Cadiz (CDZI) - 2020 Q4 - Annual Report

Part I Item 1. Description of Business Cadiz Inc. is a natural resources company focused on developing its 45,000 acres of land in Southern California for sustainable water and agricultural projects - Cadiz Inc. is a natural resources development company owning approximately 45,000 acres in Southern California, with a primary focus on sustainable water and agricultural projects[11][12] - The company's main objective is the development of the Cadiz Valley Water Conservation, Recovery and Storage Project ("Water Project") to supply water to Southern California communities[14][19] - Current working capital is primarily funded by debt and equity investments, as revenues from agricultural operations do not fully cover operational needs, with the Water Project expected to be the main future source of cash flow[23] The Cadiz Water Project The Cadiz Water Project aims to address Southern California's water shortages by managing a large groundwater aquifer - Phase 1 of the Water Project is approved to deliver an average of 50,000 acre-feet of water per year for 50 years, and Phase 2 would add storage capacity for up to one million acre-feet of water[20][35][36] - The project has completed its California Environmental Quality Act (CEQA) review and obtained key permits, which have been upheld in court, though further approvals are needed for water conveyance from the Metropolitan Water District (MWD) for use of the CRA and from the California State Lands Commission[47][48][49] - Two main conveyance routes are planned: the Southern Pipeline (new construction) and the Northern Pipeline (repurposing an existing pipeline), with the Northern Pipeline acquisition requiring a $19 million payment by June 30, 2021[63][82] - The project has executed Letters of Intent and option agreements with various public water agencies, with pricing for water supply under newer LOIs set at $960 per acre-foot (2014 dollars) and options for storage capacity at $1,500 per acre-foot[54][57][58] Sustainable Agricultural Development The company conducts sustainable farming on its 35,000-acre Cadiz Property, with 9,600 acres permitted for agriculture - Cadiz Ranch is the largest approved agricultural operation in San Bernardino County, with 9,600 acres permitted for use[97] Current Agricultural Leases and Revenue | Lease Type | Acreage | Annual Revenue | Notes | | :--- | :--- | :--- | :--- | | Lemons & other crops | 2,100 acres | ~$420,000 | All farming expenses borne by lessees | | Industrial Hemp (SoCal Hemp JV) | 242 acres | $121,000 | 50/50 joint venture with Glass House Farms | - The groundwater basins supporting the agricultural operations are classified as "low/very low" priority under California's Sustainable Groundwater Management Act (SGMA), indicating sustainability[106] Land Stewardship Cadiz manages approximately 30,000 of its 45,000 acres for permanent open space and conservation - The company established the Fenner Valley Desert Tortoise Conservation Bank on 7,500 acres of its Piute Valley property to offer mitigation credits for development projects impacting the species[109] Human Capital and Corporate Matters As of December 31, 2020, Cadiz employed 10 full-time employees, supplemented by seasonal workers and consultants - The company had 10 full-time employees as of year-end 2020, with an average tenure exceeding over 10 years[115][116] - Operations continued during the COVID-19 pandemic, with safety protocols like teleworking and PPE provided to employees[121][122] Item 1A. Risk Factors The company faces significant risks, primarily related to its pre-revenue status and dependence on the successful implementation of the Water Project - The company has not generated significant revenues and continues to incur net losses, with future profitability dependent on the successful implementation of its development projects[128][129] - Development is heavily regulated and requires critical future approvals from the Metropolitan Water District (MWD) and the California State Lands Commission (CSLC) for the Southern Pipeline, which could be denied or delayed[130][131] - The company has significant debt of approximately $78.6 million as of December 31, 2020, and requires a $19 million payment by June 30, 2021, to complete the acquisition of the Northern Pipeline extension[138] - Additional working capital will be required, and an inability to raise funds could force operating expense reductions and adversely affect the business plan, with future financings potentially causing dilution to current stockholders[141][142] Item 1B. Unresolved Staff Comments There are no unresolved staff comments at this time - Not applicable at this time[145] Item 2. Properties Cadiz Inc. owns significant real estate assets held by its subsidiary, Cadiz Real Estate LLC Company Properties | Property | Acreage | Primary Use | | :--- | :--- | :--- | | Cadiz Valley Property | ~35,000 | Water Project and agricultural operations | | Piute Valley Property | ~9,000 | Conservation (7,500 acres in Fenner Bank) | | Danby Dry Lake Property | ~2,000 | Managed as open space | - All real estate assets are held by the wholly-owned subsidiary Cadiz Real Estate LLC and are pledged as collateral for $78.5 million of senior secured debt as of December 31, 2020[158][160] Item 3. Legal Proceedings In March 2021, two lawsuits were filed against the U.S. Department of Interior and the Bureau of Land Management (BLM) by environmental groups - Two lawsuits were filed in March 2021 by environmental groups against the U.S. Department of Interior and BLM, challenging the permits for the Northern Pipeline[161] - The lawsuits seek to vacate the permits and require additional federal review, with the company not a party but considering intervention[161] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not Applicable[162] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities The company's common stock trades on The NASDAQ Global Market under the symbol "CDZI" - Common stock is traded on NASDAQ under the symbol "CDZI"[165] 2020 Quarterly Stock Price Range | Quarter Ended | High Sales Price | Low Sales Price | | :--- | :--- | :--- | | March 31 | $11.78 | $11.38 | | June 30 | $10.19 | $9.92 | | September 30 | $10.03 | $9.87 | | December 31 | $10.75 | $10.57 | - The company has not paid and does not anticