Cadiz Inc 10-Q for FY2022 Q1
Cadiz Inc (CDZIP)
About this 10-Q
Cadiz Inc filed this 10-Q on May 12, 2022, covering the quarter ended March 31, 2022 (FY2022 Q1).
Headline figures
Quarter ended March 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $142K
- up 2.2% from $139K a year earlier
- Net loss
- $5.91M
- compared with a net loss of $5.94M a year earlier
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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| incorporation or organization) | Identification No.) |
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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 |
| 1/1000th fractional interest in share of 8.875% Series A Cumulative Perpetual Preferred Stock, par value $0.01 per share) |
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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 May 10, 2022, the Registrant had
| Fiscal First Quarter 2022 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 March 31, 2022 and December 31, 2021 |
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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 | ||||||||
| Ended March 31, | ||||||||
| ($ in thousands, except per share data) | 2022 | 2021 | ||||||
| Total revenues | $ | $ | ||||||
| Costs and expenses: | ||||||||
| General and administrative | ||||||||
| Depreciation | ||||||||
| Total costs and expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Interest expense, net | ( | ) | ( | ) | ||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Income tax expense | ( | ) | ( | ) | ||||
| Loss from equity-method investments | ( | ) | ( | ) | ||||
| Net loss and comprehensive loss | $ | ( | ) | $ | ( | ) | ||
| Less: Preferred stock dividend | ( | ) | ||||||
| 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)
| ($ in thousands, except per share data) | March 31, 2022 | December 31, 2021 | ||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| 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 | ||||||||
| 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 | ||||||||
| 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 | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock - $ par value; shares authorized at March 31, 2022 and December 31, 2021; shares issued and outstanding – at March 31, 2022 and December 31, 2021 | ||||||||
| % Series A cumulative, perpetual preferred stock - $ par value; shares authorized at March 31, 2022 and December 31, 2021; shares issued and outstanding – at March 31, 2022 and December 31, 2021 | ||||||||
| Common stock - $ par value; shares authorized at March 31, 2022 and December 31, 2021; shares issued and outstanding – at March 31, 2022 and at December 31, 2021 | ||||||||
| 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)
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| Ended March 31, |
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2022 |
2021 |
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| Cash flows from operating activities: |
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| Net loss |
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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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| Loss on equity method investments |
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| Compensation charge for stock and share option awards |
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| Unrealized (gain) loss on warrant derivative liabilities |
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| Changes in operating assets and liabilities: |
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| Accounts receivable |
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| Prepaid expenses and other current assets |
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| 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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| Dividend payments |
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| Principal payments on long-term debt |
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| Net cash provided by financing activities |
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| Net increase 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 (Deficit) (Unaudited)
For the three months ended March 31, 2022 ($ in thousands, except share data)
| 8.875% Series A Cumulative | Additional | Total | ||||||||||||||||||||||||||||||||||
| Common Stock | Preferred Stock | Perpetual Preferred Stock | Paid-in | Accumulated | Stockholders’ | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||||||||
| Balance as of December 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| 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 | $ | $ | ( | ) | ||||||||||||||||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
Cadiz Inc.
Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (Unaudited)
For the three months ended March 31, 2021 ($ in thousands, except share data)
| Additional | Total | |||||||||||||||||||||||||||
| Common Stock | Preferred Stock | Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance as of December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Stock-based Compensation expense | ||||||||||||||||||||||||||||
| Reclassification of warrant liability | - | - | - | |||||||||||||||||||||||||
| Issuance of shares pursuant to ATM offerings | ||||||||||||||||||||||||||||
| Net loss and comprehensive loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance as of March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
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, 2021.
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 months ended March 31, 2022 are not necessarily indicative of results for the entire fiscal year ending December 31, 2022.
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 three months ended March 31, 2022 primarily reflect certain administrative costs related to the Company’s water project development efforts and the further development of its land and agricultural assets. The Company’s present activities are focused on development of its assets in ways that meet growing long-term demand for access to sustainable water supplies and agricultural products.
On June 7, 2021, the Company completed the sale and issuance of
Cadiz Inc.
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 2, 2021, the Company entered into a new $
On March 23, 2022, the Company completed the sale and issuance of
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 water and agricultural 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 and (iii) categorization of expenditures as discretionary versus non-discretionary. 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.
Cadiz Inc.
Supplemental Cash Flow Information
During the three months ended March 31, 2022, approximately $
At March 31, 2022, 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 | March 31, 2022 | December 31, 2021 | March 31, 2021 | |||||||||
| (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 represent funds deposited into a segregated account, representing an amount sufficient to pre-fund quarterly dividend payments on Series A Preferred Stock underlying the Depositary Shares issued in the Depositary Share Offering through approximately July 2023.
Recent Accounting Pronouncements
Accounting Guidance Not Yet 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 Company is currently assessing this new guidance and expects this new standard will not have a material impact on the 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.
Cadiz Inc.
On June 28, 2021, an affiliate of BRS entered into an assignment and assumption agreement (“Assignment”) whereby it agreed to purchase all outstanding obligations under the Company’s then existing senior secured debt for $
On July 2, 2021, the Company entered into a new $
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 $
| ● | on or before the 12-month anniversary of the closing of the debt, up to |
Cadiz Inc.
| ● | at any time after the 12-month anniversary of the closing of the debt, and on or before the 18-month anniversary of the closing of the debt, up to |
| ● | at any time after the 18-month anniversary of the closing of the debt, and on or before the 24-month anniversary of the closing of the debt, up to |
| ● | at any time after the 24-month anniversary of the closing of the debt, up to |
The proceeds of the Senior Secured Debt were used, together with the proceeds received from the Depositary Share Offering, (a) to repay all of the Company’s outstanding obligations under the then existing senior secured debt, (b) to deposit approximately $
In connection with the issuance of the Senior Secured Debt, on July 2, 2021 (the “Original Issue Date”) the Company issued to the Lenders
As a result of the issuance of the Warrants, which met the criteria for equity classification under applicable GAAP, the Company recorded additional paid-in capital in the amount of $
NOTE 3 – STOCK-BASED COMPENSATION PLANS
The Company has issued options and has granted stock awards pursuant to its 2019 Equity Incentive Plan, as described below.
Cadiz Inc.
2019 Equity Incentive Plan
The 2019 Equity Incentive Plan (“2019 EIP”) was approved by stockholders at the July 10, 2019 Annual Meeting. The plan 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
Of the
Upon the change of the Executive Chair on February 4, 2022, a total of
Additionally, the Company issued
Cadiz Inc.
The accompanying consolidated statements of operations and comprehensive loss include approximately $
NOTE 4 – INCOME TAXES
As of March 31, 2022, the Company had net operating loss (“NOL”) carryforwards of approximately $
As of March 31, 2022, the Company had unrecognized tax benefits totaling approximately $
The Company's tax years through 2021 remain subject to examination by the Internal Revenue Service, and tax years through 2021 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.
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 5 – 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
Cadiz Inc.
NOTE 6 – 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
From a lessor standpoint, 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 three months ended March 31, 2022, $
Depreciation expense on land improvements, buildings, leasehold improvements, machinery and equipment and furniture and fixtures was $
NOTE 7 – 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.
NOTE 8 – 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
Cadiz Inc.
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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
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.
Cadiz Inc.
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 appears as Restricted Cash on the Balance Sheet. Dividends on the Series A Preferred Stock underlying the depositary shares will continue to accumulate whether or not (i) any of our agreements prohibit the current payment of dividends, (ii) we have earnings or funds legally available to pay the dividends, or (iii) our Board of Directors does not declare the payment of the dividends.
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 $
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
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, 2021. 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 resources development company and agribusiness committed to sustainable water and farming projects in California. We are one of the largest private landowners in the state and control significant water supply, storage and conveyance assets capable of being part of the solution to California’s systemic water challenges.
We own approximately 45,000 acres of land with 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 properties represent a unique private reserve of lands with vested water rights located in a remote area of eastern San Bernardino County that is at the crossroads of major highway, rail, energy, and water infrastructure capable of supplying and delivering necessary resources to communities in California and across Western United States.
California and the Western United States face a persistent challenge in meeting the water needs of all of its residents. While the State of California has recognized a Human Right to Water, competing municipal, agricultural and environmental demands outpace the State’s available supply limiting the ability to deliver on that promise. Recent analysis from the California State Water Resources Control Board estimates that more than 1 million Californians lack reliable access to water and several communities are short of long-term safe, reliable and affordable drinking water supplies.
