cdzi20230630

cdzi20230630_10q.htm

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 June 30, 2023

☐ 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 1/1000^th 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 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). 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 growth company” in Rule 12b-2 of the Exchange Act:

☐ Large accelerated filer ☐ Accelerated filer ☑ Non-accelerated filer

☑ Smaller Reporting Company ☐ Emerging growth company

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 ☐ No ☑

As of August 8, 2023, the Registrant had 66,595,606 shares of common stock, par value $0.01 per share, outstanding.

*Fiscal First Quarter 2023 Quarterly Report on Form 10-Q*	*Page*

PART I – FINANCIAL INFORMATION

ITEM 1. Financial Statements

Cadiz Inc. Condensed Consolidated Financial Statements

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended June 30, 2023 and 2022	1

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the six months ended June 30, 2023 and 2022	2

Unaudited Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022	3

Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022	4

Unaudited Condensed Consolidated Statement of Stockholders’ Equity for the three and six months ended June 30, 2023	5

Unaudited Condensed Consolidated Statement of Stockholders’ Equity for the three and six months ended June 30, 2022	6

Unaudited Notes to the Condensed Consolidated Financial Statements	7

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk	28

ITEM 4. Controls and Procedures	29

PART II – OTHER INFORMATION

ITEM 1. Legal Proceedings	30

ITEM 1A. Risk Factors	30

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	30

ITEM 3. Defaults Upon Senior Securities	30

ITEM 4. Mine Safety Disclosures	30

ITEM 5. Other Information	30

ITEM 6. Exhibits	31

Cadiz Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

	For the Three Months
	Ended June 30,
*($ in thousands, except per share data)*	2023			2022

Total revenues	$	809		$	185

Costs and expenses:
Cost of sales		768			-
General and administrative		5,320			3,405
Depreciation		305			172

Total costs and expenses		6,393			3,577

Operating loss		(5,584	)		(3,392)

Interest expense		(1,338	)		(2,055)
Interest income		210			-
Loss on derivative liability		(350	)		-

Loss before income taxes		(7,062	)		(5,447)
Income tax expense		(2	)		(1)
Loss from equity-method investments		-			(35)

Net loss and comprehensive loss	$	(7,064	)	$	(5,483)

Less: Preferred stock dividend		(1,288	)		(1,288)

Net loss and comprehensive loss applicable to common stock	$	(8,352	)	$	(6,771)

Basic and diluted net loss per common share	$	(0.13	)	$	(0.13	)

Basic and diluted weighted average shares outstanding		66,606			50,770

See accompanying notes to the unaudited condensed consolidated financial statements.

Cadiz Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

	For the Six Months
	Ended June 30,
*($ in thousands, except per share data)*	2023			2022

Total revenues	$	939		$	328

Costs and expenses:
Cost of sales		790			-
General and administrative		9,251			7,211
Depreciation		634			293

Total costs and expenses		10,675			7,504

Operating loss		(9,736	)		(7,176)

Interest expense		(2,842	)		(4,047)
Interest income		378			-
Loss on derivative liability		(220	)		-
Loss on early extinguishment of debt		(5,331	)		-

Loss before income taxes		(17,751	)		(11,223)
Income tax expense		(4	)		(3)
Loss from equity-method investments		-			(169)

Net loss and comprehensive loss	$	(17,755	)	$	(11,395)

Less: Preferred stock dividend		(2,553	)		(2,553)

Net loss and comprehensive loss applicable to common stock	$	(20,308	)	$	(13,948)

Basic and diluted net loss per common share	$	(0.31	)	$	(0.29)

Basic and diluted weighted average shares outstanding		64,633			47,619

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)*	2023			2022

ASSETS
Current assets:
Cash and cash equivalents	$	19,237		$	9,997
Restricted cash		1,288			1,288
Accounts receivable		880			454
Inventories		1,165			316
Prepaid expenses and other current assets		613			380
Total current assets		23,183			12,435

Property, plant, equipment and water programs, net		85,439			84,138
Long-term deposit/prepaid expenses		420			420
Goodwill		5,714			5,714
Right-of-use asset		494			553
Long-term restricted cash		134			2,497
Other assets		5,473			5,030
Total assets	$	120,857		$	110,787

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,163		$	1,107
Accrued liabilities		1,623			1,545
Current portion of long-term debt		128			140
Dividend payable		1,288			1,288
Contingent consideration liabilities		1,450			1,450
Operating lease liabilities		116			109
Total current liabilities		5,768			5,639

Long-term debt, net		36,924			48,950
Long-term lease obligations with related party, net		21,789			20,745
Derivative liabilities		2,570			-
Long-term operating lease liabilities		384			444
Deferred revenue		750			750
Other long-term liabilities		38			36
Total liabilities		68,223			76,564

Commitments and contingencies (Note 10)

Stockholders’ equity:
Preferred stock - $.01 par value; 100,000 shares authorized at June 30, 2023 and December 31, 2022; shares issued and outstanding – 329 at June 30, 2023 and December 31, 2022		1			1
8.875% Series A cumulative, perpetual preferred stock - $.01 par value; 7,500 shares authorized at June 30, 2023 and December 31, 2022; shares issued and outstanding – 2,300 at June 30, 2023 and December 31, 2022		1			1
Common stock - $.01 par value; shares authorized – 85,000,000 at June 30, 2023 and 70,000,000 at December 31, 2022; shares issued and outstanding – 66,595,606 at June 30, 2023 and 55,823,810 at December 31, 2022		664			556
Additional paid-in capital		675,574			636,963
Accumulated deficit		(623,606	)		(603,298	)
Total stockholders’ equity		52,634			34,223
Total liabilities and stockholders’ deficit	$	120,857		$	110,787

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)*	2023			2022

Cash flows from operating activities:
Net loss	$	(17,755	)		(11,395	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		634			293
Amortization of debt discount and issuance costs		273			1,160
Amortization of right-of-use asset		59			12
Interest expense added to loan principal		435			-
Interest expense added to lease liability		1,032			913
Unrealized loss on derivative liability		220			-
Loss on early extinguishment of debt		5,331			-
Loss on equity method investments		-			169
Compensation charge for stock and share option awards		489			856
Changes in operating assets and liabilities:
Accounts receivable		(426	)		116
Inventories		(849	)		(344	)
Prepaid expenses and other current assets		(233	)		125
Other assets		(443	)		(242	)
Accounts payable		816			216
Lease liabilities		(53	)		(172	)
Other accrued liabilities		599			743

Net cash used in operating activities		(9,871	)		(7,550	)

Cash flows from investing activities:
Additions to property, plant and equipment and water programs		(3,213	)		(1,748	)
Contributions to equity-method investments		-			(100	)

Net cash used in investing activities		(3,213	)		(1,848	)

Cash flows from financing activities:
Net proceeds from issuance of stock		38,490			11,741
Dividend payments		(2,553	)		(2,553	)
Principal payments on long-term debt		(15,088	)		(69	)
Issuance costs of long-term debt		(27	)		-
Costs for early extinguishment of debt		(600	)		-
Taxes paid related to net share settlement of equity awards		(261	)		-

Net cash provided by financing activities		19,961			9,119

Net increase in cash, cash equivalents and restricted cash		6,877			(279	)

Cash, cash equivalents and restricted cash, beginning of period		13,782			19,856

Cash, cash equivalents and restricted cash, end of period	$	20,659		$	19,577

See accompanying notes to the unaudited condensed consolidated financial statements.

Cadiz Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (Unaudited)

For the three and six months ended June 30, 2023 ($ in thousands, except share data)

									8.875% Series A
									Cumulative				Additional					Total
	*Common Stock*				*Preferred Stock*				*Perpetual Preferred Stock*				*Paid-in*		*Accumulated*			*Stockholders*’
	*Shares*		*Amount*		*Shares*		*Amount*		*Shares*		*Amount*		*Capital*		*Deficit*			*Equity*
Balance as of December 31, 2022		55,823,810	$	556		329	$	1		2,300	$	1	$	636,963	$	(603,298	)	$	34,223

Stock-based compensation expense		217,452		2		-		-		-		-		63		-			65
Issuance of shares pursuant to direct offerings		10,500,000		105		-		-		-		-		38,385		-			38,490
Dividends declared on 8.875% series A cumulative perpetual preferred shares ($550 per share)		-		-		-		-		-		-		-		(1,265	)		(1,265	)
Net loss and comprehensive loss		-		-		-		-		-		-		-		(10,691	)		(10,691	)

Balance as of March 31, 2023		66,541,262		663		329	$	1		2,300	$	1		675,411		(615,254	)		60,822

Stock-based compensation expense		54,344		1		-		-		-		-		163		-			164
Dividends declared on 8.875% series A cumulative perpetual preferred shares ($560 per share)		-		-		-		-		-		-		-		(1,288	)		(1,288	)
Net loss and comprehensive loss		-		-		-		-		-		-		-		(7,064	)		(7,064	)

Balance as of June 30, 2023		66,595,606		664		329	$	1		2,300	$	1		675,574		(623,606	)		52,634

See accompanying notes to the unaudited condensed consolidated financial statements.

Cadiz Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (Unaudited)

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		-		-		-		-		431		-			433
Issuance of shares pursuant to direct offerings		6,857,140		69		-		-		-		-		11,672		-			11,741
Dividends declared on 8.875% series A cumulative perpetual preferred shares ($550 per share)		-		-		-		-		-		-		-		(1,265	)		(1,265	)
Net loss and comprehensive loss		-		-		-		-		-		-		-		(5,912	)		(5,912	)

Balance as of March 31, 2022		50,750,304		506		329	$	1		2,300	$	1		625,675		(580,577	)		45,606

Stock-based compensation expense		19,971		-		-		-		-		-		423		-			423
Dividends declared on 8.875% series A cumulative perpetual preferred shares ($560 per share)		-		-		-		-		-		-		-		(1,288	)		(1,288	)
Net loss and comprehensive loss		-		-		-		-		-		-		-		(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

See accompanying notes to the unaudited condensed consolidated financial statements.

Cadiz Inc.

Notes to the Consolidated Financial Statements

NOTE 1 – BASIS OF PRESENTATION

The Condensed Consolidated Financial Statements and notes have been prepared by Cadiz Inc., also referred to as “Cadiz” or “the Company”, without audit and should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

The foregoing Condensed Consolidated Financial Statements include the accounts of the Company and contain all adjustments, consisting only of normal recurring adjustments, which management considers necessary for a fair statement of the Company’s financial position, the results of its operations and its cash flows for the periods presented and have been prepared in accordance with generally accepted accounting principles.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates and such differences may be material to the financial statements. The results of operations for the six months ended June 30, 2023, are not necessarily indicative of results for the entire fiscal year ending December 31, 2023.

Liquidity

The Condensed Consolidated Financial Statements of the Company have been prepared using accounting principles applicable to a going concern, which assumes realization of assets and settlement of liabilities in the normal course of business.

The Company incurred losses of $17.8 million for the six months ended June 30, 2023, compared to $11.4 million for the six months ended June 30, 2022. The Company had working capital of $17.4 million at June 30, 2023, and used cash in its operations of $9.9 million for the six months ended June 30, 2023. The higher loss in 2023 was primarily due to a loss on early extinguishment of debt in the amount of $5.3 million resulting from the issuance of a conversion instrument, a repayment fee and elimination of debt discount associated with the paydown of $15 million of senior secured debt in February 2023, offset by higher compensation costs related to stock based non-cash bonus awards to employees and an increase in interest expense in 2022.

Cash requirements during the six months ended June 30, 2023, primarily reflect certain operating and administrative costs related to the Company’s agricultural operations, water treatment business and the ongoing development of the Company’s land, water, infrastructure and technology assets for water solutions including the Cadiz Water Conservation & Storage Project (“Water Project”). The Company’s present activities are focused on the development of its assets in ways that meet growing long-term demand for access to safe and reliable clean water supplies.

Cadiz Inc.

Notes to the Consolidated Financial Statements

On January 30, 2023, the Company completed the sale and issuance of 10,500,000 shares of the Company’s common stock to certain institutional investors in a registered direct offering ( “January 2023 Direct Offering”). The shares of common stock were sold at a purchase price of $3.84 per share, for aggregate gross proceeds of $40.32 million and aggregate net proceeds of approximately $38.5 million. A portion of the proceeds were used to repay the Company’s debt in the principal amount of $15 million, together with fees and interest required to be paid in connection with such repayment under the Credit Agreement. The remaining proceeds are being used for capital expenditures to accelerate development of the Company’s water supply project, working capital and development of additional water resources to meet increased demand on an accelerated timetable.

On February 2, 2023, the Company and its wholly-owned subsidiary, Cadiz Real Estate LLC, as borrowers (collectively, the “Borrowers”) entered into a First Amendment to Credit Agreement with BRF Finance Co., LLC (“Lenders”) and B. Riley Securities, Inc., (“BRS”) as administrative agent, to amend certain provisions of the Credit Agreement dated as of July 2, 2021 (“First Amended Credit Agreement”). Under the First Amended Credit Agreement, the lenders will have a right to convert up to $15 million of outstanding principal, plus any PIK interest and any accrued and unpaid interest (the “Convertible Loan”) into shares of the Company’s common stock at a conversion price of $4.80 per share (the “Conversion Price”) (see “Note 3 – Long-Term Debt”, below).

The Company may meet its debt and working capital requirements through a variety of means, including extension, refinancing, equity placements, the sale or other disposition of assets, or reductions in operating costs. The covenants in the senior secured debt do not prohibit the Company’s use of additional equity financing and allow the Company to retain 100% of the proceeds of any common equity financing. The Company does not expect the loan covenants to materially limit its ability to finance its asset development activities.

Management assesses whether the Company has sufficient liquidity to fund its costs for the next twelve months from each financial statement issuance date. Management evaluates the Company’s liquidity to determine if there is a substantial doubt about the Company’s ability to continue as a going concern. In the preparation of this liquidity assessment, management applies judgement to estimate the projected cash flows of the Company including the following: (i) projected cash outflows (ii) projected cash inflows, (iii) categorization of expenditures as discretionary versus non-discretionary and (iv) the ability to raise capital. The cash flow projections are based on known or planned cash requirements for operating costs as well as planned costs for project development.

Limitations on the Company’s liquidity and ability to raise capital may adversely affect it. Sufficient liquidity is critical to meet the Company’s resource development activities. Although the Company currently expects its sources of capital to be sufficient to meet its near-term liquidity needs, there can be no assurance that its liquidity requirements will continue to be satisfied. If the Company cannot raise needed funds, it might be forced to make substantial reductions in its operating expenses, which could adversely affect its ability to implement its current business plan and ultimately its viability as a company.

Supplemental Cash Flow Information

During the six months ended June 30, 2023, approximately $891,000 in interest payments on the Company’s senior secured debt was paid in cash and approximately $435,000 was recorded as interest payable in kind. There are no scheduled principal payments due on the senior secured debt prior to its maturity.

Cadiz Inc.

Notes to the Consolidated Financial Statements

At June 30, 2023, accruals for cash dividends payable on the Series A Preferred Stock was $1.29 million (see Note 9 – “Common and Preferred Stock”). The cash dividends were paid on July 14, 2023.

The balance of cash, cash equivalents, and restricted cash as shown in the condensed consolidated statements of cash flows is comprised of the following:

Cash, Cash Equivalents and Restricted Cash	June 30, 2023		December 31, 2022		June 30, 2022
*(in thousands)*

Cash and Cash Equivalents	$	19,237	$	9,997	$	13,239
Restricted Cash		1,288		1,288		1,288
Long Term Restricted Cash		134		2,497		5,050
Cash, Cash Equivalents and Restricted Cash in the Consolidated Statement of Cash Flows	$	20,659	$	13,782	$	19,577

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 July 2023.

ATEC Water Systems, LLC

On November 9, 2022, the Company completed the acquisition of the assets of ATEC Systems, Inc. into ATEC Water Systems, LLC (“ATEC”), a water filtration technology company, at a purchase price of up to $2.2 million (“ATEC Acquisition”). The final allocation of purchase consideration to assets and liabilities is ongoing as the Company continues to evaluate certain balances, estimates and assumptions during the measurement period. Consistent with the allowable time to complete the Company’s assessment, the valuation of certain acquired assets and liabilities, including environmental liabilities and income taxes, is currently pending finalization.

Revenue Recognition

The Company’s revenue is currently derived from rental revenue from its agricultural lease, sales of farm crops, and sales of water filtration systems by ATEC. The Company recognizes revenue by following the five-step model under ASC 606 to achieve the core principle that an entity recognizes revenue to depict the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The five-step model requires that the Company (i) identifies the contract with the customer, (ii) identifies the performance obligations in the contract, (iii) determines the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocates the transaction price to the respective performance obligations in the contract, and (v) recognizes revenue when (or as) the Company satisfies the performance obligation.

Cadiz Inc.

Notes to the Consolidated Financial Statements

Recent Accounting Pronouncements

Accounting Guidance Adopted

SEC Form 10-Q filed by CADIZ Inc.