locate and construct a 43-mile water conveyance pipeline (“Southern Pipeline”) within an existing, active railroad right-of-way (“ROW”) that extends from the Cadiz Ranch to the Colorado River Aqueduct (“CRA”), one of Southern California’s primary sources of water supply.

In 2021, we completed the acquisition of a 30” steel natural gas pipeline (“Northern Pipeline”) that extends 220-miles from the Cadiz Ranch across Kern and San Bernardino Counties terminating in California’s Central Valley. The pipeline, originally constructed to transport fossil fuels, is idle, and we are preparing to convert the pipeline to transport water. The route of the Northern Pipeline intersects several water conveyance facilities that serve Southern California, including the California Aqueduct, the Los Angeles Aqueduct, and the Mojave River Pipeline.

In 2022, we completed the acquisition of the assets of ATEC Systems, Inc., a producer of specialized filtration systems for removal of common groundwater contaminants that pose health risks in drinking water, including iron, manganese, arsenic, nitrates, Chromium 6 and other constituents of concern.

The Water Industry Value Chain

The water industry value chain today includes water supply, water storage, wastewater treatment, long-range conveyance, local distribution systems, and a wide range of products, technologies and services for monitoring, moving, trading, treating and integrating water resources across thousands of miles to address the challenges and demands of a diverse customer base. The water industry customer base includes regional wholesale water agencies responsible for acquiring, distributing and managing imported water resources; water and wastewater utilities that supply, treat and monitor clean water or transport, treat and analyze wastewater or storm water through an infrastructure network; government agencies responsible for public safety, environmental protection and economic security; and commercial and industrial customers requiring long-term, reliable supplies of clean, affordable water for their customers and businesses.

Climate change has disrupted hydrological cycles around the world. Extreme weather has created extreme unpredictability with regard to water supply for human consumption. Increasingly frequent and intense storms and swings between wet and dry years have created an urgent demand for technologies, services and infrastructure investment to capture, store and transport fresh water. Moreover, violent weather, extreme flooding and increasingly stringent regulatory restrictions on water quality have exceeded the capacity of existing water infrastructure and increased the cost of water over the last decade.

Water industry customers today require products, services, technology, and integrated solutions that address the challenges of scarcity of freshwater supplies, rising pollution, stricter regulations, infrastructure limitations and increasing operational costs.

Business Strategy

With the addition of pipeline infrastructure and water filtration technology to our portfolio of assets, our business now enables us to begin to offer integrated products and services to public water systems and other water industry customers in addition to products and services focused solely on water supply and water storage.

Description of Assets by Sector

Assets in our portfolio include Water Supply, Water Storage, Water Conveyance, Water Filtration Technology and Land. Each asset with an associated revenue model is described below.

Water Supply

In 2012, we received approvals from public agencies to implement the Cadiz Water Conservation & Storage Project (“Water Project”), a public-private partnership with California water agencies. The water supply element of our Water Project is expected to conserve 50,000 acre-feet per year at the Cadiz Property and make this new water supply available to underserved communities in Southern California. Because water in the aquifer system will continue to be lost to evaporation, surplus water that is captured and withdrawn before it evaporates is recognized as a new water supply (“conserved” water).

Under an extensive groundwater monitoring plan approved by local permitting authorities, Water Project operations and withdrawals of groundwater will be limited to sustainable amounts that preserve the health of the aquifer system and safeguard the desert ecosystem. An average of 50,000 acre-feet of water per year is expected to be captured and made available for beneficial use in Southern California communities over 50 years (2.5 million acre-feet in total), an amount of annual supply that could serve approximately 400,000 people each year.

In the first quarter of 2024, we entered into agreements with multiple public water systems to purchase 15,000 acre-feet per year (“AFY”) of annual water supply from us to be delivered via the Northern Pipeline. These agreements cumulatively represent 60% of the full capacity (25,000 AFY) of the Northern Pipeline.

