united states
Securities and Exchange Commission
Washington, D. C. 20549
FORM
(Mark One)
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for the quarterly period ended
OR
for the transition period from …… to …….
Commission File Number
Cadiz Inc.
(Exact name of registrant specified in its charter)
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| (State or other jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification No.) |
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| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (
Securities Registered Pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | | |
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer" , "smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
☐ Large accelerated filer ☑
If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes
As of August 5, 2020, the Registrant had
Cadiz Inc.
Index
| Fiscal Second Quarter 2020 Quarterly Report on Form 10-Q |
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| PART I – FINANCIAL INFORMATION |
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| ITEM 1. Financial Statements |
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| Cadiz Inc. Condensed Consolidated Financial Statements |
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| 1 |
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| 2 |
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| Unaudited Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019 |
3 |
| 4 |
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| 5 |
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| 6 |
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| Unaudited Notes to the Condensed Consolidated Financial Statements |
7 |
| ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
15 |
| ITEM 3. Quantitative and Qualitative Disclosures about Market Risk |
30 |
| 30 |
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| PART II – OTHER INFORMATION |
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| 31 |
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| 31 |
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| ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds |
31 |
| 31 |
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| 31 |
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| 32 |
Cadiz Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
| For the Three Months | ||||||||
| Ended June 30, | ||||||||
| ($ in thousands, except per share data) | 2020 | 2019 | ||||||
| Total revenues | $ | $ | ||||||
| Costs and expenses: | ||||||||
| General and administrative | ||||||||
| Depreciation | ||||||||
| Total costs and expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Interest expense, net | ( | ) | ( | ) | ||||
| Interest income | ||||||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Income tax expense | ( | ) | ( | ) | ||||
| Loss from equity-method investments | ( | ) | ||||||
| Net loss and comprehensive loss applicable to common stock | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted net loss per common share | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted weighted average shares outstanding | ||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
Cadiz Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
| For the Six Months | ||||||||
| Ended June 30, | ||||||||
| ($ in thousands, except per share data) | 2020 | 2019 | ||||||
| Total revenues | $ | $ | ||||||
| Costs and expenses: | ||||||||
| General and administrative | ||||||||
| Depreciation | ||||||||
| Total costs and expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Interest expense, net | ( | ) | ( | ) | ||||
| Interest income | ||||||||
| Debt conversion expense | ( | ) | ||||||
| Loss on extinguishment of debt | ( | ) | ||||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Income tax expense | ( | ) | ( | ) | ||||
| Loss from equity-method investments | ( | ) | ||||||
| Net loss and comprehensive loss applicable to common stock | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted net loss per common share | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted weighted average shares outstanding | ||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
Cadiz Inc.
Condensed Consolidated Balance Sheets (Unaudited)
| June 30, | December 31, | |||||||
| ($ in thousands, except per share data) | 2020 | 2019 | ||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant, equipment and water programs, net | ||||||||
| Long-term deposit/prepaid expenses | ||||||||
| Equity-method investments | ||||||||
| Goodwill | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Current portion of long-term debt | ||||||||
| Warrant derivative liabilities | ||||||||
| Other liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term debt, net | ||||||||
| Long-term lease obligations, net | ||||||||
| Deferred revenue | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Stockholders’ deficit: | ||||||||
| Preferred stock - par value; shares authorized at June 30, 2020 and December 31, 2019; shares issued – at June 30, 2020 and at December 31, 2019 | ||||||||
| Common stock - par value; shares authorized at June 30, 2020 and December 31, 2019; shares issued and outstanding – at June 30, 2020 and at December 31, 2019 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
Cadiz Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
| For the Six Months | ||||||||
| Ended June 30, | ||||||||
| ($ in thousands) | 2020 | 2019 | ||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | ( | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization of debt discount and issuance costs | ||||||||
| Interest expense added to loan principal | ||||||||
| Interest expense added to lease liability | ||||||||
| Loss on equity method investments | ||||||||
| Loss on debt conversion and extinguishment of debt | ||||||||
| Debt conversion expense | ||||||||
| Compensation charge for stock and share option awards | ||||||||
| Unrealized loss on warrant derivative liabilities | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Other assets | ( | ) | ( | ) | ||||
| Accounts payable | ||||||||
| Accrued liabilities | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Contributions to equity-method investments | ( | ) | ||||||
| Additions to property, plant and equipment and water programs | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Net proceeds from issuance of stock | ||||||||
| Principal payments on long-term debt | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Net (decrease) increase in cash, cash equivalents and restricted cash | ( | ) | ||||||
| Cash, cash equivalents and restricted cash, beginning of period | ||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | $ | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
Cadiz Inc.
Condensed Consolidated Statements of Stockholders’ Deficit (Unaudited)
For the three and six months ended June 30, 2020 ($ in thousands, except share data)
| Additional |
Total |
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| Common Stock |
Preferred Stock |
Paid-in |
Accumulated |
Stockholders’ |
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| Shares |
Amount |
Shares |
Amount |
Capital |
Deficit |
Deficit |
||||||||||||||||||||||
| Balance as of December 31, 2019 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||
| Issuance of shares pursuant to bond conversion |
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| Stock-based Compensation expense |
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| Issuance of shares pursuant to ATM offerings |
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| Reclassification of warrant liability |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||
| Issuance of preferred shares |
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| Net loss and comprehensive loss |
- | ( |
) | ( |
) | |||||||||||||||||||||||
| Balance as of March 31, 2020 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||
| Stock-based Compensation expense |
||||||||||||||||||||||||||||
| Net loss and comprehensive loss |
- | ( |
) | ( |
) | |||||||||||||||||||||||
| Balance as of June 30, 2020 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
Cadiz Inc.
Condensed Consolidated Statements of Stockholders’ Deficit (Unaudited)
For the three and six months ended June 30, 2019 ($ in thousands, except share data)
| Additional | Total | |||||||||||||||||||
| Common Stock | Paid-in | Accumulated | Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||
| Balance as of December 31, 2018 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Issuance of shares pursuant to bond conversion | ||||||||||||||||||||
| Stock-based compensation expense | ||||||||||||||||||||
| Issuance of shares pursuant to ATM offerings | ||||||||||||||||||||
| Reclassification of warrant liability to additional paid-in capital(1) | - | ( | ) | |||||||||||||||||
| Net loss and comprehensive loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance as March 31, 2019 | ( | ) | ( | ) | ||||||||||||||||
| Issuance of shares pursuant to bond conversion | ||||||||||||||||||||
| Stock-based compensation expense | ||||||||||||||||||||
| Issuance of shares pursuant to ATM offerings | ||||||||||||||||||||
| Impact of warrant down-round feature | - | ( | ) | |||||||||||||||||
| Net loss and comprehensive loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance as of June 30, 2019 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| (1) |
A cumulative effect adjustment of $2,031 thousand was recognized as of January 1, 2019, upon adoption of ASU 2017-11. |
See accompanying notes to the unaudited condensed consolidated financial statements.
Cadiz Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
NOTE 1 – BASIS OF PRESENTATION
The Condensed Consolidated Financial Statements and notes have been prepared by Cadiz Inc., also referred to as “Cadiz” or “the Company”, without audit and should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
The foregoing Condensed Consolidated Financial Statements include the accounts of the Company and contain all adjustments, consisting only of normal recurring adjustments, which management considers necessary for a fair statement of the Company’s financial position, the results of its operations and its cash flows for the periods presented and have been prepared in accordance with generally accepted accounting principles.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates and such differences may be material to the financial statements. The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of results for the entire fiscal year ending December 31, 2020.
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 $
Cash requirements during the six months ended June 30, 2020 primarily reflect certain administrative costs related to the Company’s water project development efforts. Currently, the Company’s sole focus is the development of its land and water assets.
In July 2020, the Company entered into an At Market Issuance Sales Agreement under which the Company could issue and sell shares of its common stock having an aggregate offering price of up to $
In November 2018, the Company entered into an At Market Issuance Sales Agreement under which the Company could issue and sell shares of its common stock having an aggregate offering price of up to $
Cadiz Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
In May 2017, the Company entered into a new $
On March 5, 2020, the Company entered into Conversion and Exchange Agreements (the “Exchange Agreements”) with certain holders (the “Holders”) of the Company’s
The Company’s acquisition of a 124-mile extension of its Northern Pipeline will require a $
The Company may meet its debt and working capital requirements through a variety of means, including extension, refinancing, equity placements, the sale or other disposition of assets, or reductions in operating costs.
Limitations on the Company’s liquidity and ability to raise capital may adversely affect it. Sufficient liquidity is critical to meet the Company’s resource development activities. Although the Company currently expects its sources of capital to be sufficient to meet its near-term liquidity needs, there can be no assurance that its liquidity requirements will continue to be satisfied. If the Company cannot raise needed funds, it might be forced to make substantial reductions in its operating expenses, which could adversely affect its ability to implement its current business plan and ultimately its viability as a company.
Cadiz Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
Supplemental Cash Flow Information
Under the terms of the Senior Secured Debt, the Company is required to pay
During the six months ended June 30, 2020, approximately $
The balance of cash, cash equivalents, and restricted cash as shown in the condensed consolidated statements of cash flows is comprised of the following:
| Cash, Cash Equivalents and Restricted Cash | June 30, 2020 | December 31, 2019 | June 30, 2019 | |||||||||
| (in thousands) | ||||||||||||
| Cash and Cash Equivalents | $ | $ | $ | |||||||||
| Restricted Cash included in Other Assets | ||||||||||||
| Cash, Cash Equivalents and Restricted Cash in the Consolidated Statement of Cash Flows | $ | $ | $ | |||||||||
The restricted cash amounts included in Other Assets primarily represent a deposit from a water project participant related to a cost-sharing agreement.
Recent Accounting Pronouncements
Accounting Guidance Not Yet Adopted
In December 2019, FASB issued an accounting standards update which reduces complexity in accounting standards by removing certain exceptions to the general principles in Topic 740. This update is effective for fiscal years beginning after December 15, 2021, and for interim periods within those fiscal years, with early adoption permitted. The Company is currently assessing this new guidance and expects this new standard will not have a material impact on the consolidated financial statements.
In June 2016, FASB issued an accounting standards update which introduces new guidance for the accounting for credit losses on certain financial instruments. This update is effective for fiscal years beginning after December 15, 2023, and for interim periods within those fiscal years, with early adoption permitted. The Company is currently assessing this new guidance and expects this new standard will not have a material impact on the consolidated financial statements.
Cadiz Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
Accounting Guidance Adopted
In August 2018, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update which modifies the disclosure requirements for fair value measurements. This update is effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years, with early adoption permitted. The Company adopted this guidance on January 1, 2020. The adoption of this update modified our disclosures, but had no impact on the Company’s condensed consolidated financial statements (see Note 7 – “Fair Value Measurements”).
In August 2018, the FASB issued an accounting standards update on a customer’s accounting for implementation costs incurred in a cloud computing arrangement. This update is effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years, with early adoption permitted. The Company adopted this guidance on January 1, 2020, and the new standard had no impact on the Company’s condensed consolidated financial statements.
NOTE 2 – LONG-TERM DEBT
The carrying value of the Company’s Senior Secured Debt approximates fair value. The fair value of the Company’s Senior Secured Debt (Level 2) is determined based on an estimation of discounted future cash flows of the debt at rates currently quoted or offered to the Company by its lenders for similar debt instruments of comparable maturities by its lenders.
