united states
Securities and Exchange Commission
Washington, D. C. 20549
FORM
(Mark One)
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 |
| | | The |
| | | The |
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 ☐ 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 November 8, 2023, the Registrant had
| Fiscal Third Quarter 2023 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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| Unaudited Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022 |
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| Unaudited Notes to the Condensed Consolidated Financial Statements |
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| ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| ITEM 3. Quantitative and Qualitative Disclosures about Market Risk |
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| PART II – OTHER INFORMATION |
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| ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds |
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Cadiz Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
| For the Three Months |
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| Ended September 30, |
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| ($ in thousands, except per share data) |
2023 |
2022 |
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| Total revenues |
$ | $ | ||||||
| Costs and expenses: |
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| Cost of sales |
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| General and administrative |
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| Depreciation |
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| Total costs and expenses |
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| Operating loss |
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| Interest expense, net |
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| Loss before income taxes |
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| Income tax expense |
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| Loss from equity-method investments |
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| Net loss and comprehensive loss |
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$ | ) |
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| Less: Preferred stock dividend |
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| Net loss and comprehensive loss applicable to common stock |
$ | ( |
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$ | ) |
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| Basic and diluted net loss per common share |
$ | ( |
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$ | ) |
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| Basic and diluted weighted average shares outstanding |
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See accompanying notes to the unaudited condensed consolidated financial statements.
| Cadiz Inc. |
| Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) |
| For the Nine Months |
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| Ended September 30, |
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| ($ in thousands, except per share data) |
2023 |
2022 |
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| Total revenues |
$ | $ | ||||||
| Costs and expenses: |
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| Cost of sales |
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| General and administrative |
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| Depreciation |
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| Total costs and expenses |
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| Operating loss |
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| Interest expense, net |
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| Loss on derivative liability |
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| Loss on early extinguishment of debt |
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| Loss before income taxes |
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| Income tax expense |
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) |
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| Loss from equity-method investments |
) |
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| Net loss and comprehensive loss |
$ | ( |
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$ | ) |
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| Less: Preferred stock dividend |
( |
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) |
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| Net loss and comprehensive loss applicable to common stock |
$ | ( |
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$ | ) |
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| Basic and diluted net loss per common share |
$ | ( |
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$ | ) |
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| Basic and diluted weighted average shares outstanding |
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See accompanying notes to the unaudited condensed consolidated financial statements.
| Cadiz Inc. |
| Condensed Consolidated Balance Sheets (Unaudited) |
| September 30, | December 31, | |||||||
| ($ in thousands, except per share data) | 2023 | 2022 | ||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant, equipment and water programs, net | ||||||||
| Long-term deposit/prepaid expenses | ||||||||
| Goodwill | ||||||||
| Right-of-use asset | ||||||||
| Long-term restricted cash | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Current portion of long-term debt | ||||||||
| Dividend payable | ||||||||
| Contingent consideration liabilities | ||||||||
| Short-term deferred revenue | ||||||||
| Operating lease liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term debt, net | ||||||||
| Long-term lease obligations with related party, net | ||||||||
| Long-term operating lease liabilities | ||||||||
| Deferred revenue | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 10) | ||||||||
| Stockholders’ equity: | ||||||||
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| ||||||||
| Preferred stock - $ par value; shares authorized at September 30, 2023 and December 31, 2022; shares issued and outstanding – at September 30, 2023 and December 31, 2022 | ||||||||
| % Series A cumulative, perpetual preferred stock - $ par value; shares authorized at September 30, 2023 and December 31, 2022; shares issued and outstanding – at September 30, 2023 and December 31, 2022 | ||||||||
| Common stock - $ par value; shares authorized – at September 30, 2023 and at December 31, 2022; shares issued and outstanding – at September 30, 2023 and at December 31, 2022 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| 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 Nine Months |
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| Ended September 30, |
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| ($ in thousands) |
2023 |
2022 |
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| Cash flows from operating activities: |
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| Net loss |
$ | ( |
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( |
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| Adjustments to reconcile net loss to net cash used in operating activities: |
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| Depreciation |
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| Amortization of debt discount and issuance costs |
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| Amortization of right-of-use asset |
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| Interest expense added to loan principal |
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| Interest expense added to lease liability |
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| Unrealized loss on derivative liability |
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| Loss on early extinguishment of debt |
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| Loss on equity method investments |
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| Compensation charge for stock and share option awards |
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| Changes in operating assets and liabilities: |
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| Accounts receivable |
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| Inventories |
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| Prepaid expenses and other current assets |
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| Other assets |
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| Accounts payable |
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| Lease liabilities |
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| Deferred revenue | ||||||||
| Other accrued liabilities |
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| Net cash used in operating activities |
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| Cash flows from investing activities: |
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| Additions to property, plant and equipment and water programs |
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| Contributions to equity-method investments |
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| Net cash used in investing activities |
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| Cash flows from financing activities: |
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| Net proceeds from issuance of stock |
