united states
Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-Q
(Mark One)
☑ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the quarterly period ended SeptemberJune 30, 2017
OR
☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the transition period from …… to …….
Commission File Number 0-12114
Cadiz Inc.
(Exact name of registrant specified in its charter)
Delaware | 77-0313235 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
550 South Hope Street, Suite 2850 | |
Los Angeles, California | 90071 |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (213) 271-1600
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $0.01 per share | CDZI | The NASDAQ Global Market |
Depositary Shares (each representing a 1/1000th fractional interest in share of 8.875% Series A Cumulative Perpetual Preferred Stock, par value $0.01 per share) | CDZIP | The NASDAQ Global Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer" , "smaller reporting company,"” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act, (Check one):
☐
Large accelerated filer☑ Smaller Reporting Company ☐
Emerging growth companyIf an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2).
Yes ☐ No ☑As of November 3, 2017,August 10, 2022, the Registrant had 22,802,06050,793,567 shares of common stock, par value $0.01 per share, outstanding.
Fiscal | Page |
PART I – FINANCIAL INFORMATION | |
ITEM 1. Financial Statements | |
Cadiz Inc. Condensed Consolidated Financial Statements | |
1 | |
2 | |
3 | |
4 | |
5 | |
6 | |
Unaudited Notes to the Condensed Consolidated Financial Statements | 7 |
17 | |
23 | |
23 | |
PART II – OTHER INFORMATION | |
24 | |
24 | |
24 | |
24 | |
24 | |
25 | |
26 |
Cadiz Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
For the Three Months | ||||||||
Ended June 30, | ||||||||
($ in thousands, except per share data) | 2022 | 2021 | ||||||
Total revenues | $ | 185 | $ | 141 | ||||
Costs and expenses: | ||||||||
General and administrative | 3,405 | 6,375 | ||||||
Depreciation | 172 | 103 | ||||||
Total costs and expenses | 3,577 | 6,478 | ||||||
| Operating loss | (3,392 | ) | (6,337 | ) | ||||
| Interest expense, net | (2,055 | ) | (4,858 | ) | ||||
| Loss before income taxes | (5,447 | ) | (11,195 | ) | ||||
| Income tax expense | (1 | ) | (1 | ) | ||||
| Loss from equity-method investments | (35 | ) | (366 | ) | ||||
| Net loss and comprehensive loss | $ | (5,483 | ) | $ | (11,562 | ) | ||
Less: Preferred stock dividend | (1,288 | ) | 0 | |||||
| Net loss and comprehensive loss applicable to common stock | $ | (6,771 | ) | $ | (11,562 | ) | ||
| Basic and diluted net loss per common share | $ | (0.13 | ) | $ | (0.30 | ) | ||
Basic and diluted weighted average shares outstanding | 50,770 | 39,099 | ||||||
| For the Three Months | ||||||||
| Ended September 30, | ||||||||
| ($ in thousands, except per share data) | 2017 | 2016 | ||||||
| Total revenues | $ | 111 | $ | 120 | ||||
| Costs and expenses: | ||||||||
| General and administrative | 2,456 | 1,977 | ||||||
| Depreciation | 69 | 73 | ||||||
| Total costs and expenses | 2,525 | 2,050 | ||||||
| Operating loss | (2,414 | ) | (1,930 | ) | ||||
| Interest expense, net | (3,577 | ) | (3,244 | ) | ||||
| Loss before income taxes | (5,991 | ) | (5,174 | ) | ||||
| Income tax expense | 1 | 1 | ||||||
| Net loss and comprehensive loss applicable to common stock | $ | (5,992 | ) | $ | (5,175 | ) | ||
| Basic and diluted net loss per common share | $ | (0.26 | ) | $ | (0.28 | ) | ||
| Basic and diluted weighted average shares outstanding | 22,857 | 18,809 | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
For the Six Months | ||||||||
Ended June 30, | ||||||||
($ in thousands, except per share data) | 2022 | 2021 | ||||||
Total revenues | $ | 328 | $ | 280 | ||||
Costs and expenses: | ||||||||
General and administrative | 7,211 | 9,608 | ||||||
Depreciation | 293 | 206 | ||||||
Total costs and expenses | 7,504 | 9,814 | ||||||
| (7,176 | ) | (9,534 | ) | |||||
Interest expense, net | (4,047 | ) | (7,400 | ) | ||||
| Loss before income taxes | (11,223 | ) | (16,934 | ) | ||||
| Income tax expense | (3 | ) | (3 | ) | ||||
| Loss from equity-method investments | (169 | ) | (569 | ) | ||||
| Net loss and comprehensive loss | $ | (11,395 | ) | $ | (17,506 | ) | ||
Less: Preferred stock dividend | (2,553 | ) | 0 | |||||
| Net loss and comprehensive loss applicable to common stock | $ | (13,948 | ) | $ | (17,506 | ) | ||
| Basic and diluted net loss per common share | $ | (0.29 | ) | $ | (0.46 | ) | ||
Basic and diluted weighted average shares outstanding | 47,619 | 38,470 | ||||||
| For the Nine Months | ||||||||
| Ended September 30, | ||||||||
| ($ in thousands, except per share data) | 2017 | 2016 | ||||||
| Revenues | $ | 327 | $ | 303 | ||||
| Costs and expenses: | ||||||||
| General and administrative | 8,747 | 6,973 | ||||||
| Depreciation | 212 | 219 | ||||||
| Total costs and expenses | 8,959 | 7,192 | ||||||
| Operating loss | (8,632 | ) | (6,889 | ) | ||||
| Interest expense, net | (14,653 | ) | (10,473 | ) | ||||
| Loss on extinguishment of debt and debt refinancing | (3,501 | ) | (2,250 | ) | ||||
| Loss before income taxes | (26,786 | ) | (19,612 | ) | ||||
| Income tax expense | 3 | 3 | ||||||
| Net loss and comprehensive loss applicable to common stock | $ | (26,789 | ) | $ | (19,615 | ) | ||
| Basic and diluted net loss per common share | $ | (1.19 | ) | $ | (1.07 | ) | ||
| Basic and diluted weighted average shares outstanding | 22,471 | 18,319 | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
Cadiz Inc.