We are principally focused on developing the Cadiz Valley Water Conservation, Recovery and Storage Project (“Water Project”) at our Cadiz Valley property that can help address California’s persistent systemic water challenges and deliver new water access to California communities that presently lack reliable water supplies and infrastructure. Through management of groundwater at the Cadiz Property, the Water Project would conserve groundwater otherwise used for agriculture to augment supply in California communities in need and also make available capacity in the managed groundwater aquifer system at Cadiz to bank and store imported water for future dry years.
Cadiz Inc.
The Water Project has completed extensive environmental review in accordance with local, state and federal law and has secured permits to manage the groundwater aquifer in Cadiz to make available an average of 50,000 acre-feet of water per year for 50 years to communities off of the Cadiz Property. Permitting has also authorized the storage of imported water in the aquifer system to return in dry years. The Cadiz aquifer system has the capacity to store one million acre-feet of imported water.
To deliver water to and from the Cadiz Property for participating water providers, the Water Project must provide conveyance facilities capable of connecting Cadiz and areas in need. We own a retired, 30” steel pipeline (“Northern Pipeline”) previously used to convey oil that extends 220-miles from California’s Central Valley near the California Aqueduct southeast across Kern and San Bernardino Counties terminating in Cadiz. This pipeline crosses the Los Angeles Aqueduct and facilities of the State Water Project. Engineering and technical assessments indicate that the Northern Pipeline can safely convey 25,000 acre-feet of water in either direction. We also maintain a 99-year lease with the Arizona & California Railroad Company (“ARZC”) to co-locate and construct a 43-mile, approximately 55-85” steel water conveyance pipeline (“Southern Pipeline”) within the existing, active railroad right-of-way that intersects the Colorado River Aqueduct (“CRA”), one of Southern California’s primary sources of drinking water in Southern California. The Southern Pipeline could convey up to approximately 150,000 acre-feet per year in either direction.
To utilize the Northern Pipeline for water conveyance related to the Water Project or to construct and operate the Southern Pipeline in coordination with existing water conveyance facilities, we must complete additional permitting and regulatory processes.
We expect to complete any necessary permitting in coordination with any contract by a third party to use the facility.
Our agricultural operations currently provide the Company’s principal source of revenue, although our working capital needs are not fully supported by our agricultural lease and farming returns at this time. We believe that the ultimate implementation of the Water Project will provide a significant source of future cash flow for the business and our stockholders. We presently rely upon debt and equity financing to support our working capital needs and development of the Water Project (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 March 31, 2022, Compared to Three Months Ended March 31, 2021
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. As a result, we have historically incurred a net loss from operations. We incurred a net loss of $5.9 million in the three months ended March 31, 2022, compared to a $5.9 million net loss during the three months ended March 31, 2021. The higher 2022 loss was primarily due to stock-based non-cash bonus awards to employees.
Cadiz Inc.
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 $142,000 during the three months ended March 31, 2022, compared to $139,000 for the three months ended March 31, 2021. Revenues primarily related to rental income from our agricultural leases.
General and Administrative Expenses General and Administrative Expenses, exclusive of stock-based compensation costs, totaled $3.4 million in the three months ended March 31, 2022, compared to $3.1 million in the three months ended March 31, 2021.
Compensation costs for stock and option awards for the three months ended March 31, 2022, were $0.4 million, compared to $0.1 million for the three months ended March 31, 2021. The higher 2022 expense was primarily due to stock-based non-cash bonus awards to employees.
Interest Expense, net Net interest expense totaled $2.0 million during the three months ended March 31, 2022 compared to $2.5 million during the same period in 2021. The following table summarizes the components of net interest expense for the two periods (in thousands):
| Three Months Ended |
||||||||
| March 31, |
||||||||
| 2022 |
2021 |
|||||||
| Interest on outstanding debt |
$ | 1,424 | $ | 2,662 | ||||
| Unrealized (gains) losses on warrants, net |
- | (573 | ) |
|||||
| Amortization of debt discount |
568 | 6 | ||||||
| Amortization of deferred loan costs |
- | 447 | ||||||
| Other Income | (1 | ) | - | |||||
| $ | 1,991 | $ | 2,542 | |||||
Loss from Equity-Method Investments Loss from equity-method investments related to our 50% ownership in the SoCal Hemp JV LLC totaled $134,000 for the three months ended March 31, 2022, compared to $203,000 for the three months ended March 31, 2021.
