united states
Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-Q
(Mark One)
☑ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the quarterly period ended September 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
Cadiz Inc.
(Exact name of registrant specified in its charter)
Delaware | 77-0313235 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
550 South Hope Street, Suite 2850 | |
Los Angeles, California | 90071 |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (213) 271-1600
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $0.01 per share | CDZI | The NASDAQ Global Market |
Depositary Shares (each representing a 1/1000th fractional interest in share of 8.875% Series A Cumulative Perpetual Preferred Stock, par value $0.01 per share) | CDZIP | The NASDAQ Global Market |
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“emerging growth company"company” in Rule 12b-2 of the Exchange Act, (Check one):
☐
Large accelerated filer☑ Smaller Reporting Company ☐
Emerging growth companyIf 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 November 3, 2017,May 10, 2023, the Registrant had 22,802,06066,595,606 shares of common stock, par value $0.01 per share, outstanding.
Fiscal | Page |
PART I – FINANCIAL INFORMATION | |
ITEM 1. Financial Statements | |
Cadiz Inc. Condensed Consolidated Financial Statements | |
| 2022 | 1 |
| 2022 | 2 |
| 2022 | 3 |
| March 31, 2023 and 2022 | 4 |
6 | |
20 | |
26 | |
26 | |
PART II – OTHER INFORMATION | |
27 | |
27 | |
27 | |
27 | |
27 | |
27 | |
28 |
Cadiz Inc.
| For the Three Months | For the Three Months | |||||||||||||||
| Ended September 30, | Ended March 31, | |||||||||||||||
| ($ in thousands, except per share data) | 2017 | 2016 | 2023 | 2022 | ||||||||||||
| Total revenues | $ | 111 | $ | 120 | $ | 130 | $ | 142 | ||||||||
| Costs and expenses: | ||||||||||||||||
| General and administrative | 2,456 | 1,977 | 3,953 | 3,806 | ||||||||||||
| Depreciation | 69 | 73 | 329 | 121 | ||||||||||||
| Total costs and expenses | 2,525 | 2,050 | 4,282 | 3,927 | ||||||||||||
| Operating loss | (2,414 | ) | (1,930 | ) | (4,152 | ) | (3,785 | ) | ||||||||
| Interest expense, net | (3,577 | ) | (3,244 | ) | ||||||||||||
Interest expense | (1,504 | ) | (1,991 | ) | ||||||||||||
Interest income | 168 | - | ||||||||||||||
| Gain on derivative liability | 130 | - | ||||||||||||||
Loss on early extinguishment of debt | (5,331 | ) | - | |||||||||||||
| Loss before income taxes | (5,991 | ) | (5,174 | ) | (10,689 | ) | (5,776 | ) | ||||||||
| Income tax expense | 1 | 1 | (2 | ) | (2 | ) | ||||||||||
Loss from equity-method investments | - | (134 | ) | |||||||||||||
Net loss and comprehensive loss | $ | (10,691 | ) | $ | (5,912 | ) | ||||||||||
Less: Preferred stock dividend | (1,265 | ) | (1,265 | ) | ||||||||||||
| Net loss and comprehensive loss applicable to common stock | $ | (5,992 | ) | $ | (5,175 | ) | $ | (11,956 | ) | $ | (7,177 | ) | ||||
| Basic and diluted net loss per common share | $ | (0.26 | ) | $ | (0.28 | ) | $ | (0.19 | ) | $ | (0.16 | ) | ||||
| Basic and diluted weighted average shares outstanding | 22,857 | 18,809 | 62,638 | 44,433 | ||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
Cadiz Inc.
Condensed Consolidated Statements of Operations and Comprehensive LossBalance Sheets (Unaudited)
| March 31, | December 31, | |||||||
| ($ in thousands, except per share data) | 2023 | 2022 | ||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
Cash and cash equivalents | $ | 26,277 | $ | 9,997 | ||||
Restricted cash | 1,265 | 1,288 | ||||||
Accounts receivable | 225 | 454 | ||||||
Prepaid expenses and other current assets | 1,690 | 696 | ||||||
Total current assets | 29,457 | 12,435 | ||||||
Property, plant, equipment and water programs, net | 85,199 | 84,138 | ||||||
Long-term deposit/prepaid expenses | 420 | 420 | ||||||
Goodwill | 5,714 | 5,714 | ||||||
Right-of-use asset | 524 | 553 | ||||||
Long-term restricted cash | 1,232 | 2,497 | ||||||
Other assets | 5,001 | 5,030 | ||||||
Total assets | $ | 127,547 | $ | 110,787 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 1,404 | $ | 1,107 | ||||
Accrued liabilities | 1,070 | 1,545 | ||||||
Current portion of long-term debt | 131 | 140 | ||||||
Dividend payable | 1,265 | 1,288 | ||||||
Contingent consideration liabilities | 1,450 | 1,450 | ||||||
Operating lease liabilities | 109 | 109 | ||||||
Total current liabilities | 5,429 | 5,639 | ||||||
Long-term debt, net | 36,620 | 48,950 | ||||||
Long-term lease obligations with related party, net | 21,251 | 20,745 | ||||||
Derivative liabilities | 2,220 | - | ||||||
Long-term operating lease liabilities | 418 | 444 | ||||||
Deferred revenue | 750 | 750 | ||||||
Other long-term liabilities | 37 | 36 | ||||||
Total liabilities | 66,725 | 76,564 | ||||||
| Commitments and contingencies (Note 10) | ||||||||
Stockholders’ equity: | ||||||||
Preferred stock - $.01 par value; 100,000 shares authorized at March 31, 2023 and December 31, 2022; shares issued and outstanding – 329 at March 31, 2023 and December 31, 2022 | 1 | 1 | ||||||
8.875% Series A cumulative, perpetual preferred stock - $.01 par value; 7,500 shares authorized at March 31, 2023 and December 31, 2022; shares issued and outstanding – 2,300 at March 31, 2023 and December 31, 2022 | 1 | 1 | ||||||
Common stock - $.01 par value; 70,000,000 shares authorized at March 31, 2023 and December 31, 2022; shares issued and outstanding – 66,541,262 at March 31, 2023 and 55,823,810 at December 31, 2022 | 663 | 556 | ||||||
Additional paid-in capital | 675,411 | 636,963 | ||||||
Accumulated deficit | (615,254 | ) | (603,298 | ) | ||||
Total stockholders’ equity | 60,822 | 34,223 | ||||||
Total liabilities and stockholders’ deficit | $ | 127,547 | $ | 110,787 | ||||
| For the Nine Months | ||||||||
| Ended September 30, | ||||||||
| ($ in thousands, except per share data) | 2017 | 2016 | ||||||
| Revenues | $ | 327 | $ | 303 | ||||
| Costs and expenses: | ||||||||
| General and administrative | 8,747 | 6,973 | ||||||
| Depreciation | 212 | 219 | ||||||
| Total costs and expenses | 8,959 | 7,192 | ||||||
| Operating loss | (8,632 | ) | (6,889 | ) | ||||
| Interest expense, net | (14,653 | ) | (10,473 | ) | ||||
| Loss on extinguishment of debt and debt refinancing | (3,501 | ) | (2,250 | ) | ||||
| Loss before income taxes | (26,786 | ) | (19,612 | ) | ||||
| Income tax expense | 3 | 3 | ||||||
| Net loss and comprehensive loss applicable to common stock | $ | (26,789 | ) | $ | (19,615 | ) | ||
| Basic and diluted net loss per common share | $ | (1.19 | ) | $ | (1.07 | ) | ||
| Basic and diluted weighted average shares outstanding | 22,471 | 18,319 | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
Cadiz Inc.
Condensed Consolidated Balance SheetsStatements of Cash Flows (Unaudited)
For the Three Months | ||||||||
Ended March 31, | ||||||||
($ in thousands) | 2023 | 2022 | ||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (10,691 | ) | (5,912 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation | 329 | 121 | ||||||
Amortization of debt discount and issuance costs | 194 | 568 | ||||||
Amortization of right-of-use asset | 29 | 6 | ||||||
Interest expense added to loan principal | 166 | - | ||||||
Interest expense added to lease liability | 500 | 442 | ||||||
| Unrealized gain on derivative liability | (130 | ) | - | |||||
| Loss on early extinguishment of debt | 5,331 | - | ||||||
Loss on equity method investments | - | 134 | ||||||
Compensation charge for stock and share option awards | 326 | 433 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 229 | 146 | ||||||
Prepaid expenses and other current assets | (994 | ) | (102 | ) | ||||
Other assets | 29 |
| (271 | ) | ||||
Accounts payable | 523 | 664 | ||||||
Lease liabilities | (26 | ) | (246 | ) | ||||
Other accrued liabilities | 116 | 795 | ||||||
Net cash used in operating activities | (4,069 | ) | (3,222 | ) | ||||
Cash flows from investing activities: | ||||||||
Additions to property, plant and equipment and water programs | (2,206 | ) | (530 | ) | ||||
Contributions to equity-method investments | - |
| (100 | ) | ||||
Net cash used in investing activities | (2,206 | ) | (630 | ) | ||||
Cash flows from financing activities: | ||||||||
Net proceeds from issuance of stock | 38,490 | 11,741 | ||||||
Dividend payments | (1,288 | ) | (1,288 | ) | ||||
Principal payments on long-term debt | (15,047 | ) | (35 | ) | ||||
| Issuance costs of long-term debt | (27 | ) | - | |||||
| Costs for early extinguishment of debt | (600 | ) | - | |||||
| Taxes paid related to net share settlement of equity awards | (261 | ) | - | |||||
Net cash provided by financing activities | 21,267 | 10,418 | ||||||
Net increase in cash, cash equivalents and restricted cash | 14,992 | 6,566 | ||||||
Cash, cash equivalents and restricted cash, beginning of period | 13,782 | 19,856 | ||||||
Cash, cash equivalents and restricted cash, end of period | $ | 28,774 | $ | 26,422 | ||||
| September 30, | December 31, | |||||||
| ($ in thousands, except per share data) | 2017 | 2016 | ||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 16,055 | $ | 12,172 | ||||
| Accounts receivable | 56 | 39 | ||||||
| Prepaid expenses and other current assets | 525 | 3,391 | ||||||
| Total current assets | 16,636 | 15,602 | ||||||
| Property, plant, equipment and water programs, net | 44,724 | 44,182 | ||||||
| Goodwill | 3,813 | 3,813 | ||||||
| Other assets | 3,716 | 3,502 | ||||||
| Total assets | $ | 68,889 | $ | 67,099 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 418 | $ | 439 | ||||
| Accrued liabilities | 597 | 3,953 | ||||||
| Current portion of long-term debt | 1,378 | 170 | ||||||
| Warrant liabilities | 6,642 | - | ||||||
| Total current liabilities | 9,035 | 4,562 | ||||||
| Long-term debt, net | 120,929 | 102,374 | ||||||
| Long-term lease obligations, net | 13,023 | 12,287 | ||||||
| Deferred revenue | 750 | 750 | ||||||
| Other long-term liabilities | 1,443 | 1,443 | ||||||
| Total liabilities | 145,180 | 121,416 | ||||||
| Stockholders' deficit: | ||||||||
| Common stock - $.01 par value; 70,000,000 shares | ||||||||
| authorized at September 30, 2017 and December 31, 2016; | ||||||||
| shares issued and outstanding - 22,530,376 at | ||||||||
| September 30, 2017 and 21,768,864 at December 31, 2016 | 225 | 218 | ||||||
| Additional paid-in capital | 360,144 | 355,336 | ||||||
| Accumulated deficit | (436,660 | ) | (409,871 | ) | ||||
| Total stockholders' deficit | (76,291 | ) | (54,317 | ) | ||||
| Total liabilities and stockholders' deficit | $ | 68,889 | $ | 67,099 | ||||
See accompanying notes to the unaudited condensed consolidated financial statements.
Cadiz Inc.
Condensed Consolidated Statements of Cash FlowsStockholders’ Equity (Unaudited)
For the three months ended March 31, 2023 ($ in thousands, except share data)
8.875% Series A Cumulative | Additional | Total | ||||||||||||||||||||||||||||||||||
Common Stock | Preferred Stock | Perpetual Preferred Stock | Paid-in | Accumulated | Stockholders’ | |||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||||||||
Balance as of December 31, 2022 | 55,823,810 | $ | 556 | 329 | $ | 1 | 2,300 | $ | 1 | $ | 636,963 | $ | (603,298 | ) | $ | 34,223 | ||||||||||||||||||||
Stock-based compensation expense | 217,452 | 2 | - | - | - | - | 63 | - | 65 | |||||||||||||||||||||||||||
Issuance of shares pursuant to direct offerings | 10,500,000 | 105 | - | - | - | - | 38,385 | - | 38,490 | |||||||||||||||||||||||||||
Dividends declared on 8.875% series A cumulative perpetual preferred shares ($550 per share) | - | - | - | - | - | - | - | (1,265 | ) | (1,265 | ) | |||||||||||||||||||||||||
Net loss and comprehensive loss | - | - | - | - | - | - | - | (10,691 | ) | (10,691 | ) | |||||||||||||||||||||||||
Balance as of March 31, 2023 | 66,541,262 | 663 | 329 | $ | 1 | 2,300 | $ | 1 | 675,411 | (615,254 | ) | 60,822 | ||||||||||||||||||||||||
| For the Nine Months | ||||||||
| Ended September 30, | ||||||||
| ($ in thousands) | 2017 | 2016 | ||||||
| Cash flows from operating activities: | ||||||||
Net loss Adjustments to reconcile net loss to | $ | (26,789 | ) | (19,615 | ) | |||
| net cash used in operating activities: | ||||||||
| Depreciation | 212 | 219 | ||||||
| Amortization of debt discount and issuance costs | 2,829 | 3,277 | ||||||
| Interest expense added to loan principal | 6,884 | 6,399 | ||||||
| Interest expense added to lease liability | 718 | 543 | ||||||
| Loss on debt conversion | 56 | - | ||||||
| Loss on early extinguishment of debt | 3,501 | 2,250 | ||||||
| Compensation charge for stock and share option awards | 2,027 | 974 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| (Increase) decrease in accounts receivable | (17 | ) | 121 | |||||
| Decrease (increase) in prepaid expenses and other | 2,866 | (3,146 | ) | |||||
| (Increase) in other assets | (214 | ) | (214 | ) | ||||
| (Decrease) increase in accounts payable | (53 | ) | 350 | |||||
| (Decrease) increase in accrued liabilities | (3,493 | ) | 2,432 | |||||
| Increase in warrant liabilities | 3,747 | - | ||||||
Net cash used in operating activities | (7,726 | ) | (6,410 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Additions to property, plant and equipment | (671 | ) | - | |||||
| Net cash used in investing activities | (671 | ) | - | |||||
| 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 | - | (97 | ) | |||||
| Principal payments on long-term debt | (44,910 | ) | (11,399 | ) | ||||
| Net cash provided by financing activities | 12,280 | 7,613 | ||||||
| Net increase in cash and cash equivalents | 3,883 | 1,203 | ||||||
| Cash and cash equivalents, beginning of period | 12,172 | 2,690 | ||||||
| Cash and cash equivalents, end of period | $ | 16,055 | $ | 3,893 | ||||
See accompanying notes to the unaudited condensed consolidated financial statements.
Cadiz Inc.
For the three months ended March 31, 2022 ($ in thousands, except share data)
8.875% Series A Cumulative | Additional | Total | ||||||||||||||||||||||||||||||||||
Common Stock | Preferred Stock | Perpetual Preferred Stock | Paid-in | Accumulated | Stockholders’ | |||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||||||||
Balance as of December 31, 2021 | 43,656,169 | $ | 435 | 329 | $ | 1 | 2,300 | $ | 1 | $ | 613,572 | $ | (573,400 | ) | $ | 40,609 | ||||||||||||||||||||
Stock-based compensation expense | 236,995 | 2 | - | - | - | - | 431 | - | 433 | |||||||||||||||||||||||||||
Issuance of shares pursuant to direct offerings | 6,857,140 | 69 | - | - | - | - | 11,672 | - | 11,741 | |||||||||||||||||||||||||||
Dividends declared on 8.875% series A cumulative perpetual preferred shares ($550 per share) | - | - | - | - | - | - | - | (1,265 | ) | (1,265 | ) | |||||||||||||||||||||||||
Net loss and comprehensive loss | - | - | - | - | - | - | - | (5,912 | ) | (5,912 | ) | |||||||||||||||||||||||||
Balance as of March 31, 2022 | 50,750,304 | 506 | 329 | $ | 1 | 2,300 | $ | 1 | 625,675 | (580,577 | ) | 45,606 | ||||||||||||||||||||||||
| 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 | 326,163 | 3 | 2,253 | - | 2,256 | |||||||||||||||
| Stock-based compensation expense | 405,643 | 4 | 2,122 | - | 2,126 | |||||||||||||||
| Net loss and comprehensive loss | - | - | - | (26,789 | ) | (26,789 | ) | |||||||||||||
| Balance as of September 30, 2017 | 22,530,376 | $ | 225 | $ | 360,144 | $ | (436,660 | ) | $ | (76,291 | ) | |||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
Cadiz Inc.
NOTE 1– BASIS OF PRESENTATION
The Condensed Consolidated Financial Statements and notes have been prepared by Cadiz Inc., also referred to as "Cadiz"“Cadiz” or "the Company"“the Company”, without audit and should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company'sCompany’s Annual Report on Form 10-K10-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'sCompany’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 nine months ended September 30, 2017 March 31, 2023, 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 $26.8$10.7 million for the ninethree months ended September 30, 2017, March 31, 2023, compared to $19.6$5.9 million for the ninethree months ended September 30, 2016. March 31, 2022. The Company had working capital of $7.6$24.0 million at September 30, 2017, March 31, 2023, and used cash in its operations of $7.7$4.1 million for the ninethree months ended September 30, 2017.
Cash requirements during the ninethree months ended September 30, 2017 March 31, 2023, primarily reflect certain administrative costs related to the Company'sCompany’s agricultural operations, water projecttreatment business and the ongoing development efforts. Currently,of the Company's sole focus isCompany’s land, water, infrastructure and technology assets for water solutions including the Cadiz Water Conservation & Storage Project (“Water Project”). The Company’s present activities are focused on the development of its landassets in ways that meet growing long-term demand for access to safe and reliable clean water assets.
On January 30, 2023, the Company completed the sale and its convertible notes contain representations, warranties and covenants that are typical for agreementsissuance of this type, including restrictions that would limit10,500,000 shares of 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 additionalCompany’s common stock to fund futurecertain institutional investors in a registered direct offering ( “January 2023 Direct Offering”). The shares of common stock were sold at a purchase price of $3.84 per share, for aggregate gross proceeds of $40.32 million and aggregate net proceeds of approximately $38.5 million. A portion of the proceeds were used to repay the Company’s debt in the principal amount of $15 million, together with fees and interest required to be paid in connection with such repayment under the Credit Agreement. The remaining proceeds will be used for capital expenditures to accelerate development of the Company’s water supply project, working capital needs. The debt covenants associated withand development of additional water resources to meet increased demand on an accelerated timetable.
Cadiz Inc.
Notes to 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 September 30, 2017, Consolidated Financial Statements
On February 2, 2023, the Company was in complianceand its wholly-owned subsidiary, Cadiz Real Estate LLC, as borrowers (collectively, the “Borrowers”) entered into a First Amendment to Credit Agreement with BRF Finance Co., LLC (“Lenders”) and B. Riley Securities, Inc., (“BRS”) as administrative agent, to amend certain provisions of the Credit Agreement dated as of July 2, 2021 (“First Amended Credit Agreement”), Under the First Amended Credit Agreement, the lenders will have a right to convert up to $15 million of outstanding principal, plus any PIK interest and any accrued and unpaid interest (the “Convertible Loan”) into shares of the Company’s common stock at a conversion price of $4.80 per share (the “Conversion Price”) (see “Note 3 – Long-Term Debt”, below).
The Company may meet its debt covenants.
Management assesses whether the Company has sufficient liquidity to fund its costs for the next twelve months from each financial statement issuance date. Management evaluates the Company’s liquidity to determine if there is a substantial doubt about the Company’s ability to continue as a going concern. In the preparation of this liquidity assessment, management applies judgement to estimate the projected cash flows of the Company including the following: (i) projected cash outflows (ii) projected cash inflows, (iii) categorization of expenditures as discretionary versus non-discretionary and (iv) the ability to raise capital. The cash flow projections are based on known or planned cash requirements for operating costs as well as planned costs for project development.
Limitations on the Company'sCompany’s liquidity and ability to raise capital may adversely affect it. Sufficient liquidity is critical to meet the Company'sCompany’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
During the ninethree months ended September 30, 2017, March 31, 2023, approximately $433 thousand$537,000 in interest payments on the corporateCompany’s senior secured debt was paid in stock. As a result, 29,706 shares of common stock were issuedcash and approximately $166,000 was recorded as interest payable in kind. There are no scheduled principal payments due on the senior secured debt prior to its maturity.
Cadiz Inc.
Notes to the lenders.
At March 31, 2023, accruals for cash dividends payable on the New Senior Secured Debt, the Company issued a warrant to purchase an aggregate of 357,500 shares of its common stock ("2017 Warrant"Series A Preferred Stock was $1.27 million (see Note 9 – “Common and Preferred Stock”). The Company recorded a debt discount at the timecash dividends were paid on April 14, 2023.
The balance of the closing of the New Senior Secured Debtcash, cash equivalents, and restricted cash as shown in the amount of $2.9 million which was the fair value of the 2017 Warrant issued. The fair value of the 2017 Warrant will be re-measured each reporting period, and the change in warrant value will be recorded as an adjustment to the derivative liability.
Cash, Cash Equivalents and Restricted Cash | March 31, 2023 | December 31, 2022 | March 31, 2022 | |||||||||
(in thousands) | ||||||||||||
Cash and Cash Equivalents | $ | 26,277 | $ | 9,997 | $ | 18,819 | ||||||
Restricted Cash | 1,265 | 1,288 | 1,265 | |||||||||
Long Term Restricted Cash | 1,232 | 2,497 | 6,338 | |||||||||
Cash, Cash Equivalents and Restricted Cash in the Consolidated Statement of Cash Flows | $ | 28,774 | $ | 13,782 | $ | 26,422 | ||||||
The restricted cash amounts primarily represent funds deposited into a segregated account, representing an amount sufficient to pre-fund quarterly dividend payments on Series A Preferred Stock underlying the Depositary Shares issued an accounting standards update relatedin the Depositary Share Offering through approximately July 2023.
ATEC Water Systems, LLC
On November 9, 2022, the Company completed the acquisition of the assets of ATEC Systems, Inc. into ATEC Water Systems, LLC (“ATEC”), a water filtration technology company, at a purchase price of up to lease accounting$2.2 million (“ATEC Acquisition”). The final allocation of purchase consideration to assets and liabilities is ongoing as the Company continues to evaluate certain balances, estimates and assumptions during the measurement period. Consistent with the allowable time to complete the Company’s assessment, the valuation of certain acquired assets and liabilities, 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 leasesenvironmental liabilities 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 Companyincome taxes, is currently evaluating this new guidance and cannot determine the impact of this standard at this time.
Recent Accounting Pronouncements
Accounting Guidance Adopted
In AugustJune 2016, the FASBFinancial Accounting Standards Board (“FASB”) issued an accounting standards update which eliminatesintroduces new guidance for the diversity in practice related to the classification ofaccounting for credit losses on certain cash receipts and payments in the statement of cash flows, by adding or clarifying guidance on eight specific cash flow issues.financial instruments. This guidanceupdate is effective for fiscal years beginning after December 15, 2017, 2022, and for interim periods within those fiscal years, but early adoption is permitted. While the Company continues to asses all potential impacts of this standard, the Company does not currently expect the adoption of this standard to have a material impact on the Company's condensed consolidated financial statements.
Cadiz Inc.
Notes to the FASB issued an accounting standards updateConsolidated Financial Statements
NOTE 2– REPORTABLE SEGMENTS
The Company currently operates in two segments based upon its organizational structure and the way in which eliminates Step 2its operations are managed and evaluated. The Company’s largest segment is Land and Water Resources, which comprises all activities regarding its properties in the eastern Mojave Desert including development of the Water Project, and agricultural operations. The Company’s second operating segment is its water treatment business, ATEC Water Systems LLC (“ATEC”) which provides innovative water filtration solutions for impaired or contaminated groundwater sources. The Company acquired the assets of ATEC Systems, Inc. in November 2022 into its new subsidiary ATEC. There were no intersegment sales during the quarter.
We evaluate our performance based on segment operating (loss). Interest expense, income tax expense and losses related to equity method investments are excluded from the goodwill impairment test. Entities should perform their goodwill impairment tests by comparing the fair valuecomputation of a reporting unit with its carrying amount and recognize an impairment chargeoperating (loss) for the amount by whichsegments. Segment net revenue, segment operating expenses and segment operating (loss) information consisted of the carrying amount exceedsfollowing for 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. three months ended March 31, 2023:
Three Months Ended March 31, 2023 | ||||||||||||
(in thousands) | Land and Water Resources | Water Treatment | Total | |||||||||
Revenues | $ | 130 | $ | - | $ | 130 | ||||||
Total revenues | 130 | - | 130 | |||||||||
Costs and expenses: | ||||||||||||
General and administrative | 3,789 | 164 | 3,953 | |||||||||
Depreciation | 278 | 51 | 329 | |||||||||
Total costs and expenses | 4,067 | 215 | 4,282 | |||||||||
Operating loss | $ | (3,937 | ) | $ | (215 | ) | $ | (4,152 | ) | |||
The Company adopted this guidance on September 30, 2017,only operated in one segment during the three months ended March 31, 2022 as the water treatment segment did not exist prior to the ATEC Acquisition in November 2022.
Assets by operating segment are as follows (dollars in thousands):
| March 31, 2023 | December 31, 2022 | |||||
Operating Segment: | |||||||
Water and Land Resources | $ | 124,050 | $ | 107,439 | |||
Water Treatment | 3,497 | 3,348 | |||||
| $ | 127,547 | $ | 110,787 | ||||
Goodwill by operating segment is as follows (dollars in thousands):
| March 31, 2023 | December 31, 2022 | |||||
Operating Segment: | |||||||
Water and Land Resources | $ | 3,813 | $ | 3,813 | |||
Water Treatment | 1,901 | 1,901 | |||||
| $ | 5,714 | $ | 5,714 | ||||
Property, plant, equipment and water programs consist of the new standard did not have a material impact on the Company's condensed consolidated financial statements.following (dollars in thousands):
March 31, 2023 | ||||||||
Water and Land Resources | Water Treatment | |||||||
Land and land improvements | $ | 32,038 | $ | - | ||||
Water programs | 29,366 | - | ||||||
Pipeline | 22,092 | - | ||||||
Buildings | 1,715 | - | ||||||
Leasehold improvements, furniture and fixtures | 1,606 | 3 | ||||||
Machinery and equipment | 3,478 | 176 | ||||||
Construction in progress | 3,195 | - | ||||||
93,490 | 179 | |||||||
Less accumulated depreciation | (8,419 | ) | (51 | ) | ||||
$ | 85,071 | $ | 128 | |||||
December 31, 2022 | ||||||||
Water and Land Resources | Water Treatment | |||||||
Land and land improvements | $ | 30,579 | $ | - | ||||
Water programs | 29,210 | - | ||||||
Pipeline | 22,091 | - | ||||||
Buildings | 1,715 | - | ||||||
Leasehold improvements, furniture and fixtures | 1,606 | 3 | ||||||
Machinery and equipment | 3,229 | 166 | ||||||
Construction in progress | 3,680 | - | ||||||
92,110 | 169 | |||||||
Less accumulated depreciation | (8,141 | ) | - |
| ||||
$ | 83,969 | $ | 169 | |||||
NOTE 2 3– LONG-TERM DEBT
The carrying value of the Company'sCompany’s senior secured debt approximates fair value. The fair value of the Company'sCompany’s senior secured debt (Level 2)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"), July 2, 2021, 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$50 million senior secured mortgage debt ("Prior credit agreement (“Credit Agreement”) with Lenders and BRS, as administrative agent for the Lenders (“Senior Secured Debt"Debt”). The obligations under the Senior Secured Debt are secured by substantially all of the Company’s assets on a first-priority basis (except as otherwise provided in the Credit Agreement). In connection with any repayment or prepayment of the debt, the Company is required to pay a repayment fee equal to the principal amount being repaid or prepaid, multiplied by (i) 4.0%, if such repayment or prepayment is made on or after the eighteen-month anniversary of the closing of the debt and prior to the thirty-month anniversary of the closing of the debt, and (ii) 6.0%, if such repayment or prepayment is made at any time after the thirty-month anniversary of the closing of the debt. At any time, the Company will be permitted to prepay the principal of the debt, in whole or in part, provided that such prepayment is accompanied by any accrued interest on such principal amount being prepaid plus the applicable repayment fee described above.
Cadiz Inc.
Notes to the Consolidated Financial Statements
On February 2, 2023, the Company entered into a First Amendment to Credit Agreement to amend certain provisions of the Credit Agreement (“First Amended Credit Agreement”). In connection with the First Amended Credit Agreement, the Company repaid $15 million of new senior debt to fund immediate construction related expenditures ("New Senior Secured Debt"). The Newthe Senior Secured Debt together with fees and interest required to be paid in connection with such repayment under the Credit Agreement. Under the First Amended Credit Agreement, the lenders will mature on the earliesthave a right to convert up to $15 million of (a) the four year anniversaryoutstanding principal, plus any PIK interest and any accrued and unpaid interest (the “Convertible Loan”) into shares of the Closing Date, and (b)Company’s common stock at a conversion price of $4.80 per share (the “Conversion Price”). The lenders’ right to convert is conditioned upon the "Springing Maturity Date", which is defined asCompany obtaining stockholder approval of an amendment to its certificate of incorporation to increase the date which is 91 days priornumber of authorized shares of the Company at its next annual meeting of stockholders, expected to be held in June 2023 (“Stockholder Approval”). Additionally, the maturity date of the 7.00% Convertible Senior NotesCredit Agreement was extended from July 2, 2024, to June 30, 2025. Upon obtaining the Stockholder Approval as described below and so long as there is no event 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 indefault under certain provisions of the Credit Agreement, if on the 91st day preceding the maturity date of the New Convertible Notes, the 5-Day VWAP, as defined infor the Credit Agreement will automatically be extended to June 30, 2026, unless the maturity is less than 120%accelerated subject to the terms of the then applicable Conversion Rate, as definedCredit Agreement. The annual interest rate remains unchanged at 7.00%. Interest on $20 million of the principal amount will be paid in cash. Interest on the New Convertible Notes Indenture, and at least $10,000,000 in original$15 million principal amount of the New Convertible Notes is outstanding ((a) or (b), as applicable, the "Maturity Date").
As a result of the calendar day immediately prior to such date of determination. "Applicable Prepayment Premium" means with respect to any repaymentFirst Amended Credit Agreement, the Company bifurcated the new conversion option from the debt and recorded a derivative liability. As 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%.
In the event of certain asset sales, the incurrence of indebtedness or a casualty or condemnation event, in each case, under certain circumstances as described in the Credit Agreement, the Company will be required to use a portion of the proceeds to prepay amounts under the debt. In the event of any additional issuance of depositary receipts (“Depositary Receipts”) representing interests in shares of 8.875% Series A Cumulative Perpetual Preferred Stock (“Series A Preferred Stock”) by the Company, the Company will be required to, within five business days after the receipt of the net cash proceeds, apply 75% of the net cash proceeds to prepay amounts due under the debt (including the applicable repayment fee described above).
Cadiz Inc.
Notes to the Consolidated Financial Statements
The warrant has a five-year termCredit Agreement includes customary affirmative and negative covenants, including delivery of financial statements and other reports. The negative covenants limit the ability of the Company to, among other things, incur debt, incur liens, make investments, sell assets, pay dividends and enter into transactions with affiliates. In addition, the Credit Agreement includes customary events of default and remedies.
While any amount remains outstanding under the debt, the Lenders will have the right to convert the outstanding principal, plus unpaid interest, on the debt into Depositary Receipts at the per share exchange price of $25.00, as follows:
● | at any time after the 18-month anniversary of the closing of the debt, and on or before the 24-month anniversary of the closing of the debt, up to 75% of the principal and unpaid interest on the debt may be exchanged into Depositary Receipts; and |
● | at any time after the 24-month anniversary of the closing of the debt, up to 100% of the principal and unpaid interest on the debt may be exchanged for Depositary Receipts. |
In connection with the issuance of the Senior Secured Debt, on July 2, 2021 (the “Original Issue Date”) the Company issued to the Lenders two warrants (“A Warrants” and “B Warrants”), each granting an option to purchase 500,000 shares of our common stock (collectively, the “Warrants”). The A Warrants may be exercised any time prior to July 2, 2024 (the “Expiration Date”) and have an exercise price of $14.94$17.38 equal to 120% of the closing price per share subject to adjustment.
NOTE 3 4– STOCK-BASED COMPENSATION PLANS AND WARRANTS
The Company has issued options and has granted stock awards pursuant to its 2009 Equity Incentive Plan and 20142019 Equity Incentive Plan, as described below.
2019 Equity Incentive Plan
The 20092019 Equity Incentive Plan (“2019 EIP”) was originally approved by stockholders at the 2009 July 10, 2019 Annual Meeting, with an amendment to the plan approved by stockholders at the July 12, 2022 Annual Meeting. The plan, as amended, provides for the grant and issuance of up to 850,0002,700,000 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.
Effective July 1, 2021, 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 expense of $1.7 million during the nine months ended September 30, 2017, to reflect the issuance of these shares. The Company recorded no stock compensation expense during the three months ended September 30, 2017 related to the issuance of these shares.
Cadiz Inc.
Notes to the nine months ended September 30, 2017 and 2016. Additionally, no options were exercised during the nine months ended September 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 850,0002,700,000 shares reserved under the 20092019 Equity Incentive Plan, 297,265as amended, 1,837,043 shares were issued as share grants and 507,500 were issued as options. Upon approval of the 2014 Equity Incentive Plan in June 2014, 45,235 shares remaining available for award under the 2009 Equity Incentive Plan were cancelled.
825,000 RSUs were granted to employees in April 2021 as long-term equity incentive awards ( “April 2021 RSU Grant”). Of the 825,000 RSUs granted under the April 2021 RSU Grant, 510,000 RSUs were scheduled to vest upon completion of certain milestones, including (a) 255,000 RSUs which vested in July 2021 upon completion of refinancing of the Company’s then existing senior secured debt and funding to complete the purchase of the northern Pipeline (“ Northern Pipeline Vesting Event”), and (b) 255,000 RSUs scheduled to vest upon completion of final binding water supply agreement(s) for the delivery of at least 9,500 acre-feet of water per annum to customers. Of the remaining 315,000 RSUs granted under the April 2021 RSU Grant, 60,000 RSUs vested and were issued on January 3, 2023, and 255,000 RSUs vested and were issued on March 1, 2023. Additionally, in July 2022, 60,000 RSUs were granted to employees as long-term equity incentive awards ( “July 2022 RSU Grant”). The RSUs granted under the July 2022 RSU Grant are scheduled to vest on January 2, 2024. The RSU incentive awards are subject in each case to continued employment with the Company recognizedthrough the vesting date.
Of the 255,000 RSUs earned upon the Northern Pipeline Vesting Event, the Company issued 158,673 shares net of taxes withheld and paid in cash by the Company. Of the 255,000 RSUs issued on March 1, 2023, the Company issued 158,673 shares net of taxes withheld and paid in cash by the Company.
Upon the change of the Company’s Executive Chair on February 4, 2022, a total of 170,000 unvested RSUs were accelerated and became fully vested as a result of an amended employee agreement, which included 85,000 RSUs scheduled to vest upon completion of final binding water supply agreement(s) and 85,000 RSUs scheduled to vest on March 1, 2023.
Additionally, the Company issued 450,000 of performance stock units (“PSUs”) upon achievement of certain performance events. The PSUs vest upon the Company’s common stock achieving price hurdles (“Price Hurdles”) but not sooner than three years from date of grant, including (a) 200,000 PSUs to vest upon a Price Hurdle of $7 per share, (b) 150,000 PSUs to vest upon a Price Hurdle of $9 per share, (c) 50,000 PSUs to vest upon a Price Hurdle of $11 per share, and (d) 50,000 PSUs to vest upon a Price Hurdle of $13 per share and are payable, at the option of the Compensation Committee, in either common stock or cash. The PSU incentive award is subject to continue employment with the Company through the vesting date.
The accompanying consolidated statements of operations and comprehensive loss include approximately $326,000 and $433,000 of stock-based compensation costs of $107,000 and $215,000 forexpense related to stock awards in the three months ended September 30, 2017 March 31, 2023 and 2016, respectively; and $2,027,000 and $974,000 for2022, respectively.
Cadiz Inc.
Notes to the nine months ended September 30, 2017 and 2016, respectively.
NOTE 4 5– INCOME TAXES
As of September 30, 2017, March 31, 2023, the Company had net operating loss ("NOL"(“NOL”) carryforwards of approximately $279$336 million for federal income tax purposes and $168$289 million for California state income tax purposes. Such carryforwards expire in varying amounts through the year 2037.2037 and 2042 for federal and California purposes, respectively. For federal losses arising in tax years ending after December 31, 2017, the NOL carryforwards are allowed indefinitely. Use of the carryforward amounts is subject to an annual limitation as a result of a previous ownership changes.
As of September 30, 2017, March 31, 2023, the Company hadCompany's 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 these assets.
The Company's tax years 20142019 through 20162022 remain subject to examination by the Internal Revenue Service, and tax years 20132018 through 20162022 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 theseall deferred assets. Accordingly, no deferred tax asset has been reflected in the accompanying condensed consolidated balance sheets.sheet.
NOTE 5 6– NET LOSS PER COMMON SHARE
Basic net loss per common share is computed by dividing the net loss by the weighted-average common shares outstanding. Options, deferred stock units, convertible debt, convertible preferred shares and warrants and the zero coupon term loan convertible into or exercisable for certain shares of the Company's common stock were not considered in the computation of net loss per share because their inclusion would have been antidilutive. Had these instruments been included, the fully diluted weighted average shares outstanding would have increased by approximately 11,193,0001,819,000 and 11,923,0001,533,000 for the three months ended September 30, 2017 March 31, 2023 and 2022, respectively. Shares related to the Convertible Loan have been excluded until stockholder approval is obtained.
NOTE 7– LEASES & PROPERTY, PLANT, EQUIPMENT AND WATER PROGRAMS
The Company has operating leases for right-of-way agreements, corporate offices, vehicles and office equipment. The Company’s leases have remaining lease terms of 1 month to 43 months as of March 31, 2023, 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 included in the lease term. The Company does not have any finance leases.
Cadiz Inc.
Notes to the Consolidated Financial Statements
As a lessor, in February 2016, respectively;the Company entered into a lease agreement with Fenner Valley Farms LLC (“FVF”) (the “lessee”), pursuant to which FVF is leasing, for a 99-year term, 2,100 acres owned by Cadiz in San Bernardino County, California, to be used to plant, grow and 10,888,000 and 10,737,000harvest agricultural crops (“FVF Lease Agreement”). As consideration for the ninelease, FVF paid the Company a one-time payment of $12.0 million upon closing. The Company expects to receive rental income of $420,000 annually over the next five years related to the FVF Lease Agreement.
During the three months ended September 30, 2017March 31, 2023, $1,429,000 on construction in progress was placed into service, which included land development, irrigation systems and 2016,stand establishment related to the planting of 160 acres of alfalfa.
Depreciation expense on land improvements, buildings, leasehold improvements, machinery and equipment and furniture and fixtures was $329,000 and $121,000 for the three months ended March 31, 2023 and 2022, respectively.
NOTE 6 8– FAIR VALUE MEASUREMENTS
Fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. We considerThe Company considers a security that trades at least weekly to have an active market. Fair values determined by Level 2 inputs utilize data points that are observable, such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.
In 2022, the Company recorded a contingent consideration liability in the amount of $1.45 million related to the purchase price of the ATEC acquisition for amounts payable upon the sale of a requisite number of water filtration units under an asset purchase agreement.
| (in thousands) | Level 1 Assets | |||
Balance as of December 31, 2022 | $ | - | ||
Investments in certificates of deposit | 25,649 | |||
| Balance as of March 31, 2023 | $ | 25,649 | ||
| (in thousands) | Level 3 Liabilities | |||
Balance as of December 31, 2022 | $ | (1,450 | ) | |
Derivative liabilities | (2,350 | ) | ||
| Unrealized gains on derivative liabilities | 130 | |||
| Balance as of March 31, 2023 | $ | 3,670 | ||
| Investments at Fair Value as of September 30, 2017 | ||||||||||||||||
| (in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Warrant liabilities | - | (4,537 | ) | (2,105 | ) | (6,642 | ) | |||||||||
| Total warrant liabilities | $ | - | $ | (4,537 | ) | $ | (2,105 | ) | $ | (6,642 | ) | |||||
Cadiz Inc.
Notes to the Consolidated Financial Statements
Investments at Fair Value as of March 31, 2023 | ||||||||||||||||
(in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets | ||||||||||||||||
Certificates of Deposit | $ | 25,649 | $ | - | $ | - | $ | 25,649 | ||||||||
Total Assets | $ | 25,649 | $ | - | $ | - | $ | 25,649 | ||||||||
Liabilities | ||||||||||||||||
| Contingent consideration liabilities | $ | - | $ | - | $ | 1,450 | $ | 1,450 | ||||||||
Derivative liabilities | $ | - | $ | - | $ | 2,220 | $ | 2,220 | ||||||||
Total Liabilities | $ | - | $ | - | $ | 3,670 | $ | 3,670 | ||||||||
NOTE 9– COMMON AND PREFERRED STOCK
Common Stock
The following table presentsCompany is authorized to issue 70 million shares of Common Stock at a reconciliation$0.01 par value. As of Level 3 activity for the three month period ended September 30, 2017:
| Level 3 Liabilities | ||||
| (in thousands) | Warrant Liabilities | |||
| Balance at July 1, 2017 | $ | 2,240 | ||
| Unrealized Gains | (135 | ) | ||
| Balance at September 30, 2017 | $ | 2,105 | ||
| Level 3 Liabilities | ||||
| (in thousands) | Warrant Liabilities | |||
| Balance at January 1, 2017 | $ | - | ||
| New warrants issued | 2,895 | |||
| Unrealized Gains, net | (258 | ) | ||
| Transfers to level 2 | (532 | ) | ||
| Balance at September 30, 2017 | $ | 2,105 | ||
In January 2013, the Company revised its then existing agreement with the law firm of Brownstein Hyatt Farber Schreck LLP (“Brownstein”), a related party. Under this agreement, the Company is to issue an aggregateup to a total of 264,096400,000 shares (the "Shares") of the Company'sCompany’s common stock, with an aggregate value200,000 shares earned to date and 100,000 shares to be earned upon the achievement of $3.3 millioneach of two remaining milestones as follows:
■ | 100,000 shares earned upon the signing of binding agreements for more than 51% of the Water Project’s annual capacity, which is not yet earned; and |
■ | 100,000 shares earned upon the commencement of construction of all of the major facilities contemplated in the Final Environmental Impact Report necessary for the completion and delivery of the Water Project, which is not yet earned. |
All shares earned upon achievement of any of the remaining two milestones will be payable three years from the date earned.
Series 1 Preferred Stock
The Company has issued a total of 10,000 shares of Series 1 Preferred Stock (“Series 1 Preferred Stock”) to certain holders (“Holders”) under certain conversion and exchange agreements entered into in connection with a Payoff Agreement March 2020. Each share of Series 1 Preferred Stock is convertible at any time at the option of the Holder into 405.05 shares of Common Stock. As of March 31, 2023, Holders of Series 1 Preferred Stock exercised their option to convert 9,671 shares of Series 1 Preferred Stock into 3,917,235 shares of Common Stock. The Company has 329 shares of Series 1 Preferred Stock issued and outstanding as of March 31, 2023.
Cadiz Inc.
Notes to the Consolidated Financial Statements
Series A Preferred Stock
On June 29, 2021, the Company entered into an Underwriting Agreement with prior lenders on May 24, 2017. Effective upon the deliveryBRS as representative of the several underwriters named there, to issue and sell an aggregate of 2,000,000 depositary shares (the “Depositary Shares”), as well as up to 300,000 Depositary Shares the 2016 Warrants,sold pursuant to which the prior lenders had a rightexercise of an option to purchase up to 357,500additional Depositary Shares (“Depositary Share Offering”), each representing 1/1000th of a share of the 8.875% Series A Cumulative Perpetual Preferred Stock (the “Series A Preferred Stock”). The Depositary Share Offering was completed on July 2, 2021, for net proceeds of approximately $54 million.
On July 1, 2021, the Company filed the Certificate of Designation (“Certificate of Designation”) for the Series A Preferred Stock with the Secretary of State of the State of Delaware, which became effective upon acceptance for record. The Certificate of Designation classified a total of 7,500 shares of the Company's commonCompany’s authorized shares of preferred stock, may not be exercised$0.01 par value per share, as Series A Preferred Stock.
As set forth in the Certificate of Designation, the Series A Preferred Stock will rank, as to dividend rights and have been deemed cancelled. The derivative liabilityrights upon the Company’s liquidation, dissolution or winding up: (i) senior to Common Stock of $4.5 million recordedthe Company; (ii) junior to the Series 1 Preferred Stock with respect to the distribution of assets upon the Company’s voluntary or involuntary liquidation, dissolution or winding up; (iii) senior to the Series 1 Preferred Stock with respect to the payment of dividends and (iv) effectively junior to all the Company’s existing and future indebtedness (including indebtedness convertible into Common Stock or preferred stock) and to the indebtedness and other liabilities of (as well as any preferred equity interests held by others in) the Company’s existing or future subsidiaries.
Holders of Series A Preferred Stock, when and as authorized by the Company’s Board of Directors, are entitled to cumulative cash dividends at the rate of 8.875% of the $25,000.00 ($25.00 per Depositary Share) liquidation preference per year (equivalent to $2,218.75 per share per year or $2.21875 per Depositary Share per year). Dividends will be payable quarterly in arrears, on or about the 15th of January, April, July and October, beginning on or about October 15,2021. As of March 31, 2023, the Company has paid aggregate cash dividends of $7,843,000. On March 22, 2023, the Company’s Board of Directors declared that holders of Series A Preferred stock will receive a cash dividend equal to $550.00 per whole share; therefore, holders of Depositary Shares will receive a cash dividend equal to $0.55 per Depositary Share. The dividend was paid on April 14, 2023, to respective holders of record as of September 30, 2017 related to the 2016 Warrants will be eliminated during the fourth quarterclose of 2017, resulting in a $1.2 million gain. In connection withbusiness on April 4, 2023.
At the issuance of the Shares,Series A Preferred Stock, the Company increasedpre-funded eight quarterly payments through July 2023 in a segregated account which appears as Restricted Cash on the Balance Sheet. Dividends on the Series A Preferred Stock underlying the depositary shares will continue to accumulate whether or not (i) any of our agreements prohibit the current payment of dividends, (ii) we have earnings or funds legally available to pay the dividends, or (iii) our Board of Directors does not declare the payment of the dividends.
Cadiz Inc.
Notes to the Consolidated Financial Statements
Holders of depositary shares representing interests in the Series A Preferred Stock generally will have no voting rights. However, if we do not pay dividends on any outstanding shares of Series A Preferred Stock for six or more quarterly dividend periods (whether or not declared or consecutive), holders of the Series A Preferred Stock (voting separately as a class with all other outstanding series of preferred stock upon which like voting rights have been conferred and are exercisable) will be entitled to elect two additional directors to the Board of Directors to serve until all unpaid dividends have been fully paid or declared and set apart for payment.
On and after July 2, 2026, the shares of Series A Preferred Stock will be redeemable at the Company’s option, in whole or in part, at a redemption price equal to $25,000.00 per share ($25.00 per Depositary Share), plus any accrued and unpaid dividends. Furthermore, upon a change of control or delisting event (each as defined in the Certificate of Designation), the Company will have a special option to redeem the Series A Preferred Stock at $25,000.00 per share ($25.00 per Depositary Share), plus any accrued and unpaid dividends.
Shares of Series A Preferred Stock are convertible into shares of Common Stock if, and only if, a change of control or delisting event (each as defined in the Certificate of Designation) has occurred, and the Company has not elected to redeem the Series A Preferred Stock prior to the applicable conversion date. Upon any conversion, each share of Series A Preferred Stock will be converted into that number of shares of common stock issuable upon exerciseCommon Stock equal to the lesser of (i) the quotient obtained by dividing (A) the sum of (x) the $25,000 liquidation preference per share plus (y) the amount of an accrued and unpaid dividends to, but not including, the conversion date by (B) the Common Stock Purchase Price (as defined in the Certificate of Designation), and (ii) 3,748.13 (the “Share Cap”), subject to certain adjustments.
The Company has 2,300 shares of Series A Preferred Stock issued and outstanding as of March 31, 2023.
NOTE 10– COMMITMENTS AND CONTINGENCIES
In the normal course of its agricultural operations, the Company handles, stores, transports and dispenses products identified as hazardous materials. Regulatory agencies periodically conduct inspections and, currently, there are no pending claims with respect to hazardous materials.
Pursuant to cost-sharing agreements that have been entered into by participants in the Company’s Water Project, $750,000 in funds have been received in order to offset costs incurred in the environmental analysis of the 2017 Warrant, from 357,500Water Project. These funds may either be reimbursed or credited to 362,500 shares. participants' participation in the Water Project and, accordingly, are fully reflected as deferred revenue as of March 31, 2023, and March 31, 2022.
The 2017 Warrant hasCompany recorded a termcontingent consideration liability in the amount of five years from its issue date of May 25, 2017, and an exercise$1.45 million related to the purchase price of $14.94 per share, subject to adjustment.the ATEC Acquisition for amounts payable upon the sale of a requisite number of water filtration units under an asset purchase agreement.
Cadiz Inc.
Notes to the Consolidated Financial Statements
The Company is from time to time involved in various lawsuits and legal proceedings that arise in the ordinary course of business. At this time, the Company is not aware of any other pending or threatened litigation that it expects will have a material adverse effect on its business, financial condition, liquidity, or operating results. Legal claims are inherently uncertain, however, and it is possible that the Company’s business, financial condition, liquidity and/or operating results could be adversely affected in the future by legal proceedings.
Cadiz Inc.
ITEM 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations
In connection with the "safe harbor"“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"“intends”, "anticipates"“anticipates”, "believes"“believes”, "estimates"“estimates”, "projects"“projects”, "forecasts"“forecasts”, "expects"“expects”, "plans"“plans” and "proposes"“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;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"“Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016.
We are a water solutions provider dedicated to delivering clean, reliable, and affordable water for people through a variety of innovative water supply, storage, conveyance and treatment projects. We are advancing human access to clean water with our unique combination of land, water, infrastructure and water resource development company with 45,000technology assets, cutting-edge innovation, and industry-leading standards of environmental stewardship.
We own approximately 46,000 acres of land with access to high-quality, naturally-recharging groundwater resources 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.
Water Supply – We own vested water rights to withdraw 2.5 million acre-feet of groundwater to support farming and Fenner valleys of eastern San Bernardino County (the "Cadiz/Fenner Property"),off property uses. Because all water in the aquifer system will eventually be lost to evaporation, surplus water that is captured and deliverwithdrawn before it toevaporates is a new water providers throughout Southern California (see "Water Resource Development"). A second phasesupply known as “conserved” water. We have completed extensive environmental review in accordance with local, state and federal laws authorizing the management of the Water Project would offer storagegroundwater aquifer underlying the Cadiz Ranch to conserve an average of up to one50,000 acre-feet of water per year for 50 years for use in communities.
Groundwater Storage - The alluvium aquifer that lies beneath the Cadiz Property is also large enough for conjunctive use as a water “banking” facility, capable of storing an additional 1 million acre-feet of imported surplus water for return during drought periods.
Cadiz Inc.
Pipeline Conveyance – We also own 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 presently preparing to convert the aquifer system.pipeline to transport water. The route of the Northern Pipeline intersects three water conveyance facilities that deliver water to Southern California, the California Aqueduct, the Los Angeles Aqueduct, and the Mojave River Pipeline. The capacity of the Northern Pipeline for water conveyance is 25,000 acre-feet per year (“AFY”).
We are currently in discussions with multiple public water agencies to enter into agreements whereby project participating agencies would finance and operate the Northern Pipeline and lease 25,000 AFY of annual water supply from us. In accordance with such potential agreements, we expect that we will contribute the Northern Pipeline and an annual supply of 25,000 AFY of water from us into a mutual water company to be owned jointly by the parties. In such event, we expect that a JPA comprised of participating agencies will be able to purchase, for a 40-year term (take or pay), 25,000 AFY of water at our wellhead at an agreed upon market price estimated to start at approximately $850/AFY and subject to annual adjustment. Through a JPA, the public water agencies would fund capital costs for conversion of the pipeline from gas to water, construction of pumping stations and appurtenant facilities, and would be able to seek infrastructure funding and grants to achieve their lowest possible cost for delivered water. Any contracts and off take facility construction will be subject to standard environmental review and a project level permitting process. We expect that similar agreements will be negotiated and entered into for water supplies and storage delivered via the Southern Pipeline.
Treatment - 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. ATEC’s specialized filtration media provide cost-effective, high-rate of removal for common groundwater impairments and contaminants that pose health risks in drinking water including iron, manganese, arsenic, Chromium-6, nitrates, and other constituents of concern.
Our agricultural operations provide the Company’s current principal source of revenue, although our working capital needs are not fully supported by our agricultural lease and farming returns at this time. We believe that the ultimate implementation of this Water Projectour water supply, storage, pipeline conveyance and treatment solutions will provide a significant source of future cash flow.
Our current and future operations also include activities that the ultimate implementation of the Water Project will provide the primary source offurther 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 additioncommitments 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.
Cadiz to Freda, California to construct and operate the Water Project's water conveyance pipeline and related railroad improvements from Cadiz to the CRA is within the scope of the original right of way grant and not subject to additional permitting or review. 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.
Results of Operations
Three Months Ended September 30, 2017,March 31, 2023, Compared to Three Months Ended September 30, 2016
We have not received significant revenues from our water resource and real estate development activitysupply, storage, conveyance or treatment assets to date. Our revenues have been limited to rental income from our agricultural operations.leases and from sales from our alfalfa plantings beginning in 2022. As a result, we have historically incurred a net loss from operations. We had revenues of $111 thousandThe reporting segments have been combined as the revenue and operating results for the water treatment business were not material to the Company's consolidated operations during the three months ended September 30, 2017, compared to $120 thousand for the three months ended September 30, 2016.March 31, 2023. We incurred a net loss of $6.0$10.7 million in the three months ended September 30, 2017,March 31, 2023, compared to a $5.2$5.9 million net loss during the three months ended September 30, 2016.March 31, 2022. The higher net2023 loss during the three months ended September 30, 2017 was primarily due to an increasea loss on extinguishment of debt in generalthe amount of $5.3 million resulting from issuance of a conversion instrument, a repayment fee and administrative expense due to pre-construction engineering activities in connectionelimination of debt discount associated with the water project.
Our primary expenses are our ongoing overhead costs associated with the development of the Water Projectour water supply, storage, conveyance and treatment assets (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 totaledGeneral and Administrative Expenses
General and Administrative Expenses, exclusive of stock-based compensation costs, totaledCompensation costs fromfor stock and option awards for the three months ended September 30, 2017,March 31, 2023, were $107 thousand,$0.3 million, compared to $215 thousand$0.4 million for the three months ended September 30, 2016. The higher 2016 expense primarily reflects the vesting schedules of stock awards under the 2014 Equity Incentive Plan.
Interest Expense, net
Net interest expense totaled| Three Months Ended | ||||||||
| September 30, | ||||||||
| 2017 | 2016 | |||||||
| Interest on outstanding debt | $ | 3,013 | $ | 2,541 | ||||
| Unrealized gains on warrants, net | (421 | ) | - | |||||
| Amortization of debt discount | 947 | 639 | ||||||
| Amortization of deferred loan costs | 47 | 64 | ||||||
| Interest income | (9 | ) | - | |||||
| $ | 3,577 | $ | 3,244 | |||||
Three Months Ended | ||||||||
March 31, | ||||||||
2023 | 2022 | |||||||
Interest on outstanding debt | $ | 1,314 | $ | 1,424 | ||||
Amortization of debt discount | 190 | 568 | ||||||
| Other income | - | (1 | ) | |||||
| $ | 1,504 | $ | 1,991 | |||||
Interest Income Taxes
Cadiz Inc.
Gains on Derivative Liabilities Gains on derivative liabilities totaled $130 thousand during the three months ended March 31, 2023, compared to $303 thousand$0 in revenues during the ninethree months ended September 30, 2016. We incurredMarch 31, 2022, resulting from a net lossremeasurement of $26.8 million ina conversion option under the nine months ended September 30, 2017, compared to a $19.6 million net loss during the nine months ended September 30, 2016. The higher year to date net loss in 2017 was primarily due to a $3.5 million lossCompany’s senior secured debt.
Loss on Early Extinguishment of Debt Loss on early extinguishment of debt and $3.6 million in unrealized losses recorded for warrant liabilities accounted for as derivatives related to the New Senior Secured Debt financing. The higher 2017 loss was also related to stock compensation related to the vesting of milestone shares earned by employees.
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2017 | 2016 | |||||||
| Interest on outstanding debt | $ | 8,224 | $ | 7,196 | ||||
| Unrealized losses on warrants, net | 3,562 | - | ||||||
| Amortization of debt discount | 2,730 | 3,093 | ||||||
| Amortization of financing costs | 146 | 184 | ||||||
| Interest income | (9 | ) | - | |||||
| $ | 14,653 | $ | 10,473 | |||||
Liquidity and Capital Resources
Current Financing Arrangements
As we have not received significantsufficient revenues from our developmentwater, agriculture or treatment activities to date, we have been required to obtain financing to bridge the gap between the time water resource and other development expenses are incurred and the time that revenue will commence. Historically, we have addressed these needs primarily through secured debt financing arrangements and private equity placementsplacements.
On January 30, 2023, we completed the sale and issuance of 10,500,000 shares of our common stock to certain institutional investors in a registered direct offering (“January 2023 Direct Offering”). The shares of common stock were sold at a purchase price of $3.84 per share, for aggregate gross proceeds of $40.32 million and aggregate net proceeds of approximately $38.5 million. A portion of the exercise of outstanding stock options and warrants. We have also worked with our secured lendersnet proceeds were used to structurerepay our debt in a way which allows usthe principal amount of $15 million, together with fees and interest required to continuebe paid in connection with such repayment.
The remaining proceeds from the January 2023 Direct Offering will be used for capital expenditures to accelerate development of water supply, storage, conveyance and treatment assets, working capital and development of additional water resources to meet increase demand on an accelerated timetable.
On March 23, 2022, we completed the Water Projectsale and minimize the dilutionissuance of the ownership interests6,857,140 shares of our common stock to certain institutional and individual investors in a registered direct offering. The shares of common stockholders.stock were sold at a purchase price of $1.75 per share, for aggregate gross proceeds of $12 million and aggregate net proceeds of approximately $11.8 million. The proceeds were used for working capital needs and for general corporate purposes.
On November 14, 2022, we completed the sale and issuance of 5,000,000 shares of our common stock to certain institutional investors in a registered direct offering (“November 2022 Direct Offering”). The shares of common stock were sold at a purchase price of $2.00 per share, for aggregate gross proceeds of $10 million and aggregate net proceeds of approximately $9.9 million.
In July 2021, we completed the sale of 2,300,000 depositary shares each representing 1/1000th of a share of Series A Preferred Stock (“Depositary Share Offering”) for net proceeds of approximately $54 million.
Cadiz Inc.
Concurrently in July 2021, we entered into a $50 million new $60 million credit agreement (“Credit Agreement”) (see Note 3 to the Condensed Consolidated Financial Statements – “Long-Term Debt”). The proceeds of the Credit Agreement, together with funds affiliated with Apollo Global Management, LLC ("Apollo") that replaced and refinancedthe proceeds from the Depositary Share Offering, were used to (a) to repay all our then existing $45 millionoutstanding senior secured mortgage debt ("Prior Senior Secured Debt")obligations in the amount of approximately $77.6 million, (b) to deposit approximately $10.2 million into a segregated account, representing an amount sufficient to pre-fund eight quarterly dividend payments on the Series A Preferred Stock underlying the Depositary Shares issued in the Depositary Share Offering, and provided(c) to pay transaction related expenses. The remaining proceeds were used for working capital needs and for general corporate purposes.
On February 2, 2023, we entered into a First Amendment to Credit Agreement to amend certain provisions of the Credit Agreement (“First Amended Credit Agreement), Under the First Amended Credit Agreement, the lenders will have a right to convert up to $15 million of new senior debtoutstanding principal, plus any PIK interest and any accrued and unpaid interest (the “Convertible Loan”) into shares of our common stock at a conversion price of $4.80 per share (the “Conversion Price”). The lenders’ right to fund immediate construction related expenditures ("New Senior Secured Debt"convert is conditioned upon us obtaining stockholder approval of an amendment to its certificate of incorporation to increase the number of authorized shares of the Company at its next annual meeting of stockholders, expected to be held in June 2023 (“Stockholder Approval”). Additionally, funds affiliated with Apollo also executedIn addition, prior to the maturity of the Credit Agreement, we will have the right to require that the lenders convert the outstanding principal amount, plus any PIK Interest and accrued and unpaid interest, of the Convertible Loan if the following conditions are met: (i) the average VWAP of the Company’s common stock on The Nasdaq Stock Market, or such other national securities exchange on which the shares of common stock are listed for trading, over 30 consecutive trading dates exceeds 115% of the then Conversion Price, (ii) a conditional commitment letterregistration statement registering the resale of the shares issuable upon conversion of the Convertible Loan has been declared effective by the Securities and Exchange Commission, (iii) the Stockholder Approval has been obtained, and (iv) there is no event of default under certain provisions of the Credit Agreement.
Under the First Amended Credit Agreement, the maturity date of the Credit Agreement has been extended from July 2, 2024 to fund up to $240 million in construction finance expendituresJune 30, 2025. Upon obtaining the Stockholder Approval and so long as there is no event of default under certain provisions of the Credit Agreement, the maturity date for the Cadiz Water Project, subjectCredit Agreement will automatically be extended to June 30, 2026. The annual interest rate will remain unchanged at 7.00%. Interest on $20 million of the remaining principal amount will be paid in cash. Interest on the $15 million principal amount of the Convertible Loan will be paid in kind on a quarterly basis by addition such amount to the satisfaction of conditions precedent. It is intended to provide the additional resources necessary to complete the construction of Phase Ioutstanding principal amount 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.
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 needs 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, wouldIf additional capital is required, no assurances can be undertaken onlygiven as to the extent necessary, so as to minimize the dilutive effectavailability and terms of any such placements upon our existing stockholders.
As we continue to actively pursue our business strategy, additional financing maywill continue to be required. See "Outlook" below.required (see “Outlook”, below). The covenants in the term debtCredit Agreement do not prohibit our use of additional equity financing and allow us to retain 100% of the proceeds of any common equity financing. We do not expect the loan covenants to materially limit our ability to finance our water and agricultural development activities.
Cadiz Inc.
Cash Used in Operating Activities. Cash used in operating activities totaled $7.7$4.1 million and $6.4$3.2 million for the ninethree months ended September 30, 2017March 31, 2023 and 2016,2022, respectively. The cash was primarily used to fund general and administrativeadministration expenses related to our water development efforts and litigation costs for the nine month periods ended September 30, 2017 and 2016.
Cash Used in Investing Activities
. Cash used in investing activities totaledCash Provided Byby Financing Activities
Outlook
Short-Term Outlook. The 2016 results includeJanuary 2023 Direct Offering provided net cash proceeds of approximately $11.5 million related to the FVF Lease (see Agricultural Development, above) and $7.6 million in$38.5 million. A portion of these net proceeds relatedwere used to convertible note financing offset by $0.1repay our debt in the principal amount of $15 million, together with fees and interest required to be paid in recorded debt issuance costs and a principal paymentconnection with such repayment. The remaining proceeds, together with cash on senior secured debt of approximately $11.4 million.
Long-Term Outlook
. In the longer term, weWe 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 wouldwill be undertaken only to the extent necessary, so as to minimize the dilutive effect of any such placements upon our existing stockholders. No assurances can be given, however, as to the availability or terms of any new financing. Limitations on our liquidity and ability to raise capital may adversely affect us. Sufficient liquidity is critical to meet our resource development activities.
Recent Accounting Pronouncements
See Note 1 to the Condensed Consolidated Financial Statements – "Basis“Basis of Presentation"Presentation”.
Cadiz Inc.
We are a smaller reporting company as defined by Reg. 240.12b-2 of the Company's indebtedness bore interest at fixed rates; therefore,Securities and Exchange Act of 1934 and are not required to provide the Company is not exposed to market risk from changes in interest rates on long-term debt obligations.
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“Principal Executive Officer"Officer”) and Chief Financial Officer (the "Principal“Principal Financial Officer"Officer”) and to its Board of Directors. Based on their evaluation as of September 30, 2017,March 31, 2023, 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, excluding the acquisition of the assets of ATEC Systems, Inc. into ATEC Water Systems, LLC, there was no change identified in the Company's internal controlscontrol 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 controlscontrol over financial reporting.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Cadiz Inc.
PART II - OTHER INFORMATION
ITEM 1. | Legal Proceedings |
There have been no material changes to legal proceedings described in our Annual Report on Form 10-K for the year ended December 31, 2022.
ITEM 1A. | Risk Factors |
There have been no material changes to the risk of adverse interpretations or changes to U.S. federal, state and local laws, regulations and policies. Further,factors described in 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.
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.
Cadiz Inc.
ITEM 6. | Exhibits |
The following exhibits are filed or incorporated by reference as part of this Quarterly Report on Form 10-Q.
| * 32.2 | Certification of | |
| * 101.INS | Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | |
| * 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| * 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| * 101.DEF | Inline XBRL Extension Definition Linkbase Document | |
| * 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| * 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* | Filed concurrently herewith. |
** | Previously filed. |
Cadiz Inc.
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 | May 15, 2023 | ||
Scott S. Slater | Date | |||
Chief Executive Officer and President | ||||
(Principal Executive Officer) | ||||
| By: | May 15, 2023 | |||
Stanley E. Speer | Date | |||
| Chief Financial Officer and Secretary | ||||
(Principal Financial Officer) |