Condensed Consolidated Balance Sheets (Unaudited)
June 30, | December 31, | |||||||
($ in thousands, except per share data) | 2022 | 2021 | ||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 13,239 | $ | 10,965 | ||||
Restricted cash | 1,288 | 1,288 | ||||||
Accounts receivable | 154 | 270 | ||||||
Prepaid expenses and other current assets | 910 | 691 | ||||||
Total current assets | 15,591 | 13,214 | ||||||
Property, plant, equipment and water programs, net | 80,509 | 78,890 | ||||||
Long-term deposit/prepaid expenses | 420 | 420 | ||||||
Equity-method investments | 907 | 976 | ||||||
Goodwill | 3,813 | 3,813 | ||||||
Right-of-use asset | 3,269 | 3,281 | ||||||
Long-term restricted cash | 5,050 | 7,603 | ||||||
Other assets | 4,538 | 4,296 | ||||||
Total assets | $ | 114,097 | $ | 112,493 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 633 | $ | 286 | ||||
Accrued liabilities | 1,582 | 808 | ||||||
Current portion of long-term debt | 57 | 107 | ||||||
Dividend payable | 1,288 | 1,288 | ||||||
Operating lease liabilities | 26 | 24 | ||||||
Total current liabilities | 3,586 | 2,513 | ||||||
Long-term debt, net | 47,606 | 46,477 | ||||||
Long-term lease obligations with related party, net | 19,780 | 18,855 | ||||||
Long-term operating lease liabilities | 3,083 | 3,257 | ||||||
Deferred revenue | 750 | 750 | ||||||
Other long-term liabilities | 34 | 32 | ||||||
Total liabilities | 74,839 | 71,884 | ||||||
Stockholders’ equity: | ||||||||
Preferred stock - $.01 par value; 100,000 shares authorized at June 30, 2022 and December 31, 2021; shares issued and outstanding – 329 at June 30, 2022 and December 31, 2021 | 1 | 1 | ||||||
8.875% Series A cumulative, perpetual preferred stock - $.01 par value; 7,500 shares authorized at June 30, 2022 and December 31, 2021; shares issued and outstanding – 2,300 at June 30, 2022 and December 31, 2021 | 1 | 0 | ||||||
Common stock - $.01 par value; 70,000,000 shares authorized at June 30, 2022 and December 31, 2021; shares issued and outstanding – 50,770,275 at June 30, 2022 and 43,656,169 at December 31, 2021 | 506 | 436 | ||||||
Additional paid-in capital | 626,098 | 613,572 | ||||||
Accumulated deficit | (587,348 | ) | (573,400 | ) | ||||
Total stockholders’ equity | 39,258 | 40,609 | ||||||
Total liabilities and stockholders’ deficit | $ | 114,097 | $ | 112,493 | ||||
| September 30, | December 31, | |||||||
| ($ in thousands, except per share data) | 2017 | 2016 | ||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 16,055 | $ | 12,172 | ||||
| Accounts receivable | 56 | 39 | ||||||
| Prepaid expenses and other current assets | 525 | 3,391 | ||||||
| Total current assets | 16,636 | 15,602 | ||||||
| Property, plant, equipment and water programs, net | 44,724 | 44,182 | ||||||
| Goodwill | 3,813 | 3,813 | ||||||
| Other assets | 3,716 | 3,502 | ||||||
| Total assets | $ | 68,889 | $ | 67,099 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 418 | $ | 439 | ||||
| Accrued liabilities | 597 | 3,953 | ||||||
| Current portion of long-term debt | 1,378 | 170 | ||||||
| Warrant liabilities | 6,642 | - | ||||||
| Total current liabilities | 9,035 | 4,562 | ||||||
| Long-term debt, net | 120,929 | 102,374 | ||||||
| Long-term lease obligations, net | 13,023 | 12,287 | ||||||
| Deferred revenue | 750 | 750 | ||||||
| Other long-term liabilities | 1,443 | 1,443 | ||||||
| Total liabilities | 145,180 | 121,416 | ||||||
| Stockholders' deficit: | ||||||||
| Common stock - $.01 par value; 70,000,000 shares | ||||||||
| authorized at September 30, 2017 and December 31, 2016; | ||||||||
| shares issued and outstanding - 22,530,376 at | ||||||||
| September 30, 2017 and 21,768,864 at December 31, 2016 | 225 | 218 | ||||||
| Additional paid-in capital | 360,144 | 355,336 | ||||||
| Accumulated deficit | (436,660 | ) | (409,871 | ) | ||||
| Total stockholders' deficit | (76,291 | ) | (54,317 | ) | ||||
| Total liabilities and stockholders' deficit | $ | 68,889 | $ | 67,099 | ||||
See accompanying notes to the unaudited condensed consolidated financial statements.
Cadiz Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
For the Six Months | ||||||||
Ended June 30, | ||||||||
($ in thousands) | 2022 | 2021 | ||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (11,395 | ) | (17,506 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation | 293 | 206 | ||||||
Amortization of debt discount and issuance costs | 1,160 | 2,372 | ||||||
Amortization of right-of-use asset | 12 | 15 | ||||||
Interest expense added to loan principal | 0 | 4,209 | ||||||
Interest expense added to lease liability | 913 | 806 | ||||||
Loss on equity method investments | 169 | 569 | ||||||
Compensation charge for stock and share option awards | 856 | 3,440 | ||||||
Unrealized (gain) loss on warrant derivative liabilities | 0 | (573 | ) | |||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 116 | (11 | ) | |||||
Prepaid expenses and other current assets | (219 | ) | (544 | ) | ||||
Other assets | (242 | ) | 177 | |||||
Accounts payable | 216 | (154 | ) | |||||
Lease liabilities | (172 | ) | (175 | ) | ||||
Other accrued liabilities | 743 | 1,170 | ||||||
Net cash used in operating activities | (7,550 | ) | (5,999 | ) | ||||
Cash flows from investing activities: | ||||||||
Additions to property, plant and equipment and water programs | (1,748 | ) | (20,177 | ) | ||||
Contributions to equity-method investments | (100 | ) | (259 | ) | ||||
Net cash used in investing activities | (1,848 | ) | (20,436 | ) | ||||
Cash flows from financing activities: | ||||||||
Net proceeds from issuance of stock | 11,741 | 30,354 | ||||||
Proceeds from the issuance of warrants | 0 | 4 | ||||||
Dividend payments | (2,553 | ) | 0 | |||||
Principal payments on long-term debt | (69 | ) | (27 | ) | ||||
Net cash provided by financing activities | 9,119 | 30,331 | ||||||
Net (decrease) increase in cash, cash equivalents and restricted cash | (279 | ) | 3,896 | |||||
Cash, cash equivalents and restricted cash, beginning of period | 19,856 | 7,424 | ||||||
Cash, cash equivalents and restricted cash, end of period | $ | 19,577 | $ | 11,320 | ||||
| For the Nine Months | ||||||||
| Ended September 30, | ||||||||
| ($ in thousands) | 2017 | 2016 | ||||||
| Cash flows from operating activities: | ||||||||
Net loss Adjustments to reconcile net loss to | $ | (26,789 | ) | (19,615 | ) | |||
| net cash used in operating activities: | ||||||||
| Depreciation | 212 | 219 | ||||||
| Amortization of debt discount and issuance costs | 2,829 | 3,277 | ||||||
| Interest expense added to loan principal | 6,884 | 6,399 | ||||||
| Interest expense added to lease liability | 718 | 543 | ||||||
| Loss on debt conversion | 56 | - | ||||||
| Loss on early extinguishment of debt | 3,501 | 2,250 | ||||||
| Compensation charge for stock and share option awards | 2,027 | 974 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| (Increase) decrease in accounts receivable | (17 | ) | 121 | |||||
| Decrease (increase) in prepaid expenses and other | 2,866 | (3,146 | ) | |||||
| (Increase) in other assets | (214 | ) | (214 | ) | ||||
| (Decrease) increase in accounts payable | (53 | ) | 350 | |||||
| (Decrease) increase in accrued liabilities | (3,493 | ) | 2,432 | |||||
| Increase in warrant liabilities | 3,747 | - | ||||||
Net cash used in operating activities | (7,726 | ) | (6,410 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Additions to property, plant and equipment | (671 | ) | - | |||||
| Net cash used in investing activities | (671 | ) | - | |||||
| Cash flows from financing activities: | ||||||||
| Up-front payment related to lease liability | - | 11,509 | ||||||
| Net proceeds from the issuance of long-term debt | 57,190 | 7,600 | ||||||
| Debt issuance costs | - | (97 | ) | |||||
| Principal payments on long-term debt | (44,910 | ) | (11,399 | ) | ||||
| Net cash provided by financing activities | 12,280 | 7,613 | ||||||
| Net increase in cash and cash equivalents | 3,883 | 1,203 | ||||||
| Cash and cash equivalents, beginning of period | 12,172 | 2,690 | ||||||
| Cash and cash equivalents, end of period | $ | 16,055 | $ | 3,893 | ||||
See accompanying notes to the unaudited condensed consolidated financial statements.