On March 5, 2020, the Company entered into Conversion and Exchange Agreements (the “Exchange Agreements”) with certain holders (the “Holders”) of the Company’s
Cadiz Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
On March 5, 2020, the Company entered into an agreement with its senior lender, Apollo Global Management LLC (“Apollo”), in which the Company acquired the option to extend the current May 2021 maturity date of its loan to May 2022 (“Extension Option”). The fee to acquire the Extension Option included the repricing of
At the time of the Warrant Modification, the Company recorded a warrant liability in the amount of $
Total unrealized losses of $
NOTE 3– STOCK-BASED COMPENSATION PLANS
The Company has outstanding options and stock awards pursuant to its 2009 Equity Incentive Plan, 2014 Equity Incentive Plan and 2019 Equity Incentive Plan.
Stock Options to Directors, Officers and Consultants
In total, options to purchase
Stock Awards to Directors, Officers, and Consultants
The Company has granted stock awards pursuant to its 2014 Equity Incentive Plan and 2019 Equity Incentive Plan.
Of the total
Cadiz Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
Of the total
The accompanying consolidated statements of operations and comprehensive loss include approximately $
NOTE 4– INCOME TAXES
As of June 30, 2020, the Company had net operating loss (“NOL”) carryforwards of approximately $
As of June 30, 2020, the Company possessed unrecognized tax benefits totaling approximately $
Because it is more likely than not that the Company will not realize its net deferred tax assets, it has recorded a full valuation allowance against these assets. Accordingly, deferred tax asset has been reflected in the accompanying condensed consolidated balance sheet.
NOTE 5 – NET LOSS PER COMMON SHARE
Basic net loss per share is computed by dividing the net loss by the weighted-average common shares outstanding. Options, deferred stock units, convertible debt, convertible preferred shares and warrants 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
NOTE 6– LEASES
The Company has operating leases for corporate offices, vehicles and office equipment. The Company’s leases have remaining lease terms of
Cadiz Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
From a lessor standpoint, in February 2016, the Company entered into a lease agreement with Fenner Valley Farms LLC (“FVF”) (the “lessee”), a subsidiary of Water Asset Management LLC, a related party, pursuant to which FVF is leasing, for a
On July 31, 2019, the JV entered into a lease agreement (the “Lease Agreement”) with the Company whereby the JV will cultivate industrial hemp on up to
NOTE 7– FAIR VALUE MEASUREMENTS
The following table presents information about warrant derivative liabilities, and indicates the fair value hierarchy of the valuation techniques we utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. We consider 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.
On March 5, 2020, the Company entered into an amendment to a warrant agreement with its senior lender which, among other provisions, repriced
Cadiz Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
| Derivatives at Fair Value as of June 30, 2020 | ||||||||||||||||
| (in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Warrant derivative liabilities | $ | $ | $ | $ | ||||||||||||
| Total warrant derivative liabilities | $ | $ | $ | $ | ||||||||||||
The following table presents a reconciliation of Level 3 activity for the six month period ended June 30, 2020:
| Level 3 Liabilities | ||||
| (in thousands) | Warrant Derivative Liabilities | |||
| Balance at December 31, 2019 | $ | |||
| Reclassification of warrant liability | ||||
| Unrealized loss on warrants | ||||
| Balance at March 31, 2020 | ||||
| Unrealized gain on warrants | ( | ) | ||
| Balance at June 30, 2020 | $ | |||
NOTE 8 – SUBSEQUENT EVENT
In July 2020, the Company entered into an At Market Issuance Sales Agreement under which the Company could issue and sell shares of its common stock having an aggregate offering price of up to $
Cadiz Inc.
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the following discussion contains trend analysis and other forward-looking statements. Forward-looking statements can be identified by the use of words such as "intends", "anticipates", "believes", "estimates", "projects", "forecasts", "expects", "plans" and "proposes". Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from these forward-looking statements. These include, among others, our ability to maximize value from our land and water resources and our ability to obtain new financings as needed to meet our ongoing working capital needs. See additional discussion under the heading "Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019. Our forward-looking statements are made only as of the date hereof. We assume no duty to update these forward-looking statements to reflect new, changed or unanticipated events or circumstances, other than as may be required by law.
Overview
We are a natural resources development company dedicated to creating sustainable water and agricultural opportunities in California. We own approximately 45,000 acres of land with high-quality, naturally recharging groundwater resources in three areas of Southern California’s Mojave Desert. These properties are located in eastern San Bernardino County situated in close proximity to major highway, rail, energy and water infrastructure, including the Colorado River Aqueduct (“CRA”), which is the primary transportation route for water imported into Southern California from the Colorado River.
Our properties offer opportunities for a wide array of sustainable activities including water supply projects, groundwater storage, large-scale agricultural development and land conservation and stewardship programs. In addition to our land and water assets, we also own pipeline and well infrastructure that is able to irrigate existing agriculture and convey water to and from other communities and agricultural ventures that may be short of supply and/or storage.
Our main objective is to realize the highest and best use of our land, water and infrastructure assets in an environmentally responsible way. We believe that the highest and best use of our assets will be realized through the development of a combination of water supply, water storage and agricultural projects in accordance with a holistic land management strategy. Our present activities are focused on developing our assets in ways that meet growing long-term demand for access to sustainable water supplies and agricultural products.
Upon our founding in 1983, we began an agricultural development on a portion of our primary property in Cadiz, California, which is a 34,500-acre property at the base of the Fenner and Orange Blossom Wash watersheds in eastern San Bernardino County (the “Cadiz/Fenner Property”). These watersheds span an area of more than 1,300 square miles and have 17 to 34 million acre-feet of fresh, high-quality groundwater in storage – an amount comparable to Lake Mead, America’s largest surface reservoir.
Cadiz Inc.
We have sustainably farmed portions of the Cadiz/Fenner Property since the late 1980s in accordance with permits from the County of San Bernardino, the public agency responsible for groundwater use at the Cadiz/Fenner Property. The permits authorize the development of up to 9,600 acres of the Cadiz/Fenner Property for farming and the associated use of underlying groundwater for irrigation.
The Cadiz/Fenner Property is well-suited for various permanent and seasonal crops, and we have successfully grown citrus, organic table grapes and raisins, and seasonal vegetables such as melons, squash and asparagus. Today, we are engaged in agricultural joint ventures at the Cadiz/Fenner Property and are the largest private agricultural operation in San Bernardino County. Presently, the property has 2,100 acres leased to third parties for cultivation of citrus and 242 acres leased to our joint venture, SoCal Hemp JV LLC, for the cultivation of industrial hemp (see “Agricultural Development”, below).
In addition to our agricultural ventures, we are presently developing the Cadiz Valley Water Conservation, Recovery and Storage Project (“Water Project” or “Project”), which is approved to capture and conserve millions of acre-feet of native groundwater currently being lost to evaporation from the aquifer system beneath our Cadiz/Fenner Property, and provide 50,000 acre-feet of water per year, enough water for 400,000 people, to water providers throughout Southern California (see “Water Resource Development”, below). A second phase of the Water Project would offer storage in the aquifer system for up to one million acre-feet of imported water. Following a multi-year California Environmental Quality Act (“CEQA”) review and permitting process, the Water Project received permits that allow the capture and conservation of 2.5 million acre-feet of groundwater over 50 years in accordance with the terms of a groundwater management plan approved by San Bernardino County. We believe that the ultimate implementation of the Cadiz Water Project would provide a significant return on our investment and future cash flow.
By making new water supply and storage available in Southern California, we believe we can be part of the solution to the State’s persistent water challenge. Available water supply in Southern California is constrained every year by regulatory restrictions on each of the region’s three main water sources: (1) the CRA; (2) the State Water Project, which provides water supplies from Northern California to the central and southern parts of the state; and (3) the Los Angeles Aqueduct, which delivers water from the eastern Sierra Nevada mountains to Los Angeles. Southern California’s water providers and farmers rely on imports from these systems to meet demand, but deliveries from all three into the region are consistently below capacity, even in wet years.
Further, the availability of supplies in California differs greatly from year to year due to natural hydrological variability. Over the last decade, California experienced a historic drought featuring record-low winter precipitation, abundant wet years and also average years. The 2018-2019 winter was a wet year, with snowpack and rainfall well above average through the summer of 2019, however 2020 is on track to be another dry year, with a La Nina hydrological conditions in July. The rapid swings between wet and dry years challenges California’s traditional supply system and supports the need for reliable storage and access to local supplies.
Cadiz Inc.
Given the variety of challenges and limitations presented by the State’s existing infrastructure, Southern California water providers and farmers are presently pursuing investments in storage, supply and infrastructure to meet long-term demand from sustainable water and agriculture sources. We have a record of sustainable agricultural development and groundwater management to support our continued integration into California’s water and agriculture portfolio.
Our current working capital requirements relate largely to the final development activities associated with the Water Project and those activities consistent with the Water Project related to further development of our land and agricultural assets, including our 50% equity investment in SoCal Hemp JV LLC. While we continue to believe that the ultimate implementation of the Water Project will provide a significant source of future cash flow, we also believe there is substantial value in our underlying agricultural assets and in our current agricultural ventures and lease arrangements.
We also continue to explore additional sustainable beneficial uses of our land and water resource assets, including the marketing of our approved desert tortoise land conservation bank, which is located on our properties outside the Water Project area, and other long-term legacy uses of our properties, such as land stewardship and conservation programs.
Water Resource Development
The Water Project is designed to capture and conserve renewable native groundwater currently being lost to evaporation from the aquifer system underlying our Cadiz/Fenner Property and provide a new reliable water supply for approximately 400,000 people in Southern California. In this first phase, Phase I, the total quantity of groundwater to be recovered and conveyed to Water Project participants will not exceed a long-term annual average of 50,000 acre-feet per year for 50 years. The Water Project also offers participants in Phase I the ability to carry-over their annual supply and store it in the groundwater basin from year to year. Up to 150,000 acre-feet can be stored as part of Phase I. A second phase of the Water Project, Phase II, will offer up to one million acre-feet of storage capacity that can be used to hold water supplies imported to the project area.
Water Project facilities required for Phase I primarily include, among other things:
| ● |
High-yield wells designed to efficiently recover available native groundwater at the Water Project area; |
| ● |
A water conveyance pipeline to deliver water from the well-field to Project participants; |
| ● |
An energy source to provide power to the well-field, pipeline and pumping facilities; and |
| ● |
A water treatment facility at the wellfield to meet anticipated water quality requirements set by the operator of the CRA. |
Cadiz Inc.
If an imported water storage component of the Project is ultimately implemented in Phase II, the following additional facilities would be required, among other things:
| ● |
Facilities to pump water through the conveyance pipeline from the CRA to the Water Project well-field and/or through our pipeline from Barstow, CA, to our Cadiz Valley property; and |
| ● |
Spreading basins, which are shallow settling ponds that will be configured to efficiently percolate water from the ground surface down to the water table using subsurface storage capacity for the storage of water. |
Phase I
Phase I has been fully reviewed and permitted in accordance with the California Environmental Quality Act (“CEQA”). The Project was also separately reviewed and approved by the County of San Bernardino in accordance with its local ordinances regulating groundwater. The Project presently is permitted to provide an average of 50,000 acre-feet of water for 50 years at Cadiz to meet municipal and industrial (M&I) water needs in Southern California. The permits also authorize up to 150,000 acre-feet of carry-over groundwater storage, allowing water agencies to hold conserved water in the aquifer system for future dry years.
Construction of the Water Project facilities that would allow for conservation, carry-over storage and delivery of groundwater to public water providers is expected to cost approximately $310 - $400 million (depending on the diameter of the pipe used) and will require capital financing that we expect will be secured by definitive Purchase and Sale Agreements with Project participants and the new facility assets.
Prior to construction, the Water Project must (1) finalize contracts with Project participating agencies, (2) finalize arrangements and secure necessary permits and approvals to transport water conserved at Cadiz via water transportation infrastructure and into each participant’s service area, and (3) complete final design and permitting. Below is a discussion of present activities to advance these objectives.
(1) Contracts with Public Water Agencies or Private Water Utilities
We have executed Letters of Intent (“LOIs”), option agreements and purchase agreements, or contracts (collectively, “Agreements”) with public water agencies and private water utilities in California during the Project’s development. These participating agencies serve more than one million customers in cities throughout California’s San Bernardino, Riverside, Los Angeles, Orange, Imperial and Ventura Counties. Twenty percent of Water Project supplies have been reserved for San Bernardino County-based agencies.
Santa Margarita Water District (“SMWD”), Orange County’s second largest water provider, was the first participant to convert its option agreement and adopt resolutions approving a Water Purchase and Sale Agreement for 5,000 acre-feet of water. The structure of the SMWD purchase agreement calls for an annually adjusted water supply payment, plus a pro rata portion of the capital recovery charge and operating and maintenance costs. The capital recovery charge is calculated by amortizing the total capital investment by the Company over a 30-year term.
Cadiz Inc.
Agreements entered into prior to the beginning of the CEQA review process provide to participants the right to acquire an annual supply of 5,000 acre-feet of water at $775 per acre-foot (2010 dollars, subject to adjustment), which is competitive with the incremental cost of new water. In addition, these agencies received options to acquire storage rights in the Water Project to allow for the management of their Water Project supplies in complement with their own water resources. Up to 150,000 acre-feet of carry-over storage is available for reservation by the agencies prior to construction commencement. Participants that elect to achieve year-to-year flexibility in their use of Project water by utilizing carry-over storage will reserve storage capacity for $1,500 per acre-foot prior to construction.
LOIs that have been entered into since completion of the CEQA review process reserve supplies from the Water Project at $960 per acre-foot (2014 dollars, subject to adjustment). These LOIs also include the option to reserve carry-over storage capacity for $1,500 per acre-foot prior to construction.
Prior to construction of the Water Project, we expect to convert existing option agreements and LOIs into purchase agreements. We will work collaboratively with the participating water agencies to allow for inclusive participation across Southern California.
(2) Transportation Infrastructure and Conveyance Arrangements
| a. |
Southern Route |
Prior to construction of the Water Project, and in coordination with final participation contracts described in (1) above, we must obtain approvals from government agencies for conveyance of water from our property in Cadiz to water users via the Colorado River Aqueduct (“CRA”). These approvals include:
| (i) |
arrangements with the US Bureau of Land Management (“BLM”) to construct a 43-mile water conveyance pipeline within a portion of the Arizona & California Railroad Company (“ARZC”) right-of-way that intersects with the CRA (Southern Pipeline”); |
| (ii) |
an agreement for moving water supplies in the CRA with Metropolitan Water District of Southern California (“Metropolitan”), which owns and controls the CRA; and |
| (iii) |
a review and finding by the California State Lands Commission of an application filed under newly established Water Code Section 1815 that conveying water in the CRA will not adversely affect the desert environment. |
| i. |
BLM Approval of Southern Pipeline |
In October 2017, the BLM provided a letter finding that the Project’s proposed use of a portion of the ARZC right-of-way from our Cadiz Valley property to Freda, California to construct and operate the Water Project’s water conveyance pipeline and related railroad improvements is within the scope of the original right-of-way grant and not subject to additional permitting. The buried pipeline would be constructed parallel to the railroad tracks and be used to convey water between our Cadiz Valley property and the CRA. The letter was challenged in Los Angeles Central District Federal Court in 2018 by national environmental organizations, which claimed it violated the law. In a June 2019 procedural ruling, the Court remanded the letter back to BLM, concluding that the agency needed to explain more explicitly why it withdrew and reversed specific findings previously made in 2015 on the same issue. However, the Court did not find that the conclusions of the 2017 evaluation were in error.
Cadiz Inc.
On February 7, 2020 we received a letter from the BLM that was responsive to the Court’s remand (“2020 Evaluation”). The 2020 Evaluation sets forth in detail why the Project’s proposed use of the ARZC right-of-way for the Southern Pipeline and related railroad improvements furthers multiple and substantial railroad purposes and is therefore within the scope of the right-of-way, consistent with BLM’s conclusion in October 2017. The 2020 Evaluation references the extensive record and sets forth the precise factual basis for its conclusions in detail while reaffirming the October 2017 BLM’s findings.
| ii. |
Aqueduct Transportation via MWD |
Water supplies conserved by the Project would enter the CRA at the termination of the project’s conveyance pipeline near Rice, CA. The CEQA process considered a variety of options to enter the CRA and assumed final entry into the CRA would be determined by MWD in consultation with the Project’s participating agencies. Once arrangements are reached, the Metropolitan Board would act as a responsible agency under CEQA regarding the terms and conditions of the Water Project’s use of the CRA to transport water to its participating agencies.
There is no application yet before Metropolitan related to entry and transportation of Project supplies, but we expect such a formal application will be filed by SMWD, the Project’s lead agency, when the Project’s contractual arrangements with participants are finalized. Any agreement as to the terms and conditions of the Water Project's use of the CRA will be negotiated between and entered into by Metropolitan and the Project participating agencies, not the Company.
Water Project supplies entering the CRA will comply with Metropolitan’s published engineering, design and water quality standards and will be subject to all applicable fees and charges routinely established by Metropolitan for the conveyance of water within its service territory. Groundwater at Cadiz presently meets all state and federal water quality requirements without treatment and total dissolved solids or salts in the Cadiz water supply are substantially lower than the water in the CRA, offering a water quality benefit. Cadiz water also has no PFAs, a recently added constituent of concern by California water regulators, improving its attractiveness for the service area. Some naturally occurring constituents are lower than State and Federal standards but potentially higher than the water in the CRA; however, based on extensive pilot testing, they can be lowered via treatment to ambient levels or removed entirely. This year-long pilot testing of treatment options at the Project area confirmed the capability of cost-effective treatment technologies. We believe there are multiple benefits that can be realized by MWD and water users throughout its service area, such as water quality improvements, upon making space reasonably available for the Cadiz water supplies and providing the region the flexibility of relying on the Water Project in both wet and dry years.
Cadiz Inc.
| iii. |
State Lands Commission Review under Water Code Section 1815 |
On July 31, 2019, California Governor Gavin Newsom signed into law Senate Bill 307 (“SB 307”), which added terms to the section of the California Water Code known as the “wheeling statutes” that regulate the conveyance of water by third parties in facilities such as the CRA. Effective January 1, 2020, the wheeling statutes now include Water Code Section 1815, which requires water projects in a section of the Mojave Desert where our Cadiz Valley property is located to apply for a review by the California State Lands Commission (“SLC”) prior to transporting water in public conveyance facilities. Upon receiving an application, this review will determine whether such projects would have “unreasonable effects on the environment and water dependent ecosystems in the surrounding watersheds.” The review by SLC must be conducted within 15 months of any filed application, with an option to extend an additional 9 months upon public notice and explanation. Any application to the SLC for review of the Water Project’s plans to convey water in the CRA from the Cadiz/Fenner Property will be accompanied by evidence of the Project’s extensive record of environmental sustainability as well as data and reports that can withstand critical scrutiny.
| b. |
Northern Pipeline |
In addition to the conveyance arrangements described above, we currently own a 96-mile long, 30-inch wide existing idle natural gas pipeline that extends northwest from the Cadiz/Fenner Property terminating in Barstow, California, and have entered into a purchase agreement to a further 124-mile segment connecting this line from Barstow to Wheeler Ridge, California. The pipeline crosses San Bernardino, Los Angeles and Kern counties, including the Barstow and Bakersfield areas, which serve as a hubs for water delivered from northern and central California to communities in Southern California.
Initial feasibility studies indicated that, upon conversion, the 30-inch pipeline could transport between 18,000 and 30,000 acre-feet of water per year between the Water Project area and the Central and Northern California water transportation network. As a result, this pipeline could diversify delivery opportunities for the Water Project and our broader water resource development efforts.
If this pipeline were to become operational, then the Water Project would link the CRA and State Water Project systems – two of Southern California’s main water delivery systems – providing flexible opportunities for both supply and storage. The Northern Pipeline could deliver Phase I supplies, either directly or via exchange, to existing and potential customers of Phase I of the Project. Any use of the pipeline would be conducted in conformity with the Water Project’s groundwater management plan and is subject to further CEQA evaluation and potentially federal environmental permitting.
In December 2018, we entered into an amendment (the "Amendment") to our option agreement ("Option Agreement") with El Paso Natural Gas Company (“EPNG”) to purchase the 124-mile segment of the pipeline. The Option Agreement, as amended, allowed us to purchase the 124-mile pipeline segment with an initial payment of $2 million and a subsequent payment of $18 million ("Deferred Payment"). Following entry into the Amendment, we exercised the option and entered into a purchase agreement for the 124-mile pipeline, providing to EPNG the initial consideration of $2 million. On February 3, 2020, we entered into a First Amendment to the Amended Option Agreement. As amended, the Option Agreement (i) extended the time period within which we must complete the purchase of the pipeline segment contemplated by the Agreement from 30 days to up to 180 days following the satisfaction by EPNG of certain conditions precedent, with the actual time period depending upon the date upon which such conditions are satisfied, and (ii) increased the balance of the Deferred Payment from $18 million to $19 million.
Cadiz Inc.
We do not currently have the cash resources on hand to satisfy the Deferred Payment. If we do not complete the purchase of the additional 124-mile pipeline, then our Northern Pipeline opportunities will be limited to the 96-mile segment that we own.
If purchase is completed, the cost to convert the Northern Pipeline to make it operational for delivery of groundwater is estimated at approximately $100 million and will require capital financing that we expect will be secured by definitive Purchase and Sale Agreements and the facility assets.
(3) Final Design and Permitting
Prior to final construction of the Water Project facilities, we must also finalize facility design and acquire relevant construction permits and easements from local, state and/or federal regulatory authorities. Together with SMWD we have engaged engineering and environmental consultants to complete design plans for a water conveyance pipeline, Project wellfield, any necessary water treatment facilities, and facilities required to interconnect this infrastructure with Southern California’s water supply distribution system. This work is ongoing and expected to proceed in coordination with the negotiation of contracts and conveyance arrangements.
In coordination with facility design and layout, we may need to obtain additional permits and approvals from regulatory authorities prior to construction. This may include, but is not limited to, confirmation of existing access rights, easements and rights-of-way, for areas that may be crossed by Project facilities in the Project area subject to final pipeline configuration.
Phase II
In a second phase of the Water Project (“Phase II”), we expect to make available up to one million acre-feet of capacity (an additional 850,000 acre-feet from Phase I) in the aquifer system at the Project area for storage of imported surplus water. Under Phase II, or the Imported Water Storage Component, water from the Colorado River or the State Water Project, via the Southern Pipeline and the Northern Pipeline could be conveyed to spreading basins that would be constructed on our private property to percolate into the aquifer system and held in storage. When needed, previously stored water would be returned to Phase II participating agencies via the Southern Pipeline or the Northern Pipeline.
Cadiz Inc.
Phase II has already been the subject of programmatic environmental review in accordance with CEQA, but still requires project-level environmental review and permitting once participating agencies are identified. Phase II may also require federal permits subject to the National Environmental Policy Act, or NEPA.