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.
Cadiz Inc.
On June 7, 2021, we completed the sale and issuance of 1,219,512 shares of the Company’s common stock to certain institutional investors under a placement agent agreement with B. Riley Securities, Inc. (“BRS”). The shares of common stock were sold at a purchase price of $12.30 per share, for aggregate gross proceeds of $15 million and aggregate net proceeds of approximately $14.1 million. We used the net proceeds from this offering, together with cash on hand, to fund the $19 million payment made on June 30, 2021 to complete the acquisition of a 124-mile extension of the Northern Pipeline.
On June 29, 2021, we entered into an Underwriting Agreement with BRS as representative of the several underwriters named therein, to issue and sell an aggregate of 2,000,000 depositary shares (the “Depositary Shares”), as well as up to 300,000 Depositary Shares that may be sold pursuant to the exercise of an option to purchase additional Depositary Shares, each representing 1/1000th of a share of Series A Preferred Stock (“Depositary Share Offering”). The liquidation preference of each of each share of Series A Preferred Stock is $25,000 ($25.00 per Depositary Share). The Depositary Share Offering was completed on July 2, 2021 for net proceeds of approximately $54 million.
On July 2, 2021, we entered into a $50 million new credit agreement (“Credit Agreement”) (see Note 2 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 obligations under the then existing senior secured debt in the amount of approximately $77.5 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 will be used for working capital needs and for general corporate purposes.
On March 23, 2022, we completed the sale and issuance of 6,857,140 shares of the Company’s 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 $11.7 million. The proceeds will be used for working capital needs and for general corporate purposes.
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 Senior Secured 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.
Cash Used in Operating Activities. Cash used in operating activities totaled $3.2 million and $2.8 million for the three months ended March 31, 2022 and 2021, respectively. The cash was primarily used to fund general and administration expenses related to our water development efforts and agricultural development efforts.
Cash Used in Investing Activities. Cash used in investing activities totaled $0.6 million for the three months ended March 31, 2022, and $0.7 million for the three months ended March 31, 2021. The cash used in the 2021 period primarily related to development costs for the initial planting of 760 acres of alfalfa. The 2020 period included additions to well development and water quality and structural testing of a five-mile segment of pipeline.
Cash Provided by Financing Activities. Cash provided by financing activities totaled $10.4 million for the three months ended March 31, 2022, compared with cash provided of $14.9 million for the three months ended March 31, 2021. Proceeds from financing activities for both periods reported are primarily related to the issuance of shares under direct and at-the-market offerings.
Outlook
Short-Term Outlook. In March 2022, the registered direct offering of common stock provided net cash proceeds of approximately $11.7 million. These net cash proceeds, together with cash on hand, provide us with sufficient funds to meet our short-term working capital needs.
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 resources and other developments. Future capital expenditures will depend on the progress of the Water Project and further expansion of our agricultural assets.
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 March 31, 2022, 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 |
There have been no material changes to legal proceedings described in our Annual Report on Form 10-K for the year ended December 31, 2021.
| ITEM 1A. |
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, 2021.
| 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.
| ITEM 6. |
Exhibits |
The following exhibits are filed or incorporated by reference as part of this Quarterly Report on Form 10-Q.
| **10.1 |
| **10.2 |
| **10.3 |
| **10.4 |
Employment Agreement between Cadiz Inc. and Susan P. Kennedy dated as of February 4, 2022 |
| **10.5 |
Letter from Cadiz Inc. to Keith Brackpool dated as of February 4, 2022 |
| * 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 | May 12, 2022 | ||
| Scott S. Slater |
Date |
|||
| Chief Executive Officer and President |
||||
| (Principal Executive Officer) |
| By: |
/s/ Stanley E. Speer | May 12, 2022 | ||
| 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: May 12, 2022
/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: May 12, 2022
/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 March 31, 2022 (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: May 12, 2022
/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 March 31, 2022 (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: May 12, 2022
/s/ Stanley E. Speer
Stanley E. Speer
Chief Financial Officer and Secretary