Cadiz Inc.
For the three and six months ended June 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 | 43,656,169 | $ | 435 | 329 | $ | 1 | 2,300 | $ | 1 | $ | 613,572 | $ | (573,400 | ) | $ | 40,609 | ||||||||||||||||||||
Stock-based compensation expense | 236,995 | 2 | 0 | 0 | 0 | 0 | 431 | 0 | 433 | |||||||||||||||||||||||||||
Issuance of shares pursuant to direct offerings | 6,857,140 | 69 | 0 | 0 | 0 | 0 | 11,672 | 0 | 11,741 | |||||||||||||||||||||||||||
Dividends declared on 8.875% series A cumulative perpetual preferred shares ($550 per share) | - | 0 | - | 0 | - | 0 | 0 | (1,265 | ) | (1,265 | ) | |||||||||||||||||||||||||
Net loss and comprehensive loss | - | 0 | - | 0 | - | 0 | 0 | (5,912 | ) | (5,912 | ) | |||||||||||||||||||||||||
Balance as of March 31, 2022 | 50,750,304 | 506 | 329 | $ | 1 | 2,300 | $ | 1 | 625,675 | (580,577 | ) | 45,606 | ||||||||||||||||||||||||
Stock-based compensation expense | 19,971 | 0 | 0 | 0 | 0 | 0 | 423 | 0 | 423 | |||||||||||||||||||||||||||
Dividends declared on 8.875% series A cumulative perpetual preferred shares ($560 per share) | - | 0 | - | 0 | - | 0 | 0 | (1,288 | ) | (1,288 | ) | |||||||||||||||||||||||||
Net loss and comprehensive loss | - | 0 | - | 0 | - | 0 | 0 | (5,483 | ) | (5,483 | ) | |||||||||||||||||||||||||
Balance as of June 30, 2022 | 50,770,275 | 506 | 329 | $ | 1 | 2,300 | $ | 1 | $ | 626,098 | $ | (587,348 | ) | $ | 39,258 | |||||||||||||||||||||
| Additional | Total | |||||||||||||||||||
| Common Stock | Paid-in | Accumulated | Stockholders' | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||
| Balance as of December 31, 2016 | 21,768,864 | $ | 218 | $ | 355,336 | $ | (409,871 | ) | $ | (54,317 | ) | |||||||||
| Issuance of shares to lenders | 29,706 | - | 433 | - | 433 | |||||||||||||||
| Issuance of shares pursuant to bond conversion | 326,163 | 3 | 2,253 | - | 2,256 | |||||||||||||||
| Stock-based compensation expense | 405,643 | 4 | 2,122 | - | 2,126 | |||||||||||||||
| Net loss and comprehensive loss | - | - | - | (26,789 | ) | (26,789 | ) | |||||||||||||
| Balance as of September 30, 2017 | 22,530,376 | $ | 225 | $ | 360,144 | $ | (436,660 | ) | $ | (76,291 | ) | |||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (Unaudited)
For the three and six months ended June 30, 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 | 36,902,361 | $ | 368 | 7,531 | $ | 1 | $ | 513,744 | $ | (539,414 | ) | $ | (25,301 | ) | ||||||||||||||
Stock-based compensation expense | 72,229 | 1 | 0 | 0 | 147 | 0 | 148 | |||||||||||||||||||||
Reclassification of warrant liability | - | 0 | - | 0 | 3,179 | 0 | 3,179 | |||||||||||||||||||||
Issuance of shares pursuant to ATM offerings | 1,368,362 | 13 | 0 | 0 | 14,853 | 0 | 14,866 | |||||||||||||||||||||
Net loss and comprehensive loss | - | 0 | - | 0 | 0 | (5,944 | ) | (5,944 | ) | |||||||||||||||||||
Balance as of March 31, 2021 | 38,342,952 | $ | 382 | 7,531 | $ | 1 | $ | 531,923 | $ | (545,358 | ) | $ | (13,052 | ) | ||||||||||||||
Stock-based compensation expense | 6,812 | 0 | 0 | 0 | 3,293 | 0 | 3,293 | |||||||||||||||||||||
Issuance of shares pursuant to ATM offerings | 115,956 | 1 | 0 | 0 | 1,412 | 0 | 1,413 | |||||||||||||||||||||
Issuance of shares pursuant to direct offering | 1,219,512 | 12 | 0 | 0 | 14,062 | 0 | 14,074 | |||||||||||||||||||||
Issuance of shares pursuant to exercise of warrants | 362,500 | 4 | 0 | 0 | 0 | 0 | 4 | |||||||||||||||||||||
Conversion of preferred shares to common shares | 506,312 | 5 | (1,250 | ) | 0 | (5 | ) | 0 | 0 | |||||||||||||||||||
Issuance of shares to lenders | 64,356 | 1 | 0 | 0 | 764 | 0 | 765 | |||||||||||||||||||||
Net loss and comprehensive loss | - | 0 | - | 0 | 0 | (11,562 | ) | (11,562 | ) | |||||||||||||||||||
Balance as of June 30, 2021 | 40,618,400 | 405 | 6,281 | 1 | 551,449 | (556,920 | ) | (5.065 | ) | |||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
NOTE 1– BASIS OF PRESENTATION
The Condensed Consolidated Financial Statements and notes have been prepared by Cadiz Inc., also referred to as "Cadiz"“Cadiz” or "the Company"“the Company”, without audit and should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company'sCompany’s Annual Report on Form 10-K10-K for the year ended December 31, 2016.
The foregoing Condensed Consolidated Financial Statements include the accounts of the Company and contain all adjustments, consisting only of normal recurring adjustments, which management considers necessary for a fair statement of the Company'sCompany’s financial position, the results of its operations and its cash flows for the periods presented and have been prepared in accordance with generally accepted accounting principles.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates and such differences may be material to the financial statements. The results of operations for the three and ninesix months ended SeptemberJune 30, 2017 2022 are not necessarily indicative of results for the entire fiscal year ending December 31, 2017.
Liquidity
The Condensed Consolidated Financial Statements of the Company have been prepared using accounting principles applicable to a going concern, which assumes realization of assets and settlement of liabilities in the normal course of business.
The Company incurred losses of $26.8$11.4 million for the ninesix months ended SeptemberJune 30, 2017, 2022, compared to $19.6$17.5 million for the ninesix months ended SeptemberJune 30, 2016. 2021. The Company had working capital of $7.6$12.0 million at SeptemberJune 30, 2017, 2022 and used cash in its operations of $7.7$7.6 million for the ninesix months ended SeptemberJune 30, 2017.
Cash requirements during the ninesix months ended SeptemberJune 30, 2017 2022 primarily reflect certain administrative costs related to the Company'sCompany’s water project development efforts. Currently,efforts and the Company's sole focus is thefurther 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 assets.supplies and agricultural products.
On June 7, 2021, the Company 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. The Company 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, the Company entered into an Underwriting Agreement with BRS as representative of the several underwriters named there, to issue and sell an aggregate of 2,000,000 depositary shares (the “Depositary Shares”), as well as 300,000 Depositary Shares sold pursuant to the exercise of an option to purchase additional Depositary Shares (“Depositary Share Offering”), each representing 1/1000th of a share of the 8.875% Series A Cumulative Perpetual Preferred Stock (the “Series A Preferred Stock”). The Company's NewDepositary Share Offering was completed on July 2, 2021 for net proceeds of approximately $54 million.