Agricultural Development
Farming is a main driver of the California economy. According to the California Department of Food and Agriculture, more than one-third of the U.S.’s vegetable crops and two-thirds of its fruits and nuts are grown in California. Additionally, California is the leading U.S. state for cash farm receipts, accounting for over 13% of national agricultural value.
Our Cadiz/Fenner Property, consisting of approximately 34,500 acres of desert land is zoned for agricultural development. In 1993, we secured conditional use permits to develop agricultural facilities on up to 9,600 acres of the property and withdraw groundwater from the underlying aquifer system for irrigation. We have since maintained various levels of crops on the Property as we developed the Water Project. In 2013, we entered into a lease agreement with a third party to develop up to 1,480 acres of lemons at the site, 640 acres of which have been planted to date.
In February 2016, we entered into a lease agreement with Fenner Valley Farms LLC ("FVF"), a subsidiary of Water Asset Management LLC (at the time a related party), pursuant to which FVF leased, for a 99-year term, 2,100 acres at the Cadiz/Fenner property to be used to plant, grow and harvest agricultural crops ("FVF Lease"). As consideration for the lease, FVF paid us a one-time payment of $12,000,000 in February 2016. Acreage that has been historically farmed and includes infrastructure for farming and the acreage that is leased to a third party to develop lemons was included within the acreage leased to FVF.
In July 2019, we entered into a joint venture (“JV”) that operates under the name SoCal Hemp JV LLC to sustainably cultivate organic, sun-grown, industrial hemp on up to 9,600 acres at our Cadiz Valley property. In compliance with all state, federal and local regulatory requirements, the JV is currently under contract to lease 242 acres and has entered into option agreements to utilize up to 9,600 acres over the next four years.
As part of the agricultural development to be conducted under the lease arrangements, the groundwater production capacity of the property’s existing well-field will be enhanced through infrastructure improvements that are complementary to the Water Project. Three new production wells were added to our agricultural infrastructure in the first quarter of 2020, which together have the capacity to produce an additional 12,500 acre-feet per annum. All agricultural production is fully compatible with the Cadiz Water Project. Overlying farming demands will be coordinated with project operations and existing Court-validated permits to utilize available water for its highest and best use.
Additional Eastern Mojave Properties
In addition to the Cadiz/Fenner Property, we also own approximately 11,000 acres in two additional locations within the Mojave Desert in eastern San Bernardino County.
Cadiz Inc.
Our primary landholding outside of the Cadiz/Fenner area is approximately 9,000 acres in the Piute Valley. This landholding is located approximately 15 miles from the resort community of Laughlin, Nevada, and about 12 miles from the Colorado River town of Needles, California. Extensive hydrological studies, including the drilling and testing of a full-scale production well, have demonstrated that this landholding is underlain by high-quality groundwater. The aquifer system underlying this property is naturally recharged by precipitation (both rain and snow) within a watershed of approximately 975 square miles and could be suitable for a water supply project, agricultural development, or solar energy production. These private properties are proximate to or border areas designated by the federal government as National Monument, Critical Desert Tortoise Habitat and/or Desert Wilderness Areas and are suitable candidates for preservation and conservation (see “Land Conservation Bank”, below).
Additionally, we own approximately 2,000 acres located near Danby Dry Lake in Ward Valley, approximately 30 miles southeast of our Cadiz/Fenner Valley properties. The Danby Dry Lake property is located approximately 10 miles north of the CRA. Initial hydrological studies indicate that the area has excellent potential for a water supply project. Certain of the properties in this area may also be suitable for agricultural development and/or preservation and conservation.
Land Conservation Bank
Approximately 7,500 acres of our properties outside of the Cadiz/Fenner Valley area in the Piute Valley are located within terrain designated by the federal government as Critical Desert Tortoise Habitat and/or Desert Wilderness Areas and offer limited development opportunities. In February 2015, the California Department of Fish and Wildlife approved our establishment of the Fenner Valley Desert Tortoise Conservation Bank (“Fenner Bank”), a land conservation bank that makes available these properties for mitigation of impacts to tortoise and other sensitive species that would be caused by 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 desert. Credits sold by the Fenner Bank will fund the permanent preservation of the land as well as research by outside entities, including San Diego Zoo Global, into desert tortoise health and species protection.
Northern Pipeline
The Northern Pipeline asset, described above, also represents new opportunities for the Company independent of the Water Project to offer water transportation to locations along the 220-mile pipeline route that are not presently interconnected by existing water infrastructure. The existing pipeline crosses California's major water infrastructure as well as urban and agricultural centers and can be re-purposed to transport water, independent of the Water Project, between users who presently lack direct interconnections along the pipeline route. We are presently engaged in discussions with parties that may be interested in such transportation. The ability to serve points along the 124-mile portion of the pipeline from Barstow to Wheeler Ridge is dependent upon completion of certain conditions precedent under our purchase agreement with EPNG, described above. If the acquisition of the 124-mile segment is not completed, then our Northern Pipeline opportunities will be limited to the 96-mile segment that we own.
Cadiz Inc.
Professional water quality and structural testing of a five-mile segment of the pipeline has been conducted. The testing resulted in a determination that there were no residual petroleum products in the tested segment and that the pipeline is structurally sound to transport water between Cadiz and Barstow.
Other Opportunities
Other opportunities in the water and agricultural or related infrastructure business complementary to our current objectives could provide new opportunities for our Company.
Over the longer-term, we believe the population of Southern California, Nevada and Arizona will continue to grow, and that, in time, the economics of commercial and residential development at our properties may become attractive.
We remain committed to the sustainable use of our land, water and infrastructure assets and will continue to explore all opportunities for sustainable development in an environmentally responsible way. We cannot estimate which of these opportunities will ultimately be realized.
Results of Operations
Three Months Ended June 30, 2020,Compared to Three Months Ended June 30, 2019
We have not received significant revenues from our water resource and real estate development activity to date. Our revenues have been limited to rental income from our agricultural leases (see “Agricultural Development”, above). As a result, we have historically incurred a net loss from operations. We incurred a net loss of $4.8 million in the three months ended June 30, 2020, compared to a $7.5 million net loss during the three months ended June 30, 2019. The higher 2019 loss was primarily due to higher interest expenses associated with convertible debt outstanding which was either exchanged or converted during the first quarter of 2020. See Note 2 to the Condensed Consolidated Financial Statements – “Long-Term Debt”.
Our primary expenses are our ongoing overhead costs associated with the development of the Water Project (i.e., general and administrative expense) and our interest expense. We will continue to incur non-cash expenses in connection with our management and director equity incentive compensation plans.
Revenues Revenue totaled $148 thousand during the three months ended June 30, 2020, compared to $111 thousand for the three months ended June 30, 2019. Revenues primarily related to rental income from our agricultural leases (see “Agricultural Development”, above).
General and Administrative Expenses General and Administrative Expenses, exclusive of stock-based compensation costs, totaled $2.8 million in the three months ended June 30, 2020, compared to $3.2 million in the three months ended June 30, 2019.
Cadiz Inc.
Compensation costs for stock and option awards for the three months ended June 30, 2020, were $301 thousand, compared to $123 thousand for the three months ended June 30, 2019. The higher 2020 expense was primarily due to stock-based non-cash bonus awards to employees.
Depreciation Depreciation expense totaled $96 thousand during the three months ended June 30, 2020, compared to $66 thousand during the three months ended June 30, 2019.
Interest Expense, net Net interest expense totaled $1.7 million during the three months ended June 30, 2020 compared to $4.3 million during the same period in 2019. The following table summarizes the components of net interest expense for the two periods (in thousands):
| Three Months Ended |
||||||||
| June 30, |
||||||||
| 2020 |
2019 |
|||||||
| Interest on outstanding debt |
$ | 1,950 | $ | 3,255 | ||||
| Unrealized gains on warrants, net |
(510 | ) |
- | |||||
| Amortization of debt discount |
6 | 1,028 | ||||||
| Amortization of deferred loan costs |
228 | 20 | ||||||
| $ | 1,674 | $ | 4,303 | |||||
The decrease of interest on outstanding debt is primarily due to a lower long-term debt balance following the exchange and conversion of our Convertible Senior Notes in March 2020. See Note 2 to the Condensed Consolidated Financial Statements – “Long-Term Debt”.
Income Taxes Income tax expense was $1 thousand for the three months ended June 30, 2020, compared to $2 thousand for the three months ended June 30, 2019. See Note 4 to the Condensed Consolidated Financial Statements – “Income Taxes”.
Loss from Equity-Method Investments Loss from equity-method investments related to our 50% ownership in the SoCal Hemp JV LLC totaled $73 thousand for the three months ended June 30, 2020, compared to $0 for the three months ended June 30, 2019 as the JV began in July 2019.
Six Months Ended June 30, 2020, Compared to Six Months Ended June 30, 2019
We incurred a net loss of $25.3 million in the six months ended June 30, 2020, compared to a $14.7 million net loss during the six months ended June 30, 2019. The higher 2020 loss was primarily due to a loss on early extinguishment of debt in the amount of $12.4 million, which was a one-time non-cash charge, reflecting the excess of the fair value of the new preferred stock issued over the historical book value of the related convertible debt retired pursuant to Conversion and Exchange Agreements (see Note 2- “Long-Term Debt”). If the related convertible debt had been recorded at fair value and marked to market over the term of the debt, the excess of the fair value of the new preferred stock issued over the value of the related convertible debt would not have been significant.
Cadiz Inc.
Revenues Revenue totaled $262 thousand during the six months ended June 30, 2020, compared to $220 thousand for the six months ended June 30, 2019. Revenues primarily related to rental income from our agricultural leases (see “Agricultural Development”, above).
General and Administrative Expenses General and Administrative Expenses, exclusive of stock-based compensation costs, totaled $5.5 million in the six months ended June 30, 2020, compared to $6.0 million in the six months ended June 30, 2019.
Compensation costs for stock and option awards for the six months ended June 30, 2020, were $1.6 million, compared to $245 thousand for the six months ended June 30, 2019. The higher 2020 expense was primarily due to stock-based non-cash bonus awards to employees.
Depreciation Depreciation expense totaled $175 thousand during the six months ended June 30, 2020, compared to $132 thousand during the six months ended June 30, 2019.
Interest Expense, net Net interest expense totaled $5.2 million during the six months ended June 30, 2020 compared to $8.5 million during the same period in 2019. The following table summarizes the components of net interest expense for the two periods (in thousands):
| Six Months Ended |
||||||||
| June 30, |
||||||||
| 2020 |
2019 |
|||||||
| Interest on outstanding debt |
$ | 4,608 | $ | 6,480 | ||||
| Unrealized losses on warrants, net |
51 | - | ||||||
| Amortization of debt discount |
283 | 2,016 | ||||||
| Amortization of deferred loan costs |
304 | 41 | ||||||
| $ | 5,246 | $ | 8,537 | |||||
The decrease of interest on outstanding debt is primarily due to a lower long-term debt balance following the exchange and conversion of our Convertible Senior Notes in March 2020. See Note 2 to the Condensed Consolidated Financial Statements – “Long-Term Debt”.
Income Taxes Income tax expense was $3 thousand for each of the six months ended June 30, 2020 and 2019. See Note 4 to the Condensed Consolidated Financial Statements – “Income Taxes”.
Loss from Equity-Method Investments Loss from equity-method investments related to our 50% ownership in the SoCal Hemp JV LLC totaled $699 thousand for the six months ended June 30, 2020, compared to $0 for the six months ended June 30, 2019 as the JV began in July 2019.
Cadiz Inc.
Liquidity and Capital Resources
Current Financing Arrangements
As we have not received significant revenues from our development activities to date, we have been required to obtain financing to bridge the gap between the time water resource and other development expenses are incurred and the time that revenue will commence. Historically, we have addressed these needs primarily through secured debt financing arrangements and private equity placements.
In November 2018, the Company entered into an At Market Issuance Sales Agreement under which the Company could issue and sell shares of its common stock having an aggregate offering price of up to $25 million from time to time in an “at-the-market” offering (the “November 2018 ATM Offering”). The Company completed the offering during March 2020, having issued a total of 2,369,170 shares of common stock in the November 2018 ATM Offering for gross proceeds of $25 million and aggregate net proceeds of approximately $24.2 million.
In May 2017, we entered into a new $60 million credit agreement with funds affiliated with Apollo Global Management, LLC (“Apollo”) that replaced and refinanced our then existing $45 million senior secured mortgage debt and provided $15 million of new senior debt to fund immediate construction related expenditures (“Senior Secured Debt”). Additionally, we entered into an agreement with Apollo that allows us to extend the maturity of the Apollo debt for an additional year from its current maturity of May 2021 to May 2022 at our option (see Note 2 to the Consolidated Financial Statements, “Long-Term Debt”). At June 30, 2020, we were in compliance with our debt covenants.
Limitations on our liquidity and ability to raise capital may adversely affect us. Sufficient liquidity is critical to meet our resource development activities. As discussed further in “Outlook” below, we do not have adequate resources on hand to complete the acquisition of the 124-mile extension of our Northern Pipeline, which will require a $19 million payment within 180 days of satisfaction of certain conditions precedent under our purchase agreement with EPNG. 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. If additional capital is required, no assurances can be given as to the availability and terms of any new financing.
In July 2020, the Company entered into an At Market Issuance Sales Agreement under which the Company could issue and sell shares of its common stock having an aggregate offering price of up to $30 million from time to time in an “at-the-market” offering (the “July 2020 ATM Offering”) to provide an alternative to raise capital for the Northern Pipeline acquisition payment and for working capital purposes.
As we continue to actively pursue our business strategy, additional financing will continue to be required. See “Outlook” below. The covenants in the term debt do not prohibit our use of additional equity financing and allow us to retain 100% of the proceeds of any equity financing. We do not expect the loan covenants to materially limit our ability to finance our water and agricultural development activities.
Cadiz Inc.
At June 30, 2020, we had no outstanding credit facilities other than the Senior Secured Debt.
Cash Used inOperating Activities. Cash used in operating activities totaled $7.0 million and $6.9 million for the six months ended June 30, 2020 and 2019, respectively. The cash was primarily used to fund general and administration expenses related to our water and agricultural development efforts.
Cash UsedinInvesting Activities. Cash used in investing activities totaled $7.0 million for the six months ended June 30, 2020, and $0.8 million for the six months ended June 30, 2019. The 2020 period included additions to our interests in SoCal Hemp JV LLC (see “Agricultural Development”, above), well development and professional water quality and structural testing of a five-mile segment of pipeline.
Cash Provided by Financing Activities. Cash provided by financing activities totaled $3.9 million for the six months ended June 30, 2020, compared with cash provided of $14.6 million for the six months ended June 30, 2019. Proceeds from financing activities for both periods reported are related to the issuance of shares under at-the-market offerings.
Outlook
Short-Term Outlook. In March 2020, we entered into an agreement that allows us to extend the contractual May 2021 maturity of our Senior Secured Debt of approximately $74.6 million as of June 30, 2020 until May 2022 at our option (see Note 2 to the Consolidated Financial Statements, “Long-Term Debt”). As such, we currently have no-near-term debt obligations coming due. However, in order to complete our acquisition of an additional 124-mile extension of our Northern Pipeline, we will require a further $19 million payment that will be due within 180 days upon completion of certain conditions precedent under our purchase agreement with EPNG (See “Water Resource Development”, above). If the acquisition of the 124-mile segment is not completed, then our Northern Pipeline opportunities will be limited to the 96-mile segment we already own. As we require additional working capital to fund operations, we expect to continue our historical practice of structuring our financing arrangements to match the anticipated needs of our development activities (see “Long-Term Outlook”, below). In July 2020, the Company entered into an At Market Issuance Sales Agreement under which the Company could issue and sell shares of its common stock having an aggregate offering price of up to $30 million from time to time in an “at-the-market” offering (the “July 2020 ATM Offering”) to provide an alternative to raise capital for the Northern Pipeline payment and for working capital purposes. No assurances can be given, however, as to the availability or terms of any new financing.
Long-Term Outlook. In the longer term, we will need to raise additional capital to finance working capital needs, capital expenditures and any payments due under our Senior Secured Debt at maturity (see “Current Financing Arrangements”, above). Our future working capital needs will depend upon the specific measures we pursue in the entitlement and development of our water resources and other developments. Future capital expenditures will depend primarily on the progress of the Water Project.
Cadiz Inc.
We are evaluating the amount of cash needed, and the manner in which such cash will be raised, on an ongoing basis. We may meet any future cash requirements through a variety of means, including equity or debt placements, or through the sale or other disposition of assets. Equity placements will 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 of Presentation”.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
We are a smaller reporting company as defined by Reg. 240.12b-2 of the Securities and Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 4. Controls and Procedures
Disclosure Controls and Procedures
The Company established disclosure controls and procedures to ensure that material information related to the Company, including its consolidated entities, is accumulated and communicated to senior management, including the Chief Executive Officer (the “Principal Executive Officer”) and Chief Financial Officer (the “Principal Financial Officer”) and to its Board of Directors. Based on their evaluation as of June 30, 2020, the Company's Principal Executive Officer and Principal Financial Officer have concluded that the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and such information is accumulated and communicated to management, including the principal executive and principal financial officers as appropriate, to allow timely decisions regarding required disclosures.
Changes in Internal Controls Over Financial Reporting
In connection with the evaluation required by paragraph (d) of Rule 13a-15 under the Exchange Act, there was no change identified in the Company's internal controls over financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal controls over financial reporting.
Cadiz Inc.
PART II - OTHER INFORMATION
| Legal Proceedings |
Not applicable.
| Risk Factors |
There have been no material changes to the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2019, and our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2020.
| Unregistered Sales of Equity Securities and Use of Proceeds |
Not applicable.
| Defaults Upon Senior Securities |
Not applicable.
| Mine Safety Disclosures |
Not applicable.
| Other Information |
Not applicable.
Cadiz Inc.
The following exhibits are filed or incorporated by reference as part of this Quarterly Report on Form 10-Q.
| ** | 10.1 |
Employment Agreement between Cadiz Inc. and Stanley E. Speer dated as of May 21, 2020 |
| ** | 10.2 |
| * | 31.1 |
| * | 31.2 |
| * | 32.1 |
| * | 32.2 |
| * 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 | August 7, 2020 | ||
| Scott S. Slater | Date | |||
| Chief Executive Officer and President | ||||
| (Principal Executive Officer) | ||||
| By: | /s/ Stanley E. Speer | August 7, 2020 | ||
| Stanley E. Speer | Date | |||
| Chief Financial Officer and Secretary | ||||
| (Principal Financial Officer) |
EXHIBIT 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Scott S. Slater, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cadiz Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Dated: August 7, 2020
| /s/ Scott S. Slater |
|
Scott S. Slater |
|
Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Stanley E. Speer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cadiz Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Dated: August 7, 2020
| /s/ Stanley E. Speer |
|
Stanley E. Speer |
|
Chief Financial Officer and Secretary |
EXHIBIT 32.1
STATEMENT PURSUANT TO SECTION 906 THE SARBANES-OXLEY ACT OF 2002
BY PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
I, Scott S. Slater, herby certify, to my knowledge, that:
1. the accompanying Quarterly Report on Form 10-Q of Cadiz Inc. for the period ended June 30, 2020 (the "Report") fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities and Exchange Act of 1934, as amended; and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Cadiz Inc.
IN WITNESS WHEREOF, the undersigned has executed this Statement as of the date first written above.
Dated: August 7, 2020
| /s/ Scott S. Slater |
|
Scott S. Slater |
|
Chief Executive Officer |
EXHIBIT 32.2
STATEMENT PURSUANT TO SECTION 906 THE SARBANES-OXLEY ACT OF 2002
BY PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
I, Stanley E. Speer, herby certify, to my knowledge, that:
1. the accompanying Quarterly Report on Form 10-Q of Cadiz Inc. for the period ended June 30, 2020 (the "Report") fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities and Exchange Act of 1934, as amended; and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Cadiz Inc.
IN WITNESS WHEREOF, the undersigned has executed this Statement as of the date first written above.
Dated: August 7, 2020
| /s/ Stanley E. Speer |
|
Stanley E. Speer |
|
Chief Financial Officer and Secretary |
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
|
| Total revenues | $ 148 | $ 111 | $ 262 | $ 220 |
| General and administrative | 3,098 | 3,285 | 7,075 | 6,209 |
| Depreciation | 96 | 66 | 175 | 132 |
| Total costs and expenses | 3,194 | 3,351 | 7,250 | 6,341 |
| Operating loss | (3,046) | (3,240) | (6,988) | (6,121) |
| Interest expense, net | (1,674) | (4,303) | (5,246) | (8,537) |
| Interest income | 1 | 69 | 23 | 122 |
| Loss before income taxes | (4,719) | (7,474) | (24,605) | (14,733) |
| Income tax expense | (1) | (2) | (3) | (3) |
| Loss from equity-method investments | (73) | 0 | (699) | 0 |
| Net loss and comprehensive loss applicable to common stock | $ (4,793) | $ (7,476) | $ (25,307) | $ (14,736) |
| Basic and diluted net loss per common share (in dollars per share) | $ (0.14) | $ (0.28) | $ (0.77) | $ (0.57) |
| Basic and diluted weighted average shares outstanding (in shares) | 34,798 | 26,479 | 32,955 | 25,906 |
| Debt conversion expense | $ 0 | $ (197) | ||
| Loss on extinguishment of debt | $ (12,394) | $ 0 | ||
Condensed Consolidated Balance Sheets (Unaudited) (Parentheticals) - $ / shares |
Jun. 30, 2020 |
Dec. 31, 2019 |
|---|---|---|
| Preferred stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
| Preferred stock, shares authorized (in shares) | 100,000 | 100,000 |
| Preferred stock, shares issued (in shares) | 10,000 | 0 |
| Preferred stock, shares outstanding (in shares) | 10,000 | 0 |
| Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
| Common stock, shares authorized (in shares) | 70,000,000 | 70,000,000 |
| Common stock, shares issued (in shares) | 34,797,062 | 28,480,567 |
| Common stock, shares outstanding (in shares) | 34,797,062 | 28,480,567 |
Condensed Consolidated Statements of Stockholders' Deficit (Unaudited) - USD ($) $ in Thousands |
Common Stock [Member]
Cumulative Effect, Period of Adoption, Adjustment [Member]
|
Common Stock [Member]
Preferred Class A [Member]
|
Common Stock [Member] |
Additional Paid-in Capital [Member]
Cumulative Effect, Period of Adoption, Adjustment [Member]
|
Additional Paid-in Capital [Member]
Preferred Class A [Member]
|
Additional Paid-in Capital [Member] |
Retained Earnings [Member]
Cumulative Effect, Period of Adoption, Adjustment [Member]
|
Retained Earnings [Member]
Preferred Class A [Member]
|
Retained Earnings [Member] |
Preferred Stock [Member]
Preferred Class A [Member]
|
Preferred Stock [Member] |
Cumulative Effect, Period of Adoption, Adjustment [Member] |
Preferred Class A [Member] |
Total |
||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance (in shares) at Dec. 31, 2018 | 24,654,911,000 | |||||||||||||||
| Balance (Accounting Standards Update 2017-11 [Member]) at Dec. 31, 2018 | [1] | $ 0 | $ 2,896 | $ (2,031) | $ 865 | |||||||||||
| Balance at Dec. 31, 2018 | $ 247 | $ 383,521 | $ (470,008) | $ (86,240) | ||||||||||||
| Issuance of shares pursuant to bond conversion (in shares) | 485,020,000 | |||||||||||||||
| Issuance of shares pursuant to bond conversion | $ 5 | 3,199 | 0 | 3,204 | ||||||||||||
| Stock-based Compensation expense (in shares) | 17,307,000 | |||||||||||||||
| Stock-based Compensation expense | $ 0 | 122 | 0 | 122 | ||||||||||||
| Issuance of shares (in shares) | 782,814,000 | |||||||||||||||
| Issuance of shares | $ 7 | 7,884 | 0 | 7,891 | ||||||||||||
| Net loss and comprehensive loss | $ 0 | 0 | (7,260) | (7,260) | ||||||||||||
| Balance (in shares) at Mar. 31, 2019 | 25,940,052,000 | |||||||||||||||
| Balance at Mar. 31, 2019 | $ 259 | 397,622 | (479,299) | (81,418) | ||||||||||||
| Balance (in shares) at Dec. 31, 2018 | 24,654,911,000 | |||||||||||||||
| Balance (Accounting Standards Update 2017-11 [Member]) at Dec. 31, 2018 | [1] | $ 0 | $ 2,896 | $ (2,031) | $ 865 | |||||||||||
| Balance at Dec. 31, 2018 | $ 247 | 383,521 | (470,008) | (86,240) | ||||||||||||
| Net loss and comprehensive loss | (14,736) | |||||||||||||||
| Balance (in shares) at Jun. 30, 2019 | 26,942,085,000 | |||||||||||||||
| Balance at Jun. 30, 2019 | $ 269 | 406,762 | (486,799) | (79,768) | ||||||||||||
| Balance (in shares) at Mar. 31, 2019 | 25,940,052,000 | |||||||||||||||
| Balance at Mar. 31, 2019 | $ 259 | 397,622 | (479,299) | (81,418) | ||||||||||||
| Issuance of shares pursuant to bond conversion (in shares) | 336,897,000 | |||||||||||||||
| Issuance of shares pursuant to bond conversion | $ 3 | 2,248 | 0 | 2,251 | ||||||||||||
| Stock-based Compensation expense (in shares) | 9,403,000 | |||||||||||||||
| Stock-based Compensation expense | $ 0 | 123 | 0 | 123 | ||||||||||||
| Issuance of shares (in shares) | 655,733,000 | |||||||||||||||
| Issuance of shares | $ 7 | 6,745 | 0 | 6,752 | ||||||||||||
| Net loss and comprehensive loss | 0 | 0 | (7,476) | (7,476) | ||||||||||||
| Impact of warrant down-round feature | $ 0 | 24 | (24) | 0 | ||||||||||||
| Balance (in shares) at Jun. 30, 2019 | 26,942,085,000 | |||||||||||||||
| Balance at Jun. 30, 2019 | $ 269 | 406,762 | (486,799) | (79,768) | ||||||||||||
| Balance (in shares) at Dec. 31, 2019 | 28,480,567 | 0 | ||||||||||||||
| Balance at Dec. 31, 2019 | $ 285 | 419,194 | (501,597) | $ 0 | (82,118) | |||||||||||
| Issuance of shares pursuant to bond conversion (in shares) | 5,766,337 | 0 | ||||||||||||||
| Issuance of shares pursuant to bond conversion | $ 57 | 38,843 | 0 | $ 0 | 38,900 | |||||||||||
| Stock-based Compensation expense (in shares) | 116,134 | 0 | ||||||||||||||
| Stock-based Compensation expense | $ 1 | 1,250 | 0 | $ 0 | 1,251 | |||||||||||
| Issuance of shares (in shares) | 0 | 408,992 | 10,000 | 0 | ||||||||||||
| Issuance of shares | $ 0 | $ 4 | $ 39,735 | 3,919 | $ 0 | 0 | $ 1 | $ 0 | $ 39,736 | 3,923 | ||||||
| Reclassification of warrant liability | 0 | (865) | 0 | 0 | (865) | |||||||||||
| Net loss and comprehensive loss | $ 0 | 0 | (20,514) | (20,514) | ||||||||||||
| Balance (in shares) at Mar. 31, 2020 | 34,772,030 | 10,000 | ||||||||||||||
| Balance at Mar. 31, 2020 | $ 347 | 502,076 | (522,111) | $ 1 | (19,687) | |||||||||||
| Balance (in shares) at Dec. 31, 2019 | 28,480,567 | 0 | ||||||||||||||
| Balance at Dec. 31, 2019 | $ 285 | 419,194 | (501,597) | $ 0 | $ (82,118) | |||||||||||
| Issuance of shares pursuant to bond conversion (in shares) | 5,766,337 | |||||||||||||||
| Net loss and comprehensive loss | $ (25,307) | |||||||||||||||
| Balance (in shares) at Jun. 30, 2020 | 34,797,062 | 10,000 | ||||||||||||||
| Balance at Jun. 30, 2020 | $ 347 | 502,376 | (526,904) | $ 1 | (24,180) | |||||||||||
| Balance (in shares) at Mar. 31, 2020 | 34,772,030 | 10,000 | ||||||||||||||
| Balance at Mar. 31, 2020 | $ 347 | 502,076 | (522,111) | $ 1 | (19,687) | |||||||||||
| Stock-based Compensation expense (in shares) | 25,032 | 0 | ||||||||||||||
| Stock-based Compensation expense | $ 0 | 300 | 0 | $ 0 | 300 | |||||||||||
| Net loss and comprehensive loss | $ 0 | 0 | (4,793) | (4,793) | ||||||||||||
| Balance (in shares) at Jun. 30, 2020 | 34,797,062 | 10,000 | ||||||||||||||
| Balance at Jun. 30, 2020 | $ 347 | $ 502,376 | $ (526,904) | $ 1 | $ (24,180) | |||||||||||
| ||||||||||||||||
Note 1 - Basis of Presentation |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Significant Accounting Policies [Text Block] |
NOTE 1 – BASIS OF PRESENTATION
The Condensed Consolidated Financial Statements and notes have been prepared by Cadiz Inc., also referred to as “Cadiz” or “the Company”, without audit and should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
The foregoing Condensed Consolidated Financial Statements include the accounts of the Company and contain all adjustments, consisting only of normal recurring adjustments, which management considers necessary for a fair statement of the Company’s financial position, the results of its operations and its cash flows for the periods presented and have been prepared in accordance with generally accepted accounting principles.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates and such differences may be material to the financial statements. The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of results for the entire fiscal year ending December 31, 2020.
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 $25.3 million for the six months ended June 30, 2020, compared to $14.7 million for the six months ended June 30, 2019. $12.4 million of this higher loss was a one-time non-cash charge recorded in the first quarter, reflecting the excess of the fair value of the new preferred stock issued over the historical book value of the related convertible debt retired pursuant to Conversion and Exchange Agreements (see Note 2 – “Long-Term Debt”). The Company had working capital of $2.1 million at June 30, 2020 and used cash in its operations of $7.0 million for the six months ended June 30, 2020.
Cash requirements during the six months ended June 30, 2020 primarily reflect certain administrative costs related to the Company’s water project development efforts. Currently, the Company’s sole focus is the development of its land and water assets.
In July 2020, the Company entered into an At Market Issuance Sales Agreement under which the Company could issue and sell shares of its common stock having an aggregate offering price of up to $30 million from time to time in an “at-the-market” offering (the “July 2020 ATM Offering”).
In November 2018, the Company entered into an At Market Issuance Sales Agreement under which the Company could issue and sell shares of its common stock having an aggregate offering price of up to $25 million from time to time in an “at-the-market” offering (the “November 2018 ATM Offering”). The Company completed the offering during March 2020, having issued a total of 2,369,170 shares of common stock in the November 2018 ATM Offering for gross proceeds of $25 million and aggregate net proceeds of approximately $24.2 million.
In May 2017, 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 its then existing $45 million senior secured mortgage debt (“Prior Senior Secured Debt”) and provided $15 million of new senior debt to fund immediate construction related expenditures (“Senior Secured Debt”). The Company’s Senior Secured Debt and its convertible notes contain representations, warranties and covenants that are typical for agreements of this type, including restrictions that would limit the Company’s ability to incur additional indebtedness, incur liens, pay dividends or make restricted payments, dispose of assets, make investments and merge or consolidate with another person. However, while there are affirmative covenants, there are no financial maintenance covenants and no restrictions on the Company’s ability to issue additional common stock to fund future working capital needs. The debt covenants associated with the 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. Additionally, the Company entered into an agreement with Apollo that allows the Company to extend the maturity of the Apollo debt for an additional year from its current contractual maturity of May 2021 to May 2022 at the Company’s option. (see Note 2 – “Long-Term Debt”). At June 30, 2020, the Company was in compliance with its debt covenants.
On March 5, 2020, the Company entered into Conversion and Exchange Agreements (the “Exchange Agreements”) with certain holders (the “Holders”) of the Company’s 7% Convertible Senior Notes due 2020 (the “Convertible Notes”) having an aggregate original principal amount of $27.4 million. Pursuant to the terms of the Exchange Agreements, the Holders exchanged an aggregate amount payable of $27.3 million under the Convertible Notes for an aggregate of 10,000 shares of Series 1 Preferred Stock and the Holders converted the remaining aggregate amount payable of $17.5 million of Convertible Notes into 2.6 million shares of common stock in accordance with the terms of the existing Indenture. Following the transactions, all of the Convertible Notes held by the Holders, as well as all the remaining Convertible Notes held by others that were converted in accordance with the existing Indenture at maturity have been satisfied in full and cancelled.
The Company’s acquisition of a 124-mile extension of its Northern Pipeline will require a $19 million payment within 180 days upon completion of certain conditions precedent under the purchase agreement with El Paso Natural Gas Company (“EPNG”). If the acquisition of the 124-mile segment is not completed, then the Company’s Northern Pipeline opportunities will be limited to the 96-mile segment it already owns.
The Company may meet its debt and working capital requirements through a variety of means, including extension, refinancing, equity placements, the sale or other disposition of assets, or reductions in operating costs.
Limitations on the Company’s liquidity and ability to raise capital may adversely affect it. Sufficient liquidity is critical to meet the Company’s resource development activities. Although the Company currently expects its sources of capital to be sufficient to meet its near-term liquidity needs, there can be no assurance that its liquidity requirements will continue to be satisfied. If the Company cannot raise needed funds, it might be forced to make substantial reductions in its operating expenses, which could adversely affect its ability to implement its current business plan and ultimately its viability as a company.
Supplemental Cash Flow Information
Under the terms of the Senior Secured Debt, the Company is required to pay 25% of all future quarterly interest payments in cash. During the six months ended June 30, 2020, approximately $715 thousand in interest payments on the corporate secured debt was payable in cash. No other principal payments are due on the Senior Secured Debt or the Company’s convertible notes prior to their maturities.