The Water Project is structured as a public-private partnership in order for us and the participating public water agencies to cooperatively fund capital costs and operating and maintenance (“O&M”) costs required for us to deliver future contracted water supply to the agencies. In accordance with the structure of such agreements, it is anticipated that we will contribute an annual supply of 50,000 AFY of water from the Water Project into Fenner Gap Mutual Water Company ("FGMWC"), a mutual water company, to be owned jointly by the participating public water agencies. Through membership in the mutual water company, public water agencies will be able to purchase, for a 40-year term (take or pay), up to 50,000 AFY of water at our wellhead at an agreed upon market price estimated to start at approximately net $850/AFY to us and subject to annual inflation adjustment. Participating public water agencies will fund through FGMWC (a) capital costs for conversion of the Northern Pipeline from gas to water, construction of the Southern Pipeline, construction of pumping stations and appurtenant facilities, and (b) O&M costs.

Any contracts and off take facility construction will be subject to environmental review and a project level permitting process (see Item 1. “Description of Business - Permits”, below).

Water Storage

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

As part of the public-private partnership discussed above, participating water agencies would be eligible to purchase reserved storage capacity in the Cadiz aquifer at negotiated terms due to their participation in the Water Project. Such storage capacity could be used to store water purchases from the Cadiz water supply or could be used for imported water (once sufficient conveyance infrastructure is available).

Water Conveyance

Water conveyance facilities are required to effectuate the sale of water supply and water storage. These water conveyance facilities must be the appropriate size and in the right locations to meet customer needs. We have invested in physical pipeline assets and the acquisition of rights-of-way to build water conveyance facilities that can transport our own water supplies and also be utilized by public water systems across California to trade and transport water supplies.

To deliver conserved water off-property or import water for storage at the Cadiz Ranch, we are currently developing two potential pipeline routes for the Water Project; the Southern Pipeline which would extend southwards from the Cadiz Property to the Colorado River Aqueduct in Rice, California and the Northern Pipeline which extends northwards from the Cadiz Property to Barstow, Antelope Valley, and Wheeler Ridge, California.

Cadiz’ Northern Pipeline is an existing 220-mile 30-inch steel pipeline that intersects several water storage and conveyance facilities in Southern California, including the California Aqueduct, the Los Angeles Aqueduct, and the Mojave River Pipeline. The capacity of the Northern Pipeline for water conveyance is 25,000 AFY. The capacity of the Southern Pipeline, which is expected to be constructed within the ARZC ROW, ranges from 75,000 AFY to 150,000 AFY depending on the pipeline diameter, ranging from 54” to 84”, that will be selected to accommodate imported water storage. When the Northern Pipeline becomes operational for water conveyance, and the Southern Pipeline is built, the Water Project would interconnect Southern California’s primary water delivery systems for the first time, enabling more flexible trading among participants on these systems. See also “Permits”, below, for details about the history and future requirements for local, state and federal permits for these pipelines.

It is anticipated that conveyance facilities will be owned and operated by participating public agencies through Fenner Valley Water Authority, a Joint Powers Authority (“FVWA” or “JPA”) comprised of public water agencies participating in the Water Project that would operate the pipelines to deliver water to point of use. We will lease our pipeline facilities to the JPA for operation of the Water Project through a Facilities Operation Agreement. Participating public agencies may apply for grants and use municipal financing resources to fund the capital expenses for conversion of the pipeline and construction of pumping stations and distribution facilities. The amortized cost of capital for construction of conveyance facilities is expected to be paid for by participating agencies taking delivery of water via those facilities as described above. Lease payments to us for pipeline facilities will be included in the price for water supply. The chart below provides the anticipated structure of how the financing and operations of the Water Project would be handled between us and the participating public agencies through FGMWC and FVWA.

Water Filtration Technology

In the fourth quarter of 2022, we completed the acquisition of the assets of ATEC Systems, Inc. into ATEC Water Systems, LLC (“ATEC”), which provides innovative water filtration solutions for impaired or contaminated groundwater sources. Adding the ATEC filtration products to our business portfolio diversifies our range of innovative, sustainable clean water solutions offered in support of our mission to provide safe, affordable drinking water to underserved communities. ATEC, based in Hollister, California, has produced water filtration systems since 1982. It pioneered technology to provide cost-effective high-rate removal of iron and manganese and then expanded its reach to a full range of contaminants, including, arsenic, Chromium-6, nitrates, and other contaminants found in groundwater that limit the available supply of drinking water for many communities. We submitted a patent application for our treatment process of nitrate removal in 2023 and expect to file an application for another constituent during 2024.