On July 2, 2021, the Company entered into a new $50 million senior secured credit agreement with lenders party thereto from time to time (“Lenders”) and BRS, as administrative agent for the Lenders (“Senior Secured Debt”) (see Note 2 – “Long-Term Debt”). The proceeds of the Senior Secured Debt, and its convertible notes contain representations, warranties and covenants that are typical for agreementstogether with the proceeds from the Depositary Share Offering, were used (a) to repay all our outstanding obligations under the then existing senior secured debt in the amount of this type, including restrictions that would limit the Company's abilityapproximately $77.5 million, (b) to incur additional indebtedness, incur liens, pay dividends or make restricteddeposit approximately $10.2 million into a segregated account, representing an amount sufficient to pre-fund eight quarterly dividend payments dispose of assets, make investments and merge or consolidate with another person. However, while there are affirmative covenants, there are no financial maintenance covenants and no restrictions on the Company's abilitySeries A Preferred Stock underlying the Depositary Shares issued in the Depositary Share Offering, and (c) to issue additional common stock to fund futurepay transaction related expenses. The remaining proceeds are being used for working capital needs. The debt covenants associated with the New Senior Secured Debt were negotiated by the parties with a view towards the Company's operatingneeds and financial condition as it existed at the time the agreements were executed.for general corporate purposes. At SeptemberJune 30, 2017, 2022, the Company was in compliance with its debt covenants.
On March 23, 2022, the Company with sufficient fundscompleted the sale and issuance of 6,857,140 shares of the Company’s common stock to meet itscertain 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 are being used for working capital needs and for a period beyond one year from this quarterly report issuance date. general corporate purposes.
The Company may meet its debt and working capital requirements beyond this period through a variety of means, including construction financing,extension, refinancing, equity or debt placements, through the sale or other disposition of assets, or reductions in operating costs. Equity placements may be made using our existing shelf registration. Equity placements, if made, would be undertaken onlyThe 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 extent necessary, so as to minimize the dilutive effectproceeds of any such placements uponcommon equity financing. The Company does not expect the Company's existing stockholders.
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'sCompany’s liquidity and ability to raise capital may adversely affect it. Sufficient liquidity is critical to meet the Company'sCompany’s resource development activities. Although the Company currently expects its sources of capital to be sufficient to meet its near-term liquidity needs, there can be no assurance that its liquidity requirements will continue to be satisfied. If the Company cannot raise needed funds, it might be forced to make substantial reductions in its operating or project development 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 ninesix months ended SeptemberJune 30, 2017, 2022, approximately $433 thousand$1.76 million in interest payments on the corporate secured debtCompany’s Senior Secured Debt was paid in stock. As a result, 29,706 shares of common stock were issued tocash. There are no scheduled principal payments due on the lenders.
At June 30, 2022, accruals for cash dividends payable on the Company issued a warrant to purchase an aggregate of 357,500 shares of its common stock ("2017 Warrant"Series A Preferred Stock was $1.29 million (see Note 8 – “Common and Preferred Stock”). The Company recorded a debt discount atcash dividends were paid on July 15, 2022.
The balance of cash, cash equivalents, and restricted cash as shown in the timecondensed consolidated statements of cash flows is comprised of the closing offollowing:
Cash, Cash Equivalents and Restricted Cash | June 30, 2022 | December 31, 2021 | June 30, 2021 | |||||||||
(in thousands) | ||||||||||||
Cash and Cash Equivalents | $ | 13,239 | $ | 10,965 | $ | 11,186 | ||||||
Restricted Cash | 1,288 | 1,288 | 0 | |||||||||
Long Term Restricted Cash | 5,050 | 7,603 | 134 | |||||||||
Cash, Cash Equivalents and Restricted Cash in the Consolidated Statement of Cash Flows | $ | 19,577 | $ | 19,856 | $ | 11,320 | ||||||
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 New Senior Secured DebtDepositary Shares issued in the amount of $2.9 million which was the fair value of the 2017 Warrant issued. The fair value of the 2017 Warrant will be re-measured each reporting period, and the change in warrant value will be recorded as an adjustment to the derivative liability.
Recent Accounting Pronouncements
Accounting Guidance Not Yet Adopted
In May 2014, the FASBJune 2016, Financial Accounting Standards Board (“FASB”) issued an accounting standards update which introduces new guidance for the accounting for credit losses on revenue recognition including enhanced disclosures. Under the new standard, revenuecertain financial instruments. This update is recognized when (or as) a good or service is transferred to the customer effective for fiscal years beginning after December 15, 2022, and the customer obtains control of the good or service. On July 9, 2015, the FASB approved a one-year deferral, updating the effective date to January 1, 2018.for interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluatingassessing this new guidance and expects this new standard will not have a material impact on the condensed consolidated financial statements.
NOTE 2– LONG-TERM DEBT
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 $77.5 million. This Assignment closed on July 2, 2021.
On July 2017, the FASB issued an accounting standards update to provide new guidance for the classification analysis of certain equity-linked financial instruments, or embedded features, with down round features, as well as clarify existing disclosure requirements for equity-classified instruments. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity's own stock. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating this new guidance and cannot determine the impact of this standard at this time.
In the event of certain asset sales, the incurrence of indebtedness or a casualty or condemnation event, in each case, under certain circumstances as defineddescribed in the Credit Agreement, if on the 91st day preceding the maturity dateCompany will be required to use a portion of the New Convertible Notes,proceeds to prepay amounts under the 5-Day VWAP, as defineddebt. In the event of any additional issuance of depositary receipts (“Depositary Receipts”) representing interests in shares of 8.875% Series A Cumulative Perpetual Preferred Stock (“Series A Preferred Stock”) by the Company, the Company will be required to, within five business days after the receipt of the net cash proceeds, apply 75% of the net cash proceeds to prepay amounts due under the debt (including the applicable repayment fee described above).
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 is less than 120%includes customary events of default and remedies.
While any amount remains outstanding under the then applicable Conversion Rate,debt, the Lenders will have the right to convert the outstanding principal, plus unpaid interest, on the debt into Depositary Receipts at the per share exchange price of $25.00, as defined in the New Convertible Notes Indenture, and at least $10,000,000 in original principal amountfollows:
● | 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 50% of the principal and unpaid interest on the debt may be exchanged into Depositary Receipts; |
● | at any time after the 18-month anniversary of the closing of the debt, and on or before the 24-month anniversary of the closing of the debt, up to 75% of the principal and unpaid interest on the debt may be exchanged into Depositary Receipts; and |
● | at any time after the 24-month anniversary of the closing of the debt, up to 100% of the principal and unpaid interest on the debt may be exchanged for Depositary Receipts. |
The proceeds fromof the Credit Agreement were used to repay the Prior Senior Secured Debt resulting in a loss on extinguishment of $3.5 million which consistedwere used, together with the proceeds received from the Depositary Share Offering, (a) to repay all of the write-off of unamortizedCompany’s outstanding obligations under the then existing senior secured debt, discount, unamortized debt issuance costs(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 fees paid(c) to the former lenders.pay transaction related expenses. The remaining proceeds will be used for working capital needs and for general corporate purposes. In addition, the Company incurred $1.5approximately $2.9 million in legal and finders'advisory fees which was recorded as additional debt discount and is being amortized through December 2019, which isover the Springing Maturity Date as discussed above. term of the Senior Secured Debt.
In connection with the repayment, the Company entered into a Payoff Agreement on May 24, 2017, which was implemented in October 2017 (see Note 7 – Subsequent Events). The outstanding warrants registered in the nameissuance of the prior lenders ("2016 Warrants") are accounted for as a derivative liability with unrealized gains or losses reflected in interest expense.