During the six months ended June 30, 2020, approximately $38.9 million in convertible notes were converted into common stock by certain of the Company’s lenders. As a result, 5,766,337 shares of common stock were issued to the lenders. This conversion activity represents a non-cash financing activity. Pursuant to the terms of Conversion and Exchange Agreements, as discussed above, approximately $27.3 million of Convertible Notes were exchanged for an aggregate of 10,000 shares of Series 1 Preferred Stock.
The balance of cash, cash equivalents, and restricted cash as shown in the condensed consolidated statements of cash flows is comprised of the following:
The restricted cash amounts included in Other Assets primarily represent a deposit from a water project participant related to a cost-sharing agreement.
Recent Accounting Pronouncements
Accounting Guidance Not Yet Adopted
In December 2019, FASB issued an accounting standards update which reduces complexity in accounting standards by removing certain exceptions to the general principles in Topic 740. This update is effective for fiscal years beginning after December 15, 2021, and for interim periods within those fiscal years, with early adoption permitted. The Company is currently assessing this new guidance and expects this new standard will not have a material impact on the consolidated financial statements.
In June 2016, FASB issued an accounting standards update which introduces new guidance for the accounting for credit losses on certain financial instruments. This update is effective for fiscal years beginning after December 15, 2023, and for interim periods within those fiscal years, with early adoption permitted. The Company is currently assessing this new guidance and expects this new standard will not have a material impact on the consolidated financial statements.
Accounting Guidance Adopted
In August 2018, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update which modifies the disclosure requirements for fair value measurements. This update is effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years, with early adoption permitted. The Company adopted this guidance on January 1, 2020. The adoption of this update modified our disclosures, but had no impact on the Company’s condensed consolidated financial statements (see Note 7 – “Fair Value Measurements”).
In August 2018, the FASB issued an accounting standards update on a customer’s accounting for implementation costs incurred in a cloud computing arrangement. This update is effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years, with early adoption permitted. The Company adopted this guidance on January 1, 2020, and the new standard had no impact on the Company’s condensed consolidated financial statements. |
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Note 2 - Long-term Debt |
6 Months Ended |
|---|---|
Jun. 30, 2020 | |
| Notes to Financial Statements | |
| Debt Disclosure [Text Block] |
NOTE 2 – LONG-TERM DEBT
The carrying value of the Company’s Senior Secured Debt approximates fair value. The fair value of the Company’s Senior Secured Debt (Level 2) is determined based on an estimation of discounted future cash flows of the debt at rates currently quoted or offered to the Company by its lenders for similar debt instruments of comparable maturities by its lenders.
On March 5, 2020, the Company entered into Conversion and Exchange Agreements (the “Exchange Agreements”) with certain holders (the “Holders”) of the Company’s 7% Convertible Senior Notes due 2020 (the “Convertible Notes”) having an aggregate original principal amount of $27.4 million. Pursuant to the terms of the Exchange Agreements, the Holders exchanged an aggregate amount payable of $27.3 million under the Convertible Notes for an aggregate of 10,000 shares of Series 1 Preferred Stock and the Holders converted the remaining aggregate amount payable of $17.5 million of Convertible Notes into 2.6 million shares of common stock in accordance with the terms of the existing Indenture. Each preferred share is convertible at any time at the option of the Holder into 405.05 shares of Common Stock. Following the transactions, all of the Convertible Notes held by the Holders, as well as all the remaining Convertible Notes held by others that were converted in accordance with the existing Indenture at maturity have been satisfied in full and cancelled. Pursuant to applicable guidance, the Series 1 Preferred Stock was recorded in Stockholders’ Equity at fair value, which was determined using an option pricing model. A loss of $12.4 million was recorded in the Condensed Consolidated Statement of Operations and Comprehensive Income, representing the excess of the fair value of the Series 1 Preferred Stock over the historical book value of the related Convertible Notes.
On March 5, 2020, the Company entered into an agreement with its senior lender, Apollo Global Management LLC (“Apollo”), in which the Company acquired the option to extend the current May 2021 maturity date of its loan to May 2022 (“Extension Option”). The fee to acquire the Extension Option included the repricing of 362,500 warrants held by Apollo to $6.75 and the extension of their expiration date from May 2022 to May 2025 (“Warrant Modification”), together with an increase in the applicable prepayment premium of up to 7% of the accreted value of the loan. Additionally, if the Company exercises the Extension Option, the exercise price of the warrants automatically decreases to $0.01 per share and the expiration date of the warrants will automatically be extended by an additional 12 months.
At the time of the Warrant Modification, the Company recorded a warrant liability in the amount of $2.0 million, which was the carrying value of the warrant prior to modification in the amount of $0.9 million combined with the increase in fair value of the warrant in the amount of $1.1 million. This increase in fair value of the warrant at the time of the Warrant Modification was recorded to debt issuance costs and will be amortized over the remaining life of the Senior Secured Debt. The fair value of the warrant liability is remeasured each reporting period using an option pricing model, and the change in fair value is recorded as an adjustment to the warrant liability with the unrealized gains or losses reflect in interest expense.
Total unrealized losses of $51 thousand for warrant liabilities accounted for as derivatives have been recorded in interest expense in the six months ended June 30, 2020. |
Note 3 - Stock-based Compensation Plans |
6 Months Ended |
|---|---|
Jun. 30, 2020 | |
| Notes to Financial Statements | |
| Share-based Payment Arrangement [Text Block] |
NOTE 3– STOCK-BASED COMPENSATION PLANS
The Company has outstanding options and stock awards pursuant to its 2009 Equity Incentive Plan, 2014 Equity Incentive Plan and 2019 Equity Incentive Plan.
Stock Options to Directors, Officers and Consultants
In total, options to purchase 115,000 shares were unexercised and outstanding on June 30, 2020 under these equity incentive plans. The Company recognized no stock option related compensation costs in each of the six months ended June 30, 2020 and 2019. Additionally, options were exercised during the six months ended June 30, 2020.
Stock Awards to Directors, Officers, and Consultants
The Company has granted stock awards pursuant to its 2014 Equity Incentive Plan and 2019 Equity Incentive Plan.
Of the total 675,000 shares reserved under the 2014 Equity Incentive Plan, 674,987 shares have been awarded to the Company’s directors, consultants and employees. Of the 674,987 shares awarded, 15,312 shares were awarded for service during the plan year ended June 30, 2019. These shares became effective on that date and vested on January 31, 2020. Upon approval of the 2019 Equity Incentive Plan in July 2019, the 13 shares remaining available for award under the 2014 Equity Incentive Plan were cancelled.
Of the total 1,200,000 shares reserved under the 2019 Equity Incentive Plan, 262,129 shares have been awarded to the Company directors, employees and consultants as of June 30, 2020. Of the 262,129 shares awarded, 19,279 shares were awarded to the Company’s directors for services performed during the plan year ended June 30, 2020. These shares will vest and be issued on January 31, 2021.
The accompanying consolidated statements of operations and comprehensive loss include approximately $1,551,000 and $245,000 of stock-based compensation expense related to stock awards in the six months ended June 30, 2020 and 2019, respectively. |
Note 4 - Income Taxes |
6 Months Ended |
|---|---|
Jun. 30, 2020 | |
| Notes to Financial Statements | |
| Income Tax Disclosure [Text Block] |
NOTE 4– INCOME TAXES
As of June 30, 2020, the Company had net operating loss (“NOL”) carryforwards of approximately $333 million for federal income tax purposes and $225 million for California state income tax purposes. Such carryforwards expire in varying amounts through the year 2040. 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 ownership changes.
As of June 30, 2020, the Company possessed unrecognized tax benefits totaling approximately $1.5 million. of these, if recognized, would affect the Company's effective tax rate because the Company has recorded a full valuation allowance against these assets.
Because it is more likely than not that the Company will not realize its net deferred tax assets, it has recorded a full valuation allowance against these assets. Accordingly, deferred tax asset has been reflected in the accompanying condensed consolidated balance sheet. |
Note 5 - Net Loss Per Common Share |
6 Months Ended |
|---|---|
Jun. 30, 2020 | |
| Notes to Financial Statements | |
| Earnings Per Share [Text Block] |
NOTE 5 – NET LOSS PER COMMON SHARE
Basic net loss per share is computed by dividing the net loss by the weighted-average common shares outstanding. Options, deferred stock units, convertible debt, convertible preferred shares and warrants 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 4,626,000 and 11,442,000 for the three months ended June 30, 2020 and 2019, respectively; and 3,153,000 and 11,574,000 for the six months ended June 30, 2020 and 2019, respectively. |
Note 6 - Leases |
6 Months Ended |
|---|---|
Jun. 30, 2020 | |
| Notes to Financial Statements | |
| Lessee, Operating Leases [Text Block] |
NOTE 6– LEASES
The Company has operating leases for corporate offices, vehicles and office equipment. The Company’s leases have remaining lease terms of 2 months to 14 months as of June 30, 2020, some of which include options to extend or terminate the lease. However, the Company is not reasonably certain to exercise options to renew or terminate, and therefore renewal and termination options are not considered in the lease term or the right-of-use asset and lease liability balances. The Company's current lease arrangements expire from 2020 through 2021. The Company does not have any finance leases.
From a lessor standpoint, in February 2016, the Company entered into a lease agreement with Fenner Valley Farms LLC (“FVF”) (the “lessee”), a subsidiary of Water Asset Management LLC, a related party, pursuant to which FVF is leasing, for a 99-year term, 2,100 acres owned by Cadiz in San Bernardino County, California, to be used to plant, grow and harvest agricultural crops (“FVF Lease Agreement”). As consideration for the lease, FVF paid the Company a one-time payment of $12.0 million upon closing. The Company expects to receive rental income of $420 thousand annually over the next five years related to the FVF Lease Agreement.
On July 31, 2019, the JV entered into a lease agreement (the “Lease Agreement”) with the Company whereby the JV will cultivate industrial hemp on up to 9,600 acres at the Company’s agricultural property in eastern San Bernardino County, California (“Cadiz Ranch”). Under the terms of the Agreement, the JV initially leased 1,280 acres at the Cadiz Ranch and holds options to lease up to 8,320 additional acres by 2022. The Lease Agreement was amended in March 2020 to reduce the initially leased acreage to 242 and extend the options to lease the remaining acreage until 2023. The Agreement has an initial term of years and the JV has the option to extend the term for successive periods of years each. In consideration for the lease arrangement, the JV will provide the Company an annual rental payment equal to $500 per acre of leased property, subject to periodic CPI adjustment. The lease commenced on March 1, 2020 when the Company completed certain activities to bring the property to the specification required by the JV. Assuming no further options are exercised, the Company expects to receive rental income of approximately $121 thousand annually over the next five years related to the JV Lease Agreement. |
Note 7 - Fair Value Measurements |
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| Fair Value Disclosures [Text Block] |
NOTE 7– FAIR VALUE MEASUREMENTS
The following table presents information about warrant derivative liabilities, and indicates the fair value hierarchy of the valuation techniques we utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. We consider 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.
On March 5, 2020, the Company entered into an amendment to a warrant agreement with its senior lender which, among other provisions, repriced 362,500 warrants held by the senior lender to $6.75 (the “Warrant”) (see Note 2 – “Long-Term Debt”, above). As a result, the Company reclassified the carrying value of the Warrant prior to the modification from additional paid-in capital in the amount of $865 thousand to a warrant liability, as the Warrant met the definition of a derivative. In addition, the Company recorded debt issuance costs in the amount of $1.1 million, which was the increase in fair value of the warrant at the time of the modification. The fair value of the warrant liability is remeasured each reporting period using an option pricing model, and the change in fair value is recorded as an adjustment to the warrant liability with the unrealized gains or losses reflect in interest expense. The Company recognized a loss of $51 thousand related to the remeasurement of the warrant derivative liability at fair value during the six month ended June 30, 2020.