We manufacture and sell an array of small, modular vertical steel tanks ranging from 14-inch to 48-inch diameter coupled with filter media to remove groundwater contaminants for our customers. ATEC’s modular, vertical tank systems can be scaled in size to serve small, rural communities as well as larger municipalities with system treatment capacities up to 60 million gallons per day (MGD) and require less maintenance and upkeep than traditional filtration systems. Our customers include municipalities, public and private utilities, and engineering and construction firms constructing new plants.

ATEC has built more than 450 water filtration systems for cities, water districts, investor-owned utilities and small communities and businesses in 10 U.S. states, as well as Canada and Sri Lanka. In March 2023, ATEC was awarded a $10 million contract to build filtration systems to remove iron and manganese from groundwater supply for the Central Utah Water Conservancy District’s Vineyard Wellfield Groundwater Polishing Project, a treatment facility that will deliver 60 MGD or approximately 54,000 acre-feet of groundwater per year to central Utah communities. The 320 48-inch filters to be delivered under this contract are expected to be completed in 2024.

In 2023, ATEC installed 10 small-scale filtration systems on community wells located on tribal lands in eastern Coachella Valley through a partnership with the Torres Martinez Desert Cahuilla Indian Tribe (“TMDCI”) and the Farmworker Institute of Education and Leadership Development (“FIELD”). The 14-inch ATEC systems installed on tribal lands are designed to remove arsenic from community wells used for drinking water.

Land

We have 46,000 acres of landholdings including:

We developed the land for our agricultural use and have farmed ourselves and extended leases to private farming operations since the 1980s. We maintain approximately 1,000 acres in current agriculture development of grain crops, primarily in alfalfa plantings, and have 2,100 acres leased for farming activities by Fenner Valley Farms LLC. Revenue from alfalfa totaled $0.8 million in 2023 and revenue from leased land totaled $0.4 million.

Permits

Water Supply and Storage Project

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

San Bernardino County, the local agency responsible for groundwater use at the Cadiz Property, approved the Groundwater Monitoring, Management and Mitigation Plan (‘GMMMP”) for the Water Project in 2012, and requires regular reporting of groundwater levels and conditions. The FEIR and GMMMP permits were challenged through litigation and were upheld and sustained in their entirety by judgements in California Superior Court in 2014 and the California Court of Appeal in 2016 and are no longer subject to legal challenge.

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

Hydrological and geological study of the area has continued, and we regularly monitor and report groundwater conditions to the County of San Bernardino as part of our agricultural use. In 2023, the County of San Bernardino and SMWD, approved their oversight roles in an inter-agency Technical Review Panel (“TRP”) mandated by the GMMMP approvals to provide scientific and environmental monitoring of the Water Project. The GMMMP requires the TRP to be in place at least 12 months before the Water Project commences to establish baseline data on aquifer and watershed conditions for the monitoring program. In accordance with the GMMMP, the County and SMWD each appointed one member to the TRP, and the third member was selected by unanimous agreement of those representatives. The TRP started in 2022 and meets regularly to collect and assess pre-operational data and make recommendations for monitoring protocols to be implemented upon commencement of operations.

Northern Pipeline

The 220-mile Northern Pipeline is a former segment of a 1,200 mile, 30” steel pipeline constructed in 1985 by All American Pipeline Company to convey oil. In 2001, the pipeline was acquired by El Paso Natural Gas (“EPNG”) and authorized for natural gas conveyance. In 2011, we reserved the segment in an option agreement with EPNG and began to explore using the pipeline for water conveyance. In June 2021, we completed the acquisition of the pipeline for $19 million and own the entire 220-mile asset in fee. Changing the use of the Northern Pipeline to water conveyance is subject to applicable local, state and federal laws.

In December 2020, US Bureau of Land Management (“BLM”) granted to our subsidiary Cadiz Real Estate LLC two ROW permits to use the pipeline over federal lands. The first ROW was an assignment of a portion of an existing ROW held by EPNG and renewed by BLM under the Mineral Leasing Act (“MLA”) that enables the continued maintenance of the route and transportation of natural gas. The second ROW was issued under the Federal Land Policy and Management Act (“FLPMA”) and authorizes the conveyance of water in the pipeline over BLM-managed lands. In 2021, the two ROW grants were challenged in federal court by conservation organizations. In December 2021, the Biden Administration requested a voluntary remand of the permits to BLM, which was granted by the federal court in September 2022. In December 2022, we re-filed an application with the BLM for an assignment of the existing MLA ROW and worked cooperatively with BLM in preparing the new application. In December 2023, after a public review process, the BLM reissued the MLA ROW grant to us followed by an appeal period during which no appeals were filed.

The Northern Pipeline offers California water purveyors an opportunity to connect available supplies with rural areas of the State that are underserved. The Northern Pipeline crosses critically dry, rural and underserved regions of California and it could directly augment water supply access for 23 state-designated disadvantaged communities along its route. We presently hold agreements with parties interested in using the Northern Pipeline for conveyance, storage and supply to serve these disadvantaged communities. We expect to file an application with the BLM for a new FLPMA ROW in 2024 in coordination with public agency parties that will use the pipeline for water conveyance.

Southern Pipeline

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

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

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

California Water Code Section 1815 requires desert groundwater projects to apply for a review by the SLC prior to moving water in facilities like the CRA. We expect an application to the SLC for review of the Water Project’s plans to convey water in the CRA from the Cadiz Property through the Southern Pipeline will be submitted by participating public agencies and accompanied by evidence of the Water Project’s extensive record of environmental sustainability as well as data and reports that we expect will withstand critical scrutiny.

Equity, Sustainability and Environmental Justice

Environmental Conservation

In 2014, we permanently dedicated approximately 7,400 acres of our Piute Valley properties to conservation. These properties, which are not associated with the Water Project or Cadiz Ranch agricultural operations, are located within terrain designated by the federal government as Critical Desert Tortoise Habitat and/or Desert Wilderness Areas. In February 2015, the California Department of Fish and Wildlife approved our establishment of the Fenner Valley Desert Tortoise Conservation Bank (“Fenner Bank”), a land conservation bank that makes available these properties for mitigation of impacts to tortoise and other sensitive species that would be caused by any development across the Southern California desert. Under its enabling documents, the Fenner Bank offers credits that can be acquired by entities that must mitigate or offset impacts linked to planned development. For example, this bank can service the mitigation requirements of renewable energy, military, residential and commercial development projects being considered throughout the Mojave Desert. Credits sold by the Fenner Bank are dedicated to funding the permanent preservation of the land by the San Diego Habitat Conservancy and research by San Diego Zoo Global into desert tortoise health and species protection.

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

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

Social Impact

Our vision is a world where wealth and geography do not dictate access to clean, fresh, affordable water. It is available to all and delivered sustainably for generations to come.

Seasonality

Our water resource development and water filtration activities are not seasonal in nature.

Farming operations at the Cadiz Ranch include the year-round cultivation of grain crops, including alfalfa. These operations are subject to general seasonal trends that are characteristic of the agricultural industry.

Competition

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

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

Human Capital Resources

As of December 31, 2023, we employed 18 full-time employees (i.e. those individuals working more than 1,000 hours per year) including 8 full-time employees at ATEC. Our business operations also rely on third-party contracted seasonal and temporary workers, as well as consultants and other professional vendors to help augment specialized human capital and talent needs. Our full-time and third-party contracted workers, as well as consultants and vendors, must follow our code of conduct and ethics policy, as well as our whistleblower and information security policies.

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

As a small workforce, we focus on skill sharing and experience diversity in the workplace. Our full-time employees have regular opportunities to work with senior leadership and/or Board members in pursuit of business objectives. Management and Board leadership provide annual reviews of employee performance. Human capital is generally managed by our CEO and CFO, and employment policies are overseen by the Board, particularly the Compensation Committee. Our Board encourages diversity in the workforce. Approximately 65% of our senior executives are female.

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

Regulation

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

Our water filtration products are manufactured to the specifications of our water provider customers in coordination with state and federal water quality and treatment regulatory approvals obtained by these providers in the ordinary course of permitting water treatment or groundwater well and pumping facilities. We are not directly impacted by these regulations.

Access to Our Information

Our annual, quarterly and current reports, proxy statements and other information are filed with the Securities and Exchange Commission (“SEC”) and are available free of charge on the internet through our website, http://www.cadizinc.com, as soon as reasonably practical after electronic filing of such material with the SEC. Our website address provided in this Annual Report on Form 10-K is not intended to function as a hyperlink and the information on our website is not, nor should it be considered, part of this report or incorporated by reference into this report.

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