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 at a rate per annum equal to 2% (the "Cash Rate"). The Company, in its discretion, may make any quarterly interest payment in cashof $1.9 million which was the fair value of the Warrants on the applicable Interest Date atissuance date. In addition, the PIK Rate, in lieu of accretion of such interest to the principal amount at the PIK Rate.
NOTE 3– STOCK-BASED COMPENSATION PLANS AND WARRANTS
The Company has issued options and has granted stock awards pursuant to its 2009 Equity Incentive Plan and 20142019 Equity Incentive Plan, as described below.
2019 Equity Incentive Plan
The 20092019 Equity Incentive Plan (as amended, the “2019 EIP”), was originally approved by stockholders at the 2009 July 10, 2019 Annual Meeting, with an amendment to the plan approved by stockholders at the July 12, 2022 Annual Meeting. The plan, as amended, provides for the grant and issuance of up to 850,0002,700,000 shares and options to the Company's employees and consultants. The plan became effective when the Company filed a registration statement on Form S-8 on December 18, 2009. All options issued under the 2009 Equity Incentive Plan have a ten-year term with vesting periods ranging from issuance date to 24 months.
Effective July 1, 2021, under the 2009 Equity Incentive Plan were cancelled. Following registration of the 2014 Plan on Form S-8, the Company entered into revised employment agreements with certain senior management that provide for the issuance of up to 162,500 Restricted Stock Units ("RSU's") during the period July 1, 2014 through December 31, 2016 and the issuance of up to 200,000 RSU's in connection with obtaining construction financing for the Water Project ("Milestone RSUs"). The Milestone RSUs vested in June 2017, and the Company recorded stock compensation expense of $1.7 million during the nine months ended September 30, 2017, to reflect the issuance of these shares. The Company recorded no stock compensation expense during the three months ended September 30, 2017 related to the issuance of these shares.
Stock Awards to Directors, Officers, and Consultants
The Company has granted stock awards pursuant to its 2009 Equity Incentive Plan and 2014 Equity Incentive Plan.
Of the total 850,0002,700,000 shares reserved under the 2009 Equity Incentive Plan, 297,2652019 EIP, 1,143,011 shares were issued as share grants and 507,500 were issued as options. Upon approval of the 2014 Equity Incentive Plan in June 2014, 45,235 shares remaining available for award under the 2009 Equity Incentive Plan were cancelled.
825,000 RSUs were granted to employees in April 2021 as long-term equity incentive awards ( “April 2021 RSU Grant”). Of the 600,158825,000 RSUs granted under the April 2021 RSU Grant, 510,000 RSUs were scheduled to vest upon completion of certain milestones, including (a) 255,000 RSUs which vested in July 2021 upon completion of refinancing of the Company’s then existing senior secured debt and funding to complete the purchase of the Northern Pipeline (“Vesting Event”), and (b) 255,000 RSUs scheduled to vest upon completion of final binding water supply agreement(s) for the delivery of at least 9,500 acre-feet of water per annum to customers. Of the remaining 315,000 RSUs granted under the April 2021 RSU Grant, 60,000 RSUs are scheduled to vest on January 3, 2023, and 255,000 RSUs are scheduled to vest on March 1, 2023. The RSU incentive awards are subject in each case to continued employment with the Company through the vesting date.
Of the 255,000 RSUs earned upon the Vesting Event, the Company issued 158,673 shares awarded, 8,694 sharesnet of taxes withheld and paid in cash by the Company.
Upon the change of the Executive Chair on February 4, 2022, a total of 170,000 unvested RSUs were awardedaccelerated and became fully vested as a result of an amended employee agreement, which included 85,000 RSUs scheduled to vest upon completion of final binding water supply agreement(s) and 85,000 RSUs scheduled to vest on March 1, 2023.
Additionally, the Company's directors for services performed duringCompany issued 450,000 of performance stock units (“PSUs”) upon achievement of certain performance events. The PSUs vest upon the plan yearCompany’s common stock achieving price hurdles (“Price Hurdles”) but not sooner than three years from date of grant, including (a) 200,000 PSUs to vest upon a Price Hurdle of $7 per share, (b) 150,000 PSUs to vest upon a Price Hurdle of $9 per share, (c) 50,000 PSUs to vest upon a Price Hurdle of $11 per share, and (d) 50,000 PSUs to vest upon a Price Hurdle of $13 per share and are payable, at the option of the Compensation Committee, in either common stock or cash. The PSU incentive award is subject to continue employment with the Company through the vesting date.
The accompanying consolidated statements of operations and comprehensive loss include approximately $856,000 and $3,440,000 of stock-based compensation expense related to stock awards in the six months ended June 30, 2017. These shares will vest 2022 and be issued on January 31, 2018.2021, respectively.
NOTE 4– INCOME TAXES
As of SeptemberJune 30, 2017, 2022, the Company had net operating loss ("NOL"(“NOL”) carryforwards of approximately $279$338 million for federal income tax purposes and $168$273 million for California state income tax purposes. Such carryforwards expire in varying amounts through the year 2037.2038 and 2041 for federal and California purposes, respectively. For federal losses arising in tax years ending after December 31, 2017, the NOL carryforwards are allowed indefinitely. Use of the carryforward amounts is subject to an annual limitation as a result of a previous ownership changes.
As of SeptemberJune 30, 2017, 2022, the Company had unrecognized tax benefits totaling approximately $2.8$0.9 million. None of these, if recognized, would affect the Company's effective tax rate because the Company has recorded a full valuation allowance against thesedeferred tax assets.
The Company's tax years 20142018 through 20162021 remain subject to examination by the Internal Revenue Service, and tax years 20132017 through 20162021 remain subject to examination by California tax jurisdictions. In addition, the Company's loss carryforward amounts are generally subject to examination and adjustment for a period of three years for federal tax purposes and four years for California purposes, beginning when such carryovers are utilized to reduce taxes in a future tax year.
Because it is more likely than not that the Company will not realize its net deferred tax assets, it has recorded a full valuation allowance against theseall deferred assets. Accordingly, no deferred tax asset has been reflected in the accompanying condensed consolidated balance sheets.sheet.
NOTE 5– NET LOSS PER COMMON SHARE
Basic net loss per common share is computed by dividing the net loss by the weighted-average common shares outstanding. Options, deferred stock units, convertible debt, convertible preferred shares and warrants and the zero coupon term loan convertible into or exercisable for certain shares of the Company's common stock were not considered in the computation of net loss per share because their inclusion would have been antidilutive. Had these instruments been included, the fully diluted weighted average shares outstanding would have increased by approximately 11,193,0001,533,000 and 11,923,0003,196,000 for the three months ended SeptemberJune 30, 2017 2022 and 2016,2021, respectively; and 10,888,0001,533,000 and 10,737,0002,903,000 for the ninesix months ended SeptemberJune 30, 2017 2022 and 2016,2021, respectively.