The following table presents a reconciliation of Level 3 activity for the six month period ended June 30, 2020:
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Note 8 - Subsequent Event |
6 Months Ended |
|---|---|
Jun. 30, 2020 | |
| Notes to Financial Statements | |
| Subsequent Events [Text Block] |
NOTE 8 – SUBSEQUENT EVENT
In July 2020, the Company entered into an At Market Issuance Sales Agreement under which the Company could issue and sell shares of its common stock having an aggregate offering price of up to $30 million from time to time in an “at-the-market” offering (the “July 2020 ATM Offering”).
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Significant Accounting Policies (Policies) |
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| Liquidity Accounting Policy Disclosure [Policy Text Block] | Liquidity
The Condensed Consolidated Financial Statements of the Company have been prepared using accounting principles applicable to a going concern, which assumes realization of assets and settlement of liabilities in the normal course of business. The Company incurred losses of $25.3 million for the six months ended June 30, 2020, compared to $14.7 million for the six months ended June 30, 2019. $12.4 million of this higher loss was a one-time non-cash charge recorded in the first quarter, reflecting the excess of the fair value of the new preferred stock issued over the historical book value of the related convertible debt retired pursuant to Conversion and Exchange Agreements (see Note 2 – “Long-Term Debt”). The Company had working capital of $2.1 million at June 30, 2020 and used cash in its operations of $7.0 million for the six months ended June 30, 2020.
Cash requirements during the six months ended June 30, 2020 primarily reflect certain administrative costs related to the Company’s water project development efforts. Currently, the Company’s sole focus is the development of its land and water assets.
In July 2020, the Company entered into an At Market Issuance Sales Agreement under which the Company could issue and sell shares of its common stock having an aggregate offering price of up to $30 million from time to time in an “at-the-market” offering (the “July 2020 ATM Offering”).
In November 2018, the Company entered into an At Market Issuance Sales Agreement under which the Company could issue and sell shares of its common stock having an aggregate offering price of up to $25 million from time to time in an “at-the-market” offering (the “November 2018 ATM Offering”). The Company completed the offering during March 2020, having issued a total of 2,369,170 shares of common stock in the November 2018 ATM Offering for gross proceeds of $25 million and aggregate net proceeds of approximately $24.2 million.
In May 2017, 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 its then existing $45 million senior secured mortgage debt (“Prior Senior Secured Debt”) and provided $15 million of new senior debt to fund immediate construction related expenditures (“Senior Secured Debt”). The Company’s Senior Secured Debt and its convertible notes contain representations, warranties and covenants that are typical for agreements of this type, including restrictions that would limit the Company’s ability to incur additional indebtedness, incur liens, pay dividends or make restricted payments, dispose of assets, make investments and merge or consolidate with another person. However, while there are affirmative covenants, there are no financial maintenance covenants and no restrictions on the Company’s ability to issue additional common stock to fund future working capital needs. The debt covenants associated with the 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. Additionally, the Company entered into an agreement with Apollo that allows the Company to extend the maturity of the Apollo debt for an additional year from its current contractual maturity of May 2021 to May 2022 at the Company’s option. (see Note 2 – “Long-Term Debt”). At June 30, 2020, the Company was in compliance with its debt covenants.
On March 5, 2020, the Company entered into Conversion and Exchange Agreements (the “Exchange Agreements”) with certain holders (the “Holders”) of the Company’s 7% Convertible Senior Notes due 2020 (the “Convertible Notes”) having an aggregate original principal amount of $27.4 million. Pursuant to the terms of the Exchange Agreements, the Holders exchanged an aggregate amount payable of $27.3 million under the Convertible Notes for an aggregate of 10,000 shares of Series 1 Preferred Stock and the Holders converted the remaining aggregate amount payable of $17.5 million of Convertible Notes into 2.6 million shares of common stock in accordance with the terms of the existing Indenture. Following the transactions, all of the Convertible Notes held by the Holders, as well as all the remaining Convertible Notes held by others that were converted in accordance with the existing Indenture at maturity have been satisfied in full and cancelled.
The Company’s acquisition of a 124-mile extension of its Northern Pipeline will require a $19 million payment within 180 days upon completion of certain conditions precedent under the purchase agreement with El Paso Natural Gas Company (“EPNG”). If the acquisition of the 124-mile segment is not completed, then the Company’s Northern Pipeline opportunities will be limited to the 96-mile segment it already owns.
The Company may meet its debt and working capital requirements through a variety of means, including extension, refinancing, equity placements, the sale or other disposition of assets, or reductions in operating costs.
Limitations on the Company’s liquidity and ability to raise capital may adversely affect it. Sufficient liquidity is critical to meet the Company’s resource development activities. Although the Company currently expects its sources of capital to be sufficient to meet its near-term liquidity needs, there can be no assurance that its liquidity requirements will continue to be satisfied. If the Company cannot raise needed funds, it might be forced to make substantial reductions in its operating expenses, which could adversely affect its ability to implement its current business plan and ultimately its viability as a company.
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| Cash Flow Supplemental [Policy Text Block] | Supplemental Cash Flow Information
Under the terms of the Senior Secured Debt, the Company is required to pay 25% of all future quarterly interest payments in cash. During the six months ended June 30, 2020, approximately $715 thousand in interest payments on the corporate secured debt was payable in cash. No other principal payments are due on the Senior Secured Debt or the Company’s convertible notes prior to their maturities.
During the six months ended June 30, 2020, approximately $38.9 million in convertible notes were converted into common stock by certain of the Company’s lenders. As a result, 5,766,337 shares of common stock were issued to the lenders. This conversion activity represents a non-cash financing activity. Pursuant to the terms of Conversion and Exchange Agreements, as discussed above, approximately $27.3 million of Convertible Notes were exchanged for an aggregate of 10,000 shares of Series 1 Preferred Stock.
The balance of cash, cash equivalents, and restricted cash as shown in the condensed consolidated statements of cash flows is comprised of the following:
The restricted cash amounts included in Other Assets primarily represent a deposit from a water project participant related to a cost-sharing agreement.
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| New Accounting Pronouncements, Policy [Policy Text Block] | Recent Accounting Pronouncements
Accounting Guidance Not Yet Adopted
In December 2019, FASB issued an accounting standards update which reduces complexity in accounting standards by removing certain exceptions to the general principles in Topic 740. This update is effective for fiscal years beginning after December 15, 2021, and for interim periods within those fiscal years, with early adoption permitted. The Company is currently assessing this new guidance and expects this new standard will not have a material impact on the consolidated financial statements.
In June 2016, FASB issued an accounting standards update which introduces new guidance for the accounting for credit losses on certain financial instruments. This update is effective for fiscal years beginning after December 15, 2023, and for interim periods within those fiscal years, with early adoption permitted. The Company is currently assessing this new guidance and expects this new standard will not have a material impact on the consolidated financial statements.
Accounting Guidance Adopted
In August 2018, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update which modifies the disclosure requirements for fair value measurements. This update is effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years, with early adoption permitted. The Company adopted this guidance on January 1, 2020. The adoption of this update modified our disclosures, but had no impact on the Company’s condensed consolidated financial statements (see Note 7 – “Fair Value Measurements”).
In August 2018, the FASB issued an accounting standards update on a customer’s accounting for implementation costs incurred in a cloud computing arrangement. This update is effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years, with early adoption permitted. The Company adopted this guidance on January 1, 2020, and the new standard had no impact on the Company’s condensed consolidated financial statements. |
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Note 1 - Basis of Presentation (Tables) |
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| Schedule of Cash and Cash Equivalents [Table Text Block] |
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Note 7 - Fair Value Measurements (Tables) |
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| Fair Value, Liabilities Measured on Recurring Basis [Table Text Block] |
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| Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Table Text Block] |
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Note 1 - Basis of Presentation - Components of Cash, Cash Equivalents and Restricted Cash (Details) - USD ($) $ in Thousands |
Jun. 30, 2020 |
Dec. 31, 2019 |
Jun. 30, 2019 |
Dec. 31, 2018 |
|---|---|---|---|---|
| Cash and Cash Equivalents | $ 5,568 | $ 15,682 | $ 19,481 | |
| Restricted Cash included in Other Assets | 134 | 134 | 133 | |
| Cash, Cash Equivalents and Restricted Cash in the Consolidated Statement of Cash Flows | $ 5,702 | $ 15,816 | $ 19,614 | $ 12,691 |
Note 4 - Income Taxes (Details Textual) $ in Thousands |
Jun. 30, 2020
USD ($)
|
|---|---|
| Unrecognized Tax Benefits, Ending Balance | $ 1,500 |
| Unrecognized Tax Benefits that Would Impact Effective Tax Rate | 0 |
| Deferred Tax Assets, Net, Total | 0 |
| Domestic Tax Authority [Member] | Internal Revenue Service (IRS) [Member] | |
| Operating Loss Carryforwards, Total | 333,000 |
| State and Local Jurisdiction [Member] | California Franchise Tax Board [Member] | |
| Operating Loss Carryforwards, Total | $ 225,000 |
Note 5 - Net Loss Per Common Share (Details Textual) - shares |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
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| Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares) | 4,626,000 | 11,442,000 | 3,153,000 | 11,574,000 |
Note 7 - Fair Value Measurements (Details Textual) - USD ($) $ / shares in Units, $ in Thousands |
6 Months Ended | ||
|---|---|---|---|
Mar. 05, 2020 |
Jun. 30, 2020 |
Jun. 30, 2019 |
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| Class of Warrant or Right, Exercise Price of Warrants or Rights (in dollars per share) | $ 0.01 | ||
| Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Liability, Period Increase (Decrease), Total | $ 865 | ||
| Unamortized Debt Issuance Expense | $ 1,100 | ||
| Fair Value Adjustment of Warrants | $ 51 | $ 0 | |
| 2017 Warrants [Member] | |||
| Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in shares) | 362,500 | ||
| Class of Warrant or Right, Exercise Price of Warrants or Rights (in dollars per share) | $ 6.75 | ||
Note 7 - Fair Value Measurements - Fair Value of Liabilities on a Recurring Basis (Details) $ in Thousands |
Jun. 30, 2020
USD ($)
|
|---|---|
| Warrant derivative liabilities | $ 2,037 |
| Total warrant derivative liabilities | 2,037 |
| Fair Value, Inputs, Level 1 [Member] | |
| Warrant derivative liabilities | 0 |
| Total warrant derivative liabilities | 0 |
| Fair Value, Inputs, Level 2 [Member] | |
| Warrant derivative liabilities | 0 |
| Total warrant derivative liabilities | 0 |
| Fair Value, Inputs, Level 3 [Member] | |
| Warrant derivative liabilities | 2,037 |
| Total warrant derivative liabilities | $ 2,037 |
Note 7 - Fair Value Measurements - Reconciliation of Level 3 Activity (Details) - Warrant Liabilities [Member] - Fair Value, Inputs, Level 3 [Member] - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Jun. 30, 2020 |
Mar. 31, 2020 |
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| Balance | $ 2,547 | $ 0 |
| Reclassification of warrant liability | 1,986 | |
| Unrealized loss (gain) on warrants | (510) | 561 |
| Balance | $ 2,037 | $ 2,547 |
Note 8 - Subsequent Event (Details Textual) $ in Millions |
Jul. 31, 2020
USD ($)
|
|---|---|
| July 2020 ATM Offering [Member] | Subsequent Event [Member] | |
| At Market Issuance Sales Agreement, Maximum Aggregate Offering Price | $ 30 |
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