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| Proceeds from the issuance of long-term debt |
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| Dividend payments |
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| Principal payments on long-term debt |
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| Issuance costs of long-term debt |
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| Costs for early extinguishment of debt |
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| Taxes paid related to net share settlement of equity awards |
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| Net cash provided by financing activities |
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| Net decrease in cash, cash equivalents and restricted cash |
( |
) | ( |
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| Cash, cash equivalents and restricted cash, beginning of period |
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| 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’ Equity (Unaudited) |
For the three and nine months ended September 30, 2023 ($ in thousands, except share data)
| 8.875% Series A Cumulative | Additional | Total | ||||||||||||||||||||||||||||||||||
| Common Stock | Preferred Stock | Perpetual Preferred Stock | Paid-in | Accumulated | Stockholders’ | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||||||||
| Balance as of December 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| Stock-based compensation expense | ||||||||||||||||||||||||||||||||||||
| Issuance of shares pursuant to direct offerings | ||||||||||||||||||||||||||||||||||||
| Dividends declared on % series A cumulative perpetual preferred shares ($ per share) | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Net loss and comprehensive loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance as of March 31, 2023 | $ | $ | ( | ) | ||||||||||||||||||||||||||||||||
| Stock-based compensation expense | ||||||||||||||||||||||||||||||||||||
| Dividends declared on % series A cumulative perpetual preferred shares ($ per share) | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Net loss and comprehensive loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance as of June 30, 2023 | $ | $ | ( | ) | ||||||||||||||||||||||||||||||||
| Stock-based compensation expense | ||||||||||||||||||||||||||||||||||||
| Reclassification of derivative liability | - | - | - | |||||||||||||||||||||||||||||||||
| Dividends declared on % series A cumulative perpetual preferred shares ($ per share) | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Net loss and comprehensive loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance as of September 30, 2023 | $ | $ | $ | ( | ) | |||||||||||||||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| Cadiz Inc. |
| Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) |
For the three and nine months ended September 30, 2022 ($ in thousands, except share data)
| 8.875% Series A Cumulative | Additional | Total | ||||||||||||||||||||||||||||||||||
| Common Stock | Preferred Stock | Perpetual Preferred Stock | Paid-in | Accumulated | Stockholders’ | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||||||||
| Balance as of December 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| Stock-based compensation expense | ||||||||||||||||||||||||||||||||||||
| Issuance of shares pursuant to direct offerings | ||||||||||||||||||||||||||||||||||||
| Dividends declared on % series A cumulative perpetual preferred shares ($ per share) | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Net loss and comprehensive loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance as of March 31, 2022 | $ | $ | ( | ) | ||||||||||||||||||||||||||||||||
| Stock-based compensation expense | ||||||||||||||||||||||||||||||||||||
| Dividends declared on % series A cumulative perpetual preferred shares ($ per share) | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Net loss and comprehensive loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance as of June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Stock-based compensation Expense | ||||||||||||||||||||||||||||||||||||
| Dividends declared on % series A cumulative perpetual preferred shares ($ per share) | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Net loss and comprehensive loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance as of September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| Cadiz Inc. |
| Notes to the 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, 2022.
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 nine months ended September 30, 2023, are not necessarily indicative of results for the entire fiscal year ending December 31, 2023.
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 nine months ended September 30, 2023, primarily reflect certain operating and administrative costs related to development of the Company’s land, water, infrastructure and technology assets for water solutions including the Cadiz Water Conservation & Storage Project (“Water Project”), agricultural operations and water treatment business. The Company’s present activities are focused on the development of its assets in ways that meet an urgent need for groundwater storage capacity in Southern California and growing demand for affordable, reliable, long-term water supplies before the next drought strikes the Southwestern United States.
| Cadiz Inc. |
| Notes to the Consolidated Financial Statements |
On January 30, 2023, the Company completed the sale and issuance of
On February 2, 2023, the Company and its wholly-owned subsidiary, Cadiz Real Estate LLC, as borrowers (collectively, the “Borrowers”) entered into a First Amendment to Credit Agreement with BRF Finance Co., LLC (“Lenders”) and B. Riley Securities, Inc., (“BRS”) as administrative agent, to amend certain provisions of the Credit Agreement dated as of July 2, 2021 (“First Amended Credit Agreement”). Under the First Amended Credit Agreement, the lenders will have a right to convert up to $
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. The covenants in the senior secured debt do not prohibit the Company’s use of additional equity financing and allow the Company to retain 100% of the proceeds of any common equity financing. The Company does not expect the loan covenants to materially limit its ability to finance its asset development activities.
Management assesses whether the Company has sufficient liquidity to fund its costs for the next twelve months from each financial statement issuance date. Management evaluates the Company’s liquidity to determine if there is a substantial doubt about the Company’s ability to continue as a going concern. In the preparation of this liquidity assessment, management applies judgement to estimate the projected cash flows of the Company including the following: (i) projected cash outflows (ii) projected cash inflows, (iii) categorization of expenditures as discretionary versus non-discretionary and (iv) the ability to raise capital. The cash flow projections are based on known or planned cash requirements for operating costs as well as planned costs for project development.
Limitations on the Company’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
During the nine months ended September 30, 2023, approximately $
| Cadiz Inc. |
| Notes to the Consolidated Financial Statements |
At September 30, 2023, accruals for cash dividends payable on the Series A Preferred Stock was $
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 | September 30, 2023 | December 31, 2022 | September 30, 2022 | |||||||||
| (in thousands) | ||||||||||||
| Cash and Cash Equivalents | $ | $ | $ | |||||||||
| Restricted Cash | ||||||||||||
| Long Term Restricted Cash | ||||||||||||
| Cash, Cash Equivalents and Restricted Cash in the Consolidated Statement of Cash Flows | $ | $ | $ | |||||||||
The restricted cash amounts primarily represented funds deposited into a segregated account, representing an amount sufficient to pre-fund quarterly dividend payments on Series A Preferred Stock underlying the Depositary Shares issued in the Depositary Share Offering through July 2023.
ATEC Water Systems, LLC
On November 9, 2022, the Company completed the acquisition of the assets of ATEC Systems, Inc. into ATEC Water Systems, LLC (“ATEC”), a water filtration technology company, at a purchase price of up to $
Revenue Recognition
The Company’s revenue is currently derived from rental revenue from its agricultural lease, sales of farm crops, and sales of water filtration systems by ATEC. The Company recognizes revenue by following the five-step model under ASC 606 to achieve the core principle that an entity recognizes revenue to depict the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The five-step model requires that the Company (i) identifies the contract with the customer, (ii) identifies the performance obligations in the contract, (iii) determines the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocates the transaction price to the respective performance obligations in the contract, and (v) recognizes revenue when (or as) the Company satisfies the performance obligation.
| Cadiz Inc. |
| Notes to the Consolidated Financial Statements |
Recent Accounting Pronouncements
Accounting Guidance Adopted
In June 2016, Financial Accounting Standards Board (“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, 2022, and for interim periods within those fiscal years, with early adoption permitted. The adoption of this new standard on January 1, 2023, had no impact on the Company’s consolidated financial statements.