NOTE 6– FAIR VALUE MEASUREMENTS
The following table presents information about warrant liabilities that are measured at fair value on a recurring basisCompany has operating leases for right-of-way agreements, corporate offices, vehicles and office equipment. The Company’s leases have remaining lease terms of 1 month to 28 years as of SeptemberJune 30, 2017, and indicate2022, some of which include options to extend or terminate the fair value hierarchy of the valuation techniques we utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. We consider a security that trades at least weekly to have an active market. Fair values determined by Level 2 inputs utilize data points that are observable, such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.
| Investments at Fair Value as of September 30, 2017 | ||||||||||||||||
| (in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Warrant liabilities | - | (4,537 | ) | (2,105 | ) | (6,642 | ) | |||||||||
| Total warrant liabilities | $ | - | $ | (4,537 | ) | $ | (2,105 | ) | $ | (6,642 | ) | |||||
| Level 3 Liabilities | ||||
| (in thousands) | Warrant Liabilities | |||
| Balance at July 1, 2017 | $ | 2,240 | ||
| Unrealized Gains | (135 | ) | ||
| Balance at September 30, 2017 | $ | 2,105 | ||
| Level 3 Liabilities | ||||
| (in thousands) | Warrant Liabilities | |||
| Balance at January 1, 2017 | $ | - | ||
| New warrants issued | 2,895 | |||
| Unrealized Gains, net | (258 | ) | ||
| Transfers to level 2 | (532 | ) | ||
| Balance at September 30, 2017 | $ | 2,105 | ||
From a Payoff Agreement lessor standpoint, in February 2016, the Company entered into a lease agreement with prior lenders on May 24, 2017. Effective upon the delivery of the Shares, the 2016 Warrants,Fenner Valley Farms LLC (“FVF”) (the “lessee”), pursuant to which FVF is leasing, for a 99-year term, 2,100 acres owned by Cadiz in San Bernardino County, California, to be used to plant, grow and harvest agricultural crops (“FVF Lease Agreement”). As consideration for the prior lenderslease, FVF paid the Company a one-time payment of $12.0 million upon closing. The Company expects to receive rental income of $420,000 annually over the next five years related to the FVF Lease Agreement.
During the six months ended June 30, 2022, $3,024,000 of construction in progress was placed into service, which included land development, irrigation systems and stand establishment related to the planting of 760 acres of alfalfa.
Depreciation expense on land improvements, buildings, leasehold improvements, machinery and equipment and furniture and fixtures was $293,000 and $206,000 for the six months ended June 30, 2022 and 2021, respectively.
NOTE 7– COMMON AND PREFERRED STOCK
Common Stock
The Company is authorized to issue 70 million shares of Common Stock at a $0.01 par value. As of June 30, 2022, the Company had 50,770,275 shares issued and outstanding.
In January 2013, the Company revised its then existing agreement with the law firm of Brownstein Hyatt Farber Schreck LLP (“Brownstein”), a rightrelated party. Under this agreement, the Company is to purchaseissue up to 357,500a total of 400,000 shares of the Company'sCompany’s common stock, with 200,000 shares earned to date and 100,000 shares to be earned upon the achievement of each of two remaining milestones as follows:
■ | 100,000 shares earned upon the signing of binding agreements for more than 51% of the Water Project’s annual capacity, which is not yet earned; and |
■ | 100,000 shares earned upon the commencement of construction of all of the major facilities contemplated in the Final Environmental Impact Report necessary for the completion and delivery of the Water Project, which is not yet earned. |
All shares earned upon achievement of any of the remaining two milestones will be payable three years from the date earned.
Series 1 Preferred Stock
The Company has issued a total of 10,000 shares of Series 1 Preferred Stock (“Series 1 Preferred Stock”) to certain holders (“Holders”) under certain conversion and exchange agreements entered into in March 2020. Each share of Series 1 Preferred Stock is convertible at any time at the option of the Holder into 405.05 shares of Common Stock. As of June 30, 2022, Holders of Series 1 Preferred Stock exercised their option to convert 9,671 shares of Series 1 Preferred Stock into 3,917,235 shares of Common Stock. The Company has 329 shares of Series 1 Preferred Stock issued and outstanding as of June 30, 2022.
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 2,000,000 depositary shares (the “Depositary Shares”), as well as up to 300,000 Depositary Shares that may not be exercisedsold pursuant to the exercise of an option to purchase additional Depositary Shares (“Depositary Share Offering”), each representing 1/1000th of a share of the 8.875% Series A Cumulative Perpetual Preferred Stock (the “Series A Preferred Stock”). The Depositary Share Offering was completed on July 2, 2021 for net proceeds of approximately $54 million.
On July 1, 2021, the Company filed the Certificate of Designation (“Certificate of Designation”) for the Series A Preferred Stock with the Secretary of State of the State of Delaware, which became effective upon acceptance for record. The Certificate of Designation classified a total of 7,500 shares of the Company’s authorized shares of preferred stock, $0.01 par value per share, as Series A Preferred Stock.
As set forth in the Certificate of Designation, the Series A Preferred Stock will rank, as to dividend rights and have been deemed cancelled. The derivative liabilityrights upon the Company’s liquidation, dissolution or winding up: (i) senior to Common Stock of $4.5 million recordedthe Company; (ii) junior to the Series 1 Preferred Stock with respect to the distribution of assets upon the Company’s voluntary or involuntary liquidation, dissolution or winding up; (iii) senior to the Series 1 Preferred Stock with respect to the payment of dividends and (iv) effectively junior to all the Company’s existing and future indebtedness (including indebtedness convertible into Common Stock or preferred stock) and to the indebtedness and other liabilities of (as well as any preferred equity interests held by others in) the Company’s existing or future subsidiaries.
Holders of Series A Preferred Stock, when and as authorized by the Company’s Board of Directors, are entitled to cumulative cash dividends at the rate of 8.875% of the $25,000.00 ($25.00 per Depositary Share) liquidation preference per year (equivalent to $2,218.75 per share per year or $2.21875 per Depositary Share per year). Dividends will be payable quarterly in arrears, on or about the 15th of January, April, July and October, beginning on or about October 15,2021. As of June 30, 2022, the Company has paid aggregate cash dividends of $4,002,000. On June 17, 2022, the Company’s Board of Directors declared that holders of Series A Preferred stock will receive a cash dividend equal to $560.00 per whole share; therefore, holders of Depositary Shares received a cash dividend equal to $0.56 per Depositary Share. The dividend was paid on July 15, 2022 to respective holders of record as of September 30, 2017 related to the 2016 Warrants will be eliminated during the fourth quarterclose of 2017, resulting in a $1.2 million gain. In connection withbusiness on July 1, 2022.
At the issuance of the Shares,Series A Preferred Stock, the Company increasedpre-funded eight quarterly payments through July 2023 in a segregated account which appears as Restricted Cash on the Balance Sheet. Dividends on the Series A Preferred Stock underlying the depositary shares will continue to accumulate whether or not (i) any of our agreements prohibit the current payment of dividends, (ii) we have earnings or funds legally available to pay the dividends, or (iii) our Board of Directors does not declare the payment of the dividends.
Holders of depositary shares representing interests in the Series A Preferred Stock generally will have no voting rights. However, if we do not pay dividends on any outstanding shares of Series A Preferred Stock for six or more quarterly dividend periods (whether or not declared or consecutive), holders of the Series A Preferred Stock (voting separately as a class with all other outstanding series of preferred stock upon which like voting rights have been conferred and are exercisable) will be entitled to elect two additional directors to the Board of Directors to serve until all unpaid dividends have been fully paid or declared and set apart for payment.
On and after July 2, 2026, the shares of Series A Preferred Stock will be redeemable at the Company’s option, in whole or in part, at a redemption price equal to $25,000.00 per share ($25.00 per Depositary Share), plus any accrued and unpaid dividends. Furthermore, upon a change of control or delisting event (each as defined in the Certificate of Designation), the Company will have a special option to redeem the Series A Preferred Stock at $25,000.00 per share ($25.00 per Depositary Share), plus any accrued and unpaid dividends.
Shares of Series A Preferred Stock are convertible into shares of Common Stock if, and only if, a change of control or delisting event (each as defined in the Certificate of Designation) has occurred, and the Company has not elected to redeem the Series A Preferred Stock prior to the applicable conversion date. Upon any conversion, each share of Series A Preferred Stock will be converted into that number of shares of common stock issuable upon exerciseCommon Stock equal to the lesser of (i) the 2017 Warrant, from 357,500 to 362,500 shares. The 2017 Warrant has a termquotient obtained by dividing (A) the sum of five years from its issue date of May 25, 2017, and an exercise price of $14.94(x) the $25,000 liquidation preference per share plus (y) the amount of an accrued and unpaid dividends to, but not including, the conversion date by (B) the Common Stock Purchase Price (as defined in the Certificate of Designation), and (ii) 3,748.13 (the “Share Cap”), subject to adjustment.certain adjustments.
The Company has 2,300 shares of Series A Preferred Stock issued and outstanding as of June 30, 2022.
ITEM 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations
In connection with the "safe harbor"“safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the following discussion contains trend analysis and other forward-looking statements. Forward-looking statements can be identified by the use of words such as "intends"“intends”, "anticipates"“anticipates”, "believes"“believes”, "estimates"“estimates”, "projects"“projects”, "forecasts"“forecasts”, "expects"“expects”, "plans"“plans” and "proposes"“proposes”. Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from these forward-looking statements. These include, among others, our ability to maximize value from our land and water resources;resources and our ability to obtain new financings as needed to meet our ongoing working capital needs. See additional discussion under the heading "Risk Factors"“Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016.
We are a landwater solutions company and agribusiness committed to sustainable water resource development company withand 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 California. Virtuallythat 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 the Western United States.
California and the Western United States face a persistent challenge in meeting the water needs of all of this land is underlain by high-quality, naturally recharging groundwater resources,its residents. While the State of California has recognized a Human Right to Water, competing municipal, agricultural and is situated in proximityenvironmental demands outpace the State’s available supply limiting the ability to the Colorado River and the Colorado River Aqueduct ("CRA"), California's primary mode of water transportation for importsdeliver on that promise. Recent analysis from the Colorado River into the State. Our propertiesCalifornia State Water Resources Control Board estimates that approximately 1 million Californians lack reliable access to water and several communities are suitable for various uses, including large-scale agricultural development, groundwater storageshort of long-term safe, reliable and affordable drinking water supply projects. Our main objective is to realize the highest and best use of these land and water resources in an environmentally responsible way.
We believe that the long-term highest and best use of our land and water assets will be realized through the development of a combination of water supply and storage projects at our properties. Therefore, the Company has been primarilyare principally focused on the development ofdeveloping the Cadiz Valley Water Conservation Recovery and Storage Project ("(“Water Project" or "Project"Project”), which will capture at our Cadiz Valley property that can help address California’s persistent systemic water challenges and conserve millionsdeliver new water access to California communities that presently lack reliable water supplies and infrastructure. Through management of acre-feet1 of native groundwater currently being lost to evaporation from the aquifer system beneath our 34,000-acre property inat the Cadiz and Fenner valleys of eastern San Bernardino County (the "Cadiz/Fenner Property"), and deliver it to water providers throughout Southern California (see "Water Resource Development"). A second phase ofProperty, the Water Project would offerconserve groundwater otherwise used for agriculture or lost to evaporation to augment supply available in California communities and also make available capacity in the managed groundwater aquifer system at Cadiz to bank and store imported water for future dry years.
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 up to one million acre-feet of imported water in the aquifer system. We believe thatsystem for return in dry years. The Cadiz aquifer system has the ultimate implementationcapacity to store one million acre-feet of thisimported water.
To deliver water to and from the Cadiz Property for participating water providers, the Water Project willmust provide conveyance facilities capable of connecting Cadiz and areas in need. We own a significant source of future cash flow.
To utilize the region'sNorthern Pipeline for water supply challenges by providing new reliable supply and local groundwater storage opportunities (see "Water Resource Development" below) in both dry and wet years. Following a multi-year California Environmental Quality Act ("CEQA") review and permitting process,conveyance related to the Water Project received permits that
We expect to complete any necessary permitting in coordination with any contract by a third party to use the facilities.
Our agricultural operations currently provide the Company’s principal source of 2.5 million acre-feet of groundwater over 50 years in accordance with the terms of a groundwater management plan approved by San Bernardino County, the public agency responsible for groundwater use at the project area.
Our current and future operations also include activities that put some of the groundwater currently being lostfurther our commitments to evaporation from the underlying aquifer system to immediate beneficial use. We have farmed portions of the Cadiz/Fenner Property since the late 1980s relying on groundwater from the aquifer system for irrigation and have found the site is well suited for various permanent and seasonal crops. Presently, the property has 2,100 acres leased for cultivation of a variety of crops, including citrus, dried-on-the-vine raisins and seasonal vegetables.
Results of Operations
Three Months Ended SeptemberJune 30, 2017,2022, Compared to Three Months Ended SeptemberJune 30, 2016
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 operations.leases. As a result, we have historically incurred a net loss from operations. We had revenues of $111 thousand for the three months ended September 30, 2017, compared to $120 thousand for the three months ended September 30, 2016. We incurred a net loss of $6.0$5.5 million in the three months ended SeptemberJune 30, 2017,2022, compared to a $5.2$11.6 million net loss during the three months ended SeptemberJune 30, 2016.2021. The higher net2021 loss during the three months ended September 30, 2017 was primarily due to an increasestock-based non-cash bonus awards to employees and higher interest expense in general and administrative expense due to pre-construction engineering activities in connection with the water project.that period.
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 totaledGeneral and Administrative Expenses
General and Administrative Expenses, exclusive of stock-based compensation costs, totaledCompensation costs fromfor stock and option awards for the three months ended SeptemberJune 30, 2017,2022, were $107 thousand,$0.4 million, compared to $215 thousand$3.3 million for the three months ended SeptemberJune 30, 2016.2021. The higher 20162021 expense was primarily reflects the vesting schedules of stockdue to stock-based non-cash bonus awards under the 2014 Equity Incentive Plan.
Depreciation
Depreciation expense totaledInterest Expense, net
Net interest expense totaled| Three Months Ended | ||||||||
| September 30, | ||||||||
| 2017 | 2016 | |||||||
| Interest on outstanding debt | $ | 3,013 | $ | 2,541 | ||||
| Unrealized gains on warrants, net | (421 | ) | - | |||||
| Amortization of debt discount | 947 | 639 | ||||||
| Amortization of deferred loan costs | 47 | 64 | ||||||
| Interest income | (9 | ) | - | |||||
| $ | 3,577 | $ | 3,244 | |||||
Three Months Ended | ||||||||
June 30, | ||||||||
2022 | 2021 | |||||||
Interest on outstanding debt | $ | 1,463 | $ | 2,939 | ||||
Amortization of debt discount | 592 | 6 | ||||||
Amortization of deferred loan costs | - | 1,913 | ||||||
| $ | 2,055 | $ | 4,858 | |||||
Loss from Equity-Method InvestmentsLoss from equity-method investments related to our 50% ownership in the Consolidated Financial Statements – "Long-Term Debt".
Six Months Ended SeptemberJune 30, 2017,2022, Compared to NineSix Months Ended SeptemberJune 30, 2016
We incurred a net loss of $26.8$11.4 million in the ninesix months ended SeptemberJune 30, 2017,2022, compared to a $19.6$17.5 million net loss during the ninesix months ended SeptemberJune 30, 2016.2021. The higher year to date net2021 loss in 2017 was primarily due to a $3.5 million loss on extinguishment of debtstock-based non-cash bonus awards to employees and $3.6 millionhigher interest expense in unrealized losses recordedthat period.
Revenues Revenue totaled $328,000 during the six months ended June 30, 2022, compared to $280,000 for warrant liabilities accounted for as derivativesthe six months ended June 30, 2021. Revenues primarily related to the New Senior Secured Debt financing. The higher 2017 loss was also related to stock compensation related to the vesting of milestone shares earned by employees.
General and Administrative Expenses
General andCompensation costs fromfor stock and option awards for the ninesix months ended SeptemberJune 30, 2017, totaled $2.02022, were $0.9 million, compared to $974 thousand$3.4 million for the ninesix months ended SeptemberJune 30, 2016.2021. The higher 20172021 expense was primarily reflects the vesting of milestone shares earned bydue to stock-based non-cash bonus awards to employees.
Depreciation
Depreciation expense totaledInterest Expense, net
Net interest expense totaled| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2017 | 2016 | |||||||
| Interest on outstanding debt | $ | 8,224 | $ | 7,196 | ||||
| Unrealized losses on warrants, net | 3,562 | - | ||||||
| Amortization of debt discount | 2,730 | 3,093 | ||||||
| Amortization of financing costs | 146 | 184 | ||||||
| Interest income | (9 | ) | - | |||||
| $ | 14,653 | $ | 10,473 | |||||
Six Months Ended | ||||||||
June 30, | ||||||||
2022 | 2021 | |||||||
Interest on outstanding debt | $ | 2,887 | $ | 5,601 | ||||
Unrealized (gains) losses on warrants, net | - | (573 | ) | |||||
Amortization of debt discount | 1,160 | 12 | ||||||
Amortization of deferred loan costs | - | 2,360 | ||||||
| $ | 4,047 | $ | 7,400 | |||||
Loss from Equity-Method InvestmentsLoss from equity-method investments related to our 50% ownership in the Consolidated Financial Statements, "Long-Term Debt".
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 placementsplacements.
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 outstanding stock options and warrants. We have also worked with our secured lendersan option to structure our debt inpurchase additional Depositary Shares, each representing 1/1000th of a way which allows us to continue developmentshare of the Water Project and minimize the dilutionSeries A Preferred Stock (“Depositary Share Offering”). The liquidation preference of the ownership interestseach of common stockholders.
On May 25, 2017,July 2, 2021, we entered into a $50 million new $60 million credit agreement (“Credit Agreement”) (see Note 2 to the Condensed Consolidated Financial Statements – “Long-Term Debt”). The proceeds of the Credit Agreement, together with funds affiliated with Apollo Global Management, LLC ("Apollo") that replaced and refinancedthe proceeds from the Depositary Share Offering, were used to (a) to repay all our outstanding obligations under the then existing $45 million senior secured mortgage debt ("Prior 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 provided $15 million(c) to pay transaction related expenses. The remaining proceeds are being used for working capital needs and for general corporate purposes.
On March 23, 2022, we completed the sale and issuance of new senior debt to fund immediate construction related expenditures ("New Senior Secured Debt"). Additionally, funds affiliated with Apollo also executed a conditional commitment letter to fund up to $240 million in construction finance expenditures for the Cadiz Water Project, subject to the satisfaction of conditions precedent. It is intended to provide the additional resources necessary to complete the construction of Phase I6,857,140 shares of the Water Project. Apollo's commitment for up to $240 million is conditional and Cadiz is not obligated to accept such financing from Apollo.
Limitations on our liquidity and ability to raise capital may adversely affect us. Sufficient liquidity is critical to meet our resource development activities. We currently expect our cash on hand to be sufficient to meet our working capital needs for a period beyond one year from this quarterly report issuance date. To the extent additional capital is required, we may increase liquidity through a variety of means, including equity or debt placements, through the lease, sale or other disposition of assets or reductions in operating costs. Equity placements, if made, wouldIf additional capital is required, no assurances can be undertaken onlygiven as to the extent necessary, so as to minimize the dilutive effectavailability and terms of any such placements upon our existing stockholders.new financing.
As we continue to actively pursue our business strategy, additional financing maywill continue to be required. See "Outlook"“Outlook” below. The covenants in the term debtSenior 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.
Cash Used in Operating Activities
. Cash used in operating activities totaledCash Used in Investing Activities
. Cash used in investing activities totaledCash Provided Byby Financing Activities
Outlook
Short-Term Outlook. In March 2022, the registered direct offering of common stock provided net cash proceeds of approximately $11.5 million related to the FVF Lease (see Agricultural Development, above) and $7.6 million in$11.7 million. These net cash proceeds, related to convertible note financing offset by $0.1 million in recorded debt issuance costs and a principal paymenttogether with cash on senior secured debt of approximately $11.4 million.
Long-Term Outlook
. In the longer term, weWe are evaluating the amount of cash needed, and the manner in which such cash will be raised, on an ongoing basis. We may meet any future cash requirements through a variety of means, including construction financing to be provided by the Apollo conditional commitment letter described above, equity or debt placements, or through the sale or other disposition of assets. Equity placements wouldwill be undertaken only to the extent necessary, so as to minimize the dilutive effect of any such placements upon our existing stockholders. No assurances can be given, however, as to the availability or terms of any new financing. Limitations on our liquidity and ability to raise capital may adversely affect us. Sufficient liquidity is critical to meet our resource development activities.
See Note 1 to the Condensed Consolidated Financial Statements – "Basis“Basis of Presentation"Presentation”.
We are a smaller reporting company as defined by Reg. 240.12b-2 of the Company's indebtedness bore interest at fixed rates; therefore,Securities and Exchange Act of 1934 and are not required to provide the Company is not exposed to market risk from changes in interest rates on long-term debt obligations.
Disclosure Controls and Procedures
The Company established disclosure controls and procedures to ensure that material information related to the Company, including its consolidated entities, is accumulated and communicated to senior management, including the Chief Executive Officer (the "Principal“Principal Executive Officer"Officer”) and Chief Financial Officer (the "Principal“Principal Financial Officer"Officer”) and to its Board of Directors. Based on their evaluation as of SeptemberJune 30, 2017,2022, 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.
Legal Proceedings |
As reported in our Annual Report on Form 10-K for the year ended December 31, 2021 in March 2021, two lawsuits were filed by The DevelopmentNative American Land Conservancy/National Park Conservation Association and Center for Biological Diversity/Defenders of Our Properties Is Heavily Regulated, Requires Governmental Approvals and Permits That Could Be Denied, and May Have Competing Governmental Interests and Objectives
In December 2021, counsel for BLM filed Motions for Voluntary Remand (“Motions”) in both cases, seeking to crossremand the parcel, we would require a lease frompermits back to the Commission subject toBLM for additional environmental review. We believe the record reflects that the permits were properly issued to us and that our conversion of this existing oil pipeline for water conveyance will not cause any disturbance or adverse impacts to the public lands.
In March 2022, we filed opposition to the Motions, and on May 5, 2022, the Court held a hearing on the Motions. Following oral argument, the Motions were taken under submission and a final ruling has not yet been issued by the Court.
While we continue to believe the lawsuits are presently conducting due diligence to confirmwithout merit, we cannot reasonably predict the form of State ownershipoutcome of the property and cannot predict with certaintyMotions or the cases at this time whether or not a lease fromtime.
Risk Factors |
There have been no material changes to the Commission will be required to construct project facilities.
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.
Exhibits |
The following exhibits are filed or incorporated by reference as part of this Quarterly Report on Form 10-Q.
* 3.1 | |
| | |
* 3.2 |
* 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. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Cadiz Inc. | |||
By: | /s/ Scott S. Slater | August 12, 2022 | |
Scott S. Slater | Date | ||
Chief Executive Officer and President | |||
(Principal Executive Officer) | |||
By: | /s/ Stanley E. Speer | August 12, 2022 | |
| Stanley E. Speer | Date | ||
Chief Financial Officer and Secretary | |||
(Principal Financial Officer) |