NOTE 2 – REPORTABLE SEGMENTS
The Company currently operates in
We evaluate our performance based on segment operating (loss). Interest expense, income tax expense and losses related to equity method investments are excluded from the computation of operating (loss) for the segments. Segment net revenue, segment operating expenses and segment operating (loss) information consisted of the following for the three and nine months ended September 30, 2023:
| Three Months Ended September 30, 2023 | ||||||||||||
| (in thousands) | Land and Water Resources | Water Treatment | Total | |||||||||
| Total revenues | ||||||||||||
| Costs and expenses: | ||||||||||||
| Cost of sales | ||||||||||||
| General and administrative | ||||||||||||
| Depreciation | ||||||||||||
| Total costs and expenses | ||||||||||||
| Operating loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Cadiz Inc. |
| Notes to the Consolidated Financial Statements |
| Nine Months Ended September 30, 2023 | ||||||||||||
| (in thousands) | Land and Water Resources | Water Treatment | Total | |||||||||
| Total revenues | ||||||||||||
| Costs and expenses: | ||||||||||||
| Cost of sales | ||||||||||||
| General and administrative | ||||||||||||
| Depreciation | ||||||||||||
| Total costs and expenses | ||||||||||||
| Operating loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
The Company only operated in one segment during the nine months ended September 30, 2022, as the water treatment segment did not exist prior to the ATEC Acquisition in November 2022.
Assets by operating segment are as follows (dollars in thousands):
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Operating Segment: | ||||||||
| Water and Land Resources | $ | $ | ||||||
| Water Treatment | ||||||||
| $ | $ | |||||||
Goodwill by operating segment is as follows (dollars in thousands):
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Operating Segment: | ||||||||
| Water and Land Resources | $ | $ | ||||||
| Water Treatment | ||||||||
| $ | $ | |||||||
Property, plant, equipment and water programs consist of the following (dollars in thousands):
| September 30, 2023 | ||||||||
| Water and Land Resources | Water Treatment | |||||||
| Land and land improvements | $ | $ | - | |||||
| Water programs | - | |||||||
| Pipeline | - | |||||||
| Buildings | - | |||||||
| Leasehold improvements, furniture and fixtures | ||||||||
| Machinery and equipment | ||||||||
| Construction in progress | - | |||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| $ | $ | |||||||
| Cadiz Inc. |
| Notes to the Consolidated Financial Statements |
| December 31, 2022 | ||||||||
| Water and Land Resources | Water Treatment | |||||||
| Land and land improvements | $ | $ | - | |||||
| Water programs | - | |||||||
| Pipeline | - | |||||||
| Buildings | - | |||||||
| Leasehold improvements, furniture and fixtures | ||||||||
| Machinery and equipment | ||||||||
| Construction in progress | - | |||||||
| Less accumulated depreciation | ( | ) | - | |||||
| $ | $ | |||||||
NOTE 3 – 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 July 2, 2021, the Company entered into a new $
On February 2, 2023, the Company entered into a First Amendment to Credit Agreement to amend certain provisions of the Credit Agreement (“First Amended Credit Agreement”). In connection with the First Amended Credit Agreement, the Company repaid $
| Cadiz Inc. |
| Notes to the Consolidated Financial Statements |
As a result of the First Amended Credit Agreement, the Company bifurcated the new conversion option from the debt and recorded a derivative liability. As of the effective date of the First Amended Credit Agreement, the derivative liability had a fair value of approximately $
The fair value of the derivative liability was remeasured each reporting period using an option pricing model, and the change in fair value was recorded as an adjustment to the derivative liability with the change in fair value recorded as income or expense. On August 14, 2023, the Credit Agreement was further amended to remove a conversion exchange cap provision (“Conversion Option Modification”). As a result of the Conversion Option Modification, the Company reclassified the carrying value of the bifurcated conversion option at the time of the modification from a derivative liability in the amount of $
In the event of certain asset sales, the incurrence of indebtedness or a casualty or condemnation event, in each case, under certain circumstances as described in the Credit Agreement, the Company will be required to use a portion of the proceeds to prepay amounts under the debt. In the event of any additional issuance of depositary receipts (“Depositary Receipts”) representing interests in shares of
The Credit Agreement includes customary affirmative and negative covenants, including delivery of financial statements and other reports. The negative covenants limit the ability of the Company to, among other things, incur debt, incur liens, make investments, sell assets, pay dividends and enter into transactions with affiliates. In addition, the Credit Agreement includes customary events of default and remedies.
While any amount remains outstanding under the debt, the Lenders will have the right to convert the outstanding principal, plus unpaid interest, on the debt into Depositary Receipts at the per share exchange price of $
In connection with the issuance of the Senior Secured Debt, on July 2, 2021 (the “Original Issue Date”) the Company issued to the Lenders
| Cadiz Inc. |
| Notes to the Consolidated Financial Statements |
NOTE 4 – STOCK-BASED COMPENSATION PLANS
The Company has issued options and has granted stock awards pursuant to its 2019 Equity Incentive Plan, as described below.
2019 Equity Incentive Plan
The 2019 Equity Incentive Plan (“2019 EIP”) was originally approved by stockholders at the July 10, 2019, Annual Meeting, with an amendment to the plan approved by stockholders at the July 12, 2022, Annual Meeting. The plan, as amended, provides for the grant and issuance of up to
Effective July 1, 2021, under the 2019 EIP, each outside director receives $
Stock Awards to Directors, Officers, and Consultants
The Company has granted stock awards pursuant to its 2019 EIP.
Of the total
| Cadiz Inc. |
| Notes to the Consolidated Financial Statements |
Of the
Upon the change of the Company’s Executive Chair on February 4, 2022, a total of
The Company issued
Additionally,
The accompanying consolidated statements of operations and comprehensive loss include stock-based compensation expense of approximately $
NOTE 5 – INCOME TAXES
As of September 30, 2023, the Company had net operating loss (“NOL”) carryforwards of approximately $
As of September 30, 2023, the Company’s unrecognized tax benefits were immaterial.
The Company's tax years through 2022 remain subject to examination by the Internal Revenue Service, and tax years through 2022 remain subject to examination by California tax jurisdictions. In addition, the Company's loss carryforward amounts are generally subject to examination and adjustment for a period of years for federal tax purposes and years for California purposes, beginning when such carryovers are utilized to reduce taxes in a future tax year.
| Cadiz Inc. |
| Notes to the Consolidated Financial Statements |
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 all deferred assets. Accordingly, deferred tax asset has been reflected in the accompanying condensed consolidated balance sheet.
NOTE 6 – NET LOSS PER COMMON SHARE
Basic net loss per common share is computed by dividing the net loss by the weighted-average common shares outstanding. Options, deferred stock units, convertible debt, convertible preferred shares and warrants 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 7 – LEASES & PROPERTY, PLANT, EQUIPMENT AND WATER PROGRAMS
The Company has operating leases for right-of-way agreements, corporate offices, vehicles and office equipment. The Company’s leases have remaining lease terms of
As a lessor, in February 2016, the Company entered into a lease agreement with Fenner Valley Farms LLC (“FVF”) (the “lessee”), pursuant to which FVF is leasing, for a
During the nine months ended September 30, 2023, $
Depreciation expense on land improvements, buildings, leasehold improvements, machinery and equipment and furniture and fixtures was $
| Cadiz Inc. |
| Notes to the Consolidated Financial Statements |
NOTE 8 – FAIR VALUE MEASUREMENTS
Fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. The Company considers a security that trades at least weekly to have an active market. Fair values determined by Level 2 inputs utilize data points that are observable, such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.
In 2022, the Company recorded a contingent consideration liability in the amount of $
| (in thousands) | Level 1 Assets | |||
| Balance at December 31, 2022 | $ | |||
| Investments in Certificates of Deposit | ||||
| Balance at September 30, 2023 | ||||
| (in thousands) | Level 3 Liabilities | |||
| Balance at December 31, 2022 | $ | ( | ) | |
| Derivative liabilities | ( | ) | ||
| Unrealized gains on derivative liabilities, net | ||||
| Balance at March 31, 2023 | ( | ) | ||
| Unrealized losses on derivative liabilities, net | ( | ) | ||
| Balance at June 30, 2023 | ( | ) | ||
| Reclassification of derivative liabilities to additional paid-in capital | ||||
| Balance at September 30, 2023 | $ | ( | ) | |
| Investments at Fair Value as of September 30, 2023 | ||||||||||||||||
| (in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Assets | ||||||||||||||||
| Certificates of Deposit | $ | $ | $ | $ | ||||||||||||
| Total Assets | $ | $ | $ | $ | ||||||||||||
| Liabilities | ||||||||||||||||
| Contingent consideration liabilities | $ | $ | $ | $ | ||||||||||||
| Total Liabilities | $ | $ | $ | $ | ||||||||||||
| Cadiz Inc. |
| Notes to the Consolidated Financial Statements |
NOTE 9 – COMMON AND PREFERRED STOCK
Common Stock
The Company is authorized to issue
In January 2013, the Company revised its then existing agreement with the law firm of Brownstein Hyatt Farber Schreck LLP (“Brownstein”), a related party. Under this agreement, the Company is to issue up to a total of
| ■ | |
| ■ | |
All shares earned upon achievement of any of the remaining milestones will be payable years from the date earned.
Series 1 Preferred Stock
The Company has issued a total of
Series A Preferred Stock
On June 29, 2021, the Company entered into an Underwriting Agreement with BRS as representative of the several underwriters named there, to issue and sell an aggregate of
On July 1, 2021, the Company filed the Certificate of Designation (“Certificate of Designation”) for the Series A Preferred Stock with the Secretary of State of the State of Delaware, which became effective upon acceptance for record. The Certificate of Designation classified a total of
| Cadiz Inc. |
| Notes to the Consolidated Financial Statements |
As set forth in the Certificate of Designation, the Series A Preferred Stock will rank, as to dividend rights and rights upon the Company’s liquidation, dissolution or winding up: (i) senior to Common Stock of the Company; (ii) junior to the Series 1 Preferred Stock with respect to the distribution of assets upon the Company’s voluntary or involuntary liquidation, dissolution or winding up; (iii) senior to the Series 1 Preferred Stock with respect to the payment of dividends and (iv) effectively junior to all the Company’s existing and future indebtedness (including indebtedness convertible into Common Stock or preferred stock) and to the indebtedness and other liabilities of (as well as any preferred equity interests held by others in) the Company’s existing or future subsidiaries.
Holders of Series A Preferred Stock, when and as authorized by the Company’s Board of Directors, are entitled to cumulative cash dividends at the rate of
At the issuance of the Series A Preferred Stock, the Company pre-funded eight quarterly payments through July 2023 in a segregated account which appeared as Restricted Cash on the Balance Sheet. Dividends on the Series A Preferred Stock underlying the depositary shares will continue to accumulate whether or not (i) any of our agreements prohibit the current payment of dividends, (ii) we have earnings or funds legally available to pay the dividends, or (iii) our Board of Directors does not declare the payment of the dividends.
Holders of depositary shares representing interests in the Series A Preferred Stock generally will have no voting rights. However, if we do not pay dividends on any outstanding shares of Series A Preferred Stock for six or more quarterly dividend periods (whether or not declared or consecutive), holders of the Series A Preferred Stock (voting separately as a class with all other outstanding series of preferred stock upon which like voting rights have been conferred and are exercisable) will be entitled to elect two additional directors to the Board of Directors to serve until all unpaid dividends have been fully paid or declared and set apart for payment.
On and after July 2, 2026, the shares of Series A Preferred Stock will be redeemable at the Company’s option, in whole or in part, at a redemption price equal to $
| Cadiz Inc. |
| Notes to the Consolidated Financial Statements |
Shares of Series A Preferred Stock are convertible into shares of Common Stock if, and only if, a change of control or delisting event (each as defined in the Certificate of Designation) has occurred, and the Company has not elected to redeem the Series A Preferred Stock prior to the applicable conversion date. Upon any conversion, each share of Series A Preferred Stock will be converted into that number of shares of Common Stock equal to the lesser of (i) the quotient obtained by dividing (A) the sum of (x) the $
The Company has
NOTE 10 – COMMITMENTS AND CONTINGENCIES
In the normal course of its agricultural operations, the Company handles, stores, transports and dispenses products identified as hazardous materials. Regulatory agencies periodically conduct inspections and, currently, there are no pending claims with respect to hazardous materials.
Pursuant to cost-sharing agreements that have been entered into by participants in the Company’s Water Project, $
The Company recorded a contingent consideration liability in the amount of $
The Company is from time to time involved in various lawsuits and legal proceedings that arise in the ordinary course of business. At this time, the Company is not aware of any pending or threatened litigation that it expects will have a material adverse effect on its business, financial condition, liquidity, or operating results. Legal claims are inherently uncertain, however, and it is possible that the Company’s business, financial condition, liquidity and/or operating results could be adversely affected in the future by legal proceedings.
| Cadiz Inc. |
ITEM 2. Management’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, 2022. 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.
We are a water solutions provider dedicated to delivering clean, reliable, and affordable water for people through a variety of innovative water supply, storage, conveyance and treatment projects. We are advancing human access to clean water with our unique combination of land, water, infrastructure and technology assets, cutting-edge innovation, and industry-leading standards of environmental stewardship.
We own approximately 46,000 acres of land with access to high-quality, naturally-recharging groundwater resources in three areas of Southern California’s Mojave Desert – the Cadiz Valley (35,000 acres), Danby Dry Lake (2,000 acres), and the Piute Valley (9,000 acres) (“Cadiz Property”). Our land holdings with vested water rights were primarily assembled by our founders in the early 1980s, relying on NASA imagery that identified a unique desert aquifer system at the base of a vast Southern California watershed. This watershed underlying our property in the Cadiz Valley (“Cadiz Ranch”) presently holds 17-34 million acre-feet of groundwater in storage – comparable in size to the capacity of the largest reservoir in the United States, Lake Mead. The aquifer system is part of a closed-basin watershed in which all water flows downgradient to desert playas where it evaporates at the surface forming what are known as “desert dry lakes”.
Water Supply – We own vested water rights to withdraw 2.5 million acre-feet of groundwater to support farming at the Cadiz Ranch, one of the largest farming operations in San Bernardino County, and off property uses. Because all water in the aquifer system will eventually be lost to evaporation, surplus water that is captured and withdrawn before it evaporates is a new water supply known as “conserved” water. We have completed extensive environmental review in accordance with local, state and federal laws authorizing the management of the groundwater aquifer underlying the Cadiz Ranch to conserve an average of 50,000 acre-feet of water per year (“AFY”) for 50 years for use in communities.
Groundwater Storage - The alluvium aquifer that lies beneath the Cadiz Property is also large enough for conjunctive use as a water “banking” facility, capable of storing an additional 1 million acre-feet of imported surplus water for return during drought periods.
| Cadiz Inc. |
Pipeline Conveyance – We own a 30” steel natural gas pipeline (“Northern Pipeline”) that extends 220-miles from the Cadiz Ranch across San Bernardino and Kern Counties, terminating in California’s Central Valley. The pipeline, originally constructed to transport fossil fuels, is idle and capable of transporting water. The route of the Northern Pipeline crosses several underserved, rural low-income areas of California and intersects three major water conveyance facilities that deliver water to communities across Southern California - the California Aqueduct, the Los Angeles Aqueduct, and the Mojave River Pipeline. The estimated annual capacity of the Northern Pipeline for water conveyance is 25,000 AFY. In addition, we hold a 99-year lease with the Arizona & California Railroad (“ARZC”) to construct a 43-mile, 55-85” steel pipeline south from Cadiz within the ARZC’s existing railroad right-of-way to the Colorado River Aqueduct, one of Southern California’s primary sources of drinking water. The capacity of this pipeline (“Southern Pipeline”) ranges from 75,000 AFY to 150,000 AFY depending on the pipeline diameter selected to accommodate imported water storage.
We hold multiple binding agreements with public water systems and government agencies and are currently in discussions with other public water systems to enter into additional agreements that will enable project participants to manage, lease, own, finance and operate the Northern Pipeline and lease up to 25,000 AFY of annual water supply from the Water Project. In accordance with such agreements, we expect that we will contribute the Northern Pipeline and an annual supply of 25,000 AFY of water into Fenner Gap Mutual Water Company, comprised of shareholder public water systems that will receive water from the Water Project. In addition, we expect that Fenner Valley Water Authority, a public agency – joint powers agency with oversight over the Water Project - will represent the public water systems purchasing 25,000 AFY of water at our wellhead, take or pay, at an agreed upon net market price estimated to start at approximately $850/AFY and subject to annual adjustment. Through the JPA, which includes San Bernardino County, it is anticipated the public water agencies would fund capital costs for conversion of the pipeline from gas to water, construction of pumping stations and appurtenant facilities, and would be able to seek infrastructure funding and grants to achieve their lowest possible cost for delivered water. Any contracts and off take facility construction will be subject to standard environmental review and a project level permitting process. We expect that similar agreements will be negotiated and entered into for water supplies and storage delivered via the Southern Pipeline.
On November 2, 2023, we signed a binding agreement amending the 2012 Memorandum of Understanding (“MOU”) between the Company, San Bernardino County, Santa Margarita Water District and Fenner Gap Mutual Water Company governing groundwater management for the Water Project. The amendment to the MOU creates a new priority right for San Bernardino County that requires Water Project water supply not already subject to a binding contract to be offered to public water systems serving San Bernardino County communities, prior to exporting Project water for beneficial use outside of San Bernardino County. Five public water systems serving communities in San Bernardino County have expressed intent to receive supply from the Water Project.
Treatment – In the fourth quarter of 2022, we completed the acquisition of the assets of ATEC Systems, Inc. into ATEC Water Systems, LLC (“ATEC”). ATEC is a leader in developing innovative water filtration solutions for impaired or contaminated groundwater sources. ATEC’s specialized filtration media provide cost-effective, high-rate of removal for common groundwater impairments and contaminants that pose health risks in drinking water including iron, manganese, arsenic, Chromium-6, nitrates, and other constituents of concern. ATEC filters have been installed in over 400 water treatment systems in the U.S, including 50 in California. In March, ATEC was awarded a $10 million contract to provide all wellhead filters required by the Central Utah Water Conservancy District Vineyard Wellfield Groundwater Polishing Project, a treatment facility that will deliver 60 million gallons per day or approximately 54,000 AFY. Delivery of filters under this contract is expected to begin in the first quarter of 2024.
Our ATEC and Cadiz Ranch agricultural operations provide the Company’s current principal source of revenue, although our working capital needs are not fully supported by our treatment or agricultural lease and farming returns at this time. We believe that as we enter contracts for water supply, treatment, storage, and pipeline conveyance, these assets will provide a significant source of future cash flow for the business and our stockholders.
| Cadiz Inc. |
To fund our working capital needs and development of our water solutions we rely on debt and equity financing. In February 2023, we completed a direct offering for net proceeds of $38 million led by our largest equity shareholders to fund capital expenditures to accelerate the development of water supply, storage and conveyance infrastructure, reduce our outstanding debt from $50 million to $35 million and provide working capital to the Company (see, “Liquidity and Capital Resources”, below).
Our current and future operations also include activities that further our commitments to sustainable stewardship of our land and water resources, good governance and corporate social responsibility. We believe these commitments are important investments that will assist in maintenance of sustained stockholder value.
Results of Operations
Three Months Ended September 30, 2023, Compared to Three Months Ended September 30, 2022
We have not received significant revenues from our water supply, storage, conveyance or treatment assets to date. Our revenues have been limited to rental income from our agricultural leases, sales from our alfalfa plantings beginning in 2022 and ATEC sales beginning in 2023. As a result, we have historically incurred a net loss from operations. The reporting segments have been combined as the revenue and operating results for the water treatment business were not material to the Company’s consolidated operations during the three months ended September 30, 2023. We incurred a net loss of $6.9 million in the three months ended September 30, 2023, compared to a $6.5 million net loss during the three months ended September 30, 2022.
Our primary expenses are our ongoing overhead costs associated with the development of our water supply, storage, conveyance and treatment assets (i.e., general and administrative expense) and our interest expense. We will continue to incur non-cash expenses in connection with our management and director equity incentive compensation plans.
Revenues Revenue totaled $0.4 million during the three months ended September 30, 2023, primarily related to rental income from our agricultural leases totaling $0.1 million, sales from the harvest from our 760 acres of commercial alfalfa crop totaling $0.1 million and ATEC sales totaling $0.2 million. Revenue totaled $0.6 million for the three months ended September 30, 2022, primarily related to rental income from our agricultural leases and sales from the harvest from our 610 acres of commercial alfalfa crop.
Cost of Sales Cost of sales totaled $0.7 million during the three months ended September 30, 2023, which comprised of $0.5 million related to our alfalfa crop harvest and $0.2 million related to ATEC. The 2023 alfalfa crop harvest loss primarily relates to a lower of cost or market adjustment recorded due to increased diesel costs for farming, as well as suppressed market conditions for alfalfa on the West Coast. Cost of sales totaled $1.2 million during the three months ended September 30, 2022. In June 2022, the Company converted 610 acres of agricultural development to alfalfa commercial production. The 2022 loss was primarily due to non-recurring start-up costs for the initial short year of commercial production.
| Cadiz Inc. |
General and Administrative Expenses General and administrative expenses, exclusive of stock-based compensation costs, totaled $4.5 million in the three months ended September 30, 2023, compared to $3.2 million in the three months ended September 30, 2022. The increase in 2023 was primarily a result of community partnership and communications investments, including $0.6 million in water quality and infrastructure costs in coordination with community partners that will improve access to clean water in disadvantaged communities in the Coachella Valley and $0.4 million in corporate communications modernization expenses to the Company’s online, print, digital and social materials.
Compensation costs for stock and option awards for the three months ended September 30, 2023, were $0.7 million, compared to $0.5 million for the three months ended September 30, 2022.
Depreciation Depreciation expense totaled $0.3 million during the three months ended September 30, 2023, compared to $0.2 million during the three months ended September 30, 2022. The higher depreciation expense in the 2023 period is primarily due to construction in progress placed into service in 2023, which included land development and stand establishment related to the planting of alfalfa, as well as $31,000 of depreciation for ATEC assets in 2023.
Interest Expense, net Net interest expense totaled $1.2 million during the three months ended September 30, 2023 compared to $2.1 million during the same period in 2022. The following table summarizes the components of net interest expense for the two periods (in thousands):
| Three Months Ended |
||||||||
| September 30, |
||||||||
| 2023 |
2022 |
|||||||
| Interest on outstanding debt |
$ | 1,286 | $ | 1,480 | ||||
| Amortization of debt discount |
76 | 617 | ||||||
| Interest income |
(164 | ) | - | |||||
| Other Income |
(25 | ) | - | |||||
| $ | 1,173 | $ | 2,097 | |||||
Interest income primarily relates to interest on investments in short-term deposits.
Nine Months Ended September 30, 2023, Compared to Nine Months Ended September30, 2022
We incurred a net loss of $24.7 million in the nine months ended September 30, 2023, compared to a $17.9 million net loss during the nine months ended September 30, 2022. The higher 2023 loss was primarily due to a loss on extinguishment of debt in the amount of $5.3 million resulting from issuance of a conversion instrument, a repayment fee and elimination of debt discount associated with the paydown of $15 million of senior secured debt in February 2023.
Revenues Revenue totaled $1.3 million during the nine months ended September 30, 2023, primarily related to rental income from our agricultural leases totaling $0.3 million, sales from the harvest from our 760 acres of commercial alfalfa crop totaling $0.4 million and ATEC sales totaling $0.6 million. Revenue totaled $0.9 million for the nine months ended September 30, 2022 primarily related to rental income from our agricultural leases and sales from the harvest from our 610 acres of commercial alfalfa crop.
| Cadiz Inc. |
Cost of Sales Cost of sales totaled $1.5 million during the nine months ended September 30, 2023, which comprised of $1.0 million related to our alfalfa crop harvest and $0.5 million related to ATEC. The 2023 alfalfa crop harvest loss primarily relates to a lower of cost or market adjustment recorded due to increased diesel costs for farming, as well as suppressed market conditions for alfalfa on the West Coast. Cost of sales totaled $1.2 million during the nine months ended September 30, 2022. In June 2022, the Company converted 610 acres of agricultural development to alfalfa commercial production. The 2022 loss was primarily due to non-recurring start-up costs for the initial short year of commercial production.
General and Administrative Expenses General and administrative expenses, exclusive of stock-based compensation costs, totaled $13.2 million in the nine months ended September 30, 2023, compared to $9.6 million in the nine months ended September 30, 2022. The increase in 2023 was primarily a result of community partnership and communications investments, including $1.8 million in water quality and infrastructure costs in coordination with community partners that will improve access to clean water in disadvantaged communities in the Coachella Valley and $1.0 million in corporate communications modernization expenses to the Company’s online, print, digital and social materials.
Compensation costs for stock and option awards for the nine months ended September 30, 2023, were $1.1 million, compared to $1.3 million for the nine months ended September 30, 2022.
Depreciation Depreciation expense totaled $0.9 million during the nine months ended September 30, 2023, compared to $0.5 million during the nine months ended September 30, 2022. The higher 2023 depreciation expense is primarily due to construction in progress placed into service in 2023, which included land development and stand establishment related to the planting of 150 acres of alfalfa, as well as $0.1 million of depreciation for ATEC assets in 2023.
Interest Expense, net Net interest expense totaled $3.6 million during the nine months ended September 30, 2023 compared to $6.1 million during the same period in 2022. The following table summarizes the components of net interest expense for the two periods (in thousands):
| Nine Months Ended |
||||||||
| September 30, |
||||||||
| 2023 |
2022 |
|||||||
| Interest on outstanding debt |
$ | 3,867 | $ | 4,367 | ||||
| Amortization of debt discount |
337 | 1,777 | ||||||
| Interest Income |
(542 | ) | - | |||||
| Other Income |
(25 | ) | - | |||||
| $ | 3,637 | $ | 6,144 | |||||
Interest income primarily relates to interest on investments in short-term deposits.
| Cadiz Inc. |
Losses on Derivative Liabilities Losses on derivative liabilities totaled $220 thousand during the nine months ended September 30, 2023 compared to $0 in the nine months ended September 30, 2022. The losses recorded in 2023 were a result of a remeasurement of a conversion option under the Company’s senior secured debt.
Loss on Early Extinguishment of Debt Loss on early extinguishment of debt totaled $5.3 million during the nine months ended September 30, 2023 compared to $0 in the nine months ended September 30, 2022. The 2023 loss on early extinguishment of debt was a result of a conversion instrument, a repayment fee and elimination of debt discount associated with the paydown of $15 million of senior secured debt in February 2023.
Liquidity and Capital Resources
Current Financing Arrangements
As we have not received sufficient revenues from our water, agriculture or treatment activities to date, we have been required to obtain financing to bridge the gap between the time water resource and other development expenses are incurred and the time that revenue will commence. Historically, we have addressed these needs primarily through secured debt financing arrangements and private equity placements.
On January 30, 2023, we completed the sale and issuance of 10,500,000 shares of our common stock to certain institutional investors in a registered direct offering (“January 2023 Direct Offering”). The shares of common stock were sold at a purchase price of $3.84 per share, for aggregate gross proceeds of $40.32 million and aggregate net proceeds of approximately $38.5 million. A portion of the net proceeds were used to repay our debt in the principal amount of $15 million, together with fees and interest required to be paid in connection with such repayment.
The remaining proceeds from the January 2023 Direct Offering will be used for capital expenditures to accelerate development of water supply, storage, conveyance and treatment assets, working capital and development of additional water resources to meet increased demand on an accelerated timetable.
On March 23, 2022, we completed the sale and issuance of 6,857,140 shares of our common stock to certain institutional and individual investors in a registered direct offering. The shares of common stock were sold at a purchase price of $1.75 per share, for aggregate gross proceeds of $12 million and aggregate net proceeds of approximately $11.8 million. The proceeds were used for working capital needs and for general corporate purposes.
On November 14, 2022, we completed the sale and issuance of 5,000,000 shares of our common stock to certain institutional investors in a registered direct offering (“November 2022 Direct Offering”). The shares of common stock were sold at a purchase price of $2.00 per share, for aggregate gross proceeds of $10 million and aggregate net proceeds of approximately $9.9 million.
In July 2021, we completed the sale of 2,300,000 depositary shares each representing 1/1000th of a share of Series A Preferred Stock (“Depositary Share Offering”) for net proceeds of approximately $54 million.
| Cadiz Inc. |
Concurrently in July 2021, we entered into a $50 million new credit agreement (“Credit Agreement”) (see Note 3 to the Condensed Consolidated Financial Statements – “Long-Term Debt”). The proceeds of the Credit Agreement, together with the proceeds from the Depositary Share Offering, were used to (a) to repay all our outstanding senior secured debt obligations in the amount of approximately $77.6 million, (b) to deposit approximately $10.2 million into a segregated account, representing an amount sufficient to pre-fund eight quarterly dividend payments on the Series A Preferred Stock underlying the Depositary Shares issued in the Depositary Share Offering, and (c) to pay transaction related expenses. The remaining proceeds were used for working capital needs and for general corporate purposes.
On February 2, 2023, we entered into a First Amendment to Credit Agreement to amend certain provisions of the Credit Agreement (“First Amended Credit Agreement). Under the First Amended Credit Agreement, the lenders have a right to convert up to $15 million of outstanding principal, plus any PIK interest and any accrued and unpaid interest (the “Convertible Loan”) into shares of our common stock at a conversion price of $4.80 per share (the “Conversion Price”). In addition, prior to the maturity of the Credit Agreement, we will have the right to require that the lenders convert the outstanding principal amount, plus any PIK Interest and accrued and unpaid interest, of the Convertible Loan if the following conditions are met: (i) the average VWAP of the Company’s common stock on The Nasdaq Stock Market, or such other national securities exchange on which the shares of common stock are listed for trading, over 30 consecutive trading dates exceeds 115% of the then Conversion Price, (ii) a registration statement registering the resale of the shares issuable upon conversion of the Convertible Loan has been declared effective by the Securities and Exchange Commission, (iii) the Stockholder Approval has been obtained, and (iv) there is no event of default under certain provisions of the Credit Agreement.
Under the First Amended Credit Agreement, the maturity date of the Credit Agreement has been extended from July 2, 2024, to June 30, 2026. The annual interest rate will remain unchanged at 7.00%. Interest on $20 million of the remaining principal amount will be paid in cash. Interest on the $15 million principal amount of the Convertible Loan will be paid in kind on a quarterly basis by addition such amount to the outstanding principal amount of the outstanding Convertible Loan.
Limitations on our liquidity and ability to raise capital may adversely affect us. Sufficient liquidity is critical to meet our resource development activities. 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.
As we continue to actively pursue our business strategy, additional financing will continue to be required (see “Outlook”, below). The covenants in the Credit Agreement do not prohibit our use of additional equity financing and allow us to retain 100% of the proceeds of any common equity financing. We do not expect the loan covenants to materially limit our ability to finance our water and agricultural development activities.
Cash Used in Operating Activities. Cash used in operating activities totaled $15.4 million and $13.4 million for the nine months ended September 30, 2023, and 2022, respectively. The cash was primarily used to fund general and administration expenses related to our water development efforts and agricultural development efforts.
| Cadiz Inc. |
Cash Used in Investing Activities. Cash used in investing activities totaled $3.8 million for the nine months ended September 30, 2023, and $2.5 million for the nine months ended September 30, 2022. The cash used in the 2023 period primarily related to the development of three new wells. The cash used in the 2022 period primarily related to development costs for the initial planting of 760 acres of alfalfa.
Cash Provided by Financing Activities. Cash provided by financing activities totaled $18.9 million for the nine months ended September 30, 2023, compared with cash provided of $8.1 million for the nine months ended September 30, 2022. Proceeds from financing activities for both periods reported are primarily related to the issuance of shares under direct offerings, offset by the paydown of $15 million of senior secured debt in February 2023.
Outlook
Short-Term Outlook. The January 2023 Direct Offering provided net cash proceeds of approximately $38.5 million. A portion of these net proceeds were used to repay our debt in the principal amount of $15 million, together with fees and interest required to be paid in connection with such repayment. The remaining proceeds, together with cash on hand, provide us with sufficient funds to meet our short-term working capital needs. The Company’s agricultural and ATEC water treatment operations is expected to be funded using existing capital and cash profits generated from operations.
Long-Term Outlook. In the longer term, we will need to raise additional capital to finance working capital needs and capital expenditures (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 supply, storage, conveyance and treatment solutions and other developments. Future capital expenditures will depend on the progress of the Water Project and any further expansion of our agricultural development.
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”.
| Cadiz Inc. |
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 September 30, 2023, the Company's Principal Executive Officer and Principal Financial Officer have concluded that the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and such information is accumulated and communicated to management, including the principal executive and principal financial officers as appropriate, to allow timely decisions regarding required disclosures.
Changes in Internal Controls Over Financial Reporting
In connection with the evaluation required by paragraph (d) of Rule 13a-15 under the Exchange Act, excluding the acquisition of the assets of ATEC Systems, Inc. into ATEC Water Systems, LLC, there was no change identified in the Company's internal control 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 control over financial reporting.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
| Cadiz Inc. |
PART II - OTHER INFORMATION
There have been no material changes to legal proceedings described in our Annual Report on Form 10-K for the year ended December 31, 2022.
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, 2022.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
ITEM 3. Defaults Upon Senior Securities
Not applicable.
ITEM 4. Mine Safety Disclosures
Not applicable.
Not applicable.
| Cadiz Inc. |
| ITEM 6. |
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Exhibits |
* 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.
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| By: | /s/ Scott S. Slater |
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November 13, 2023 |
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| Scott S. Slater |
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| Chief Executive Officer and President |
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| (Principal Executive Officer) |
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| By; | /s/ Stanley E. Speer | November 13, 2023 | |||
| Stanley E. Speer | Date | ||||
| Chief Financial Officer and Secretary |
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| (Principal Financial Officer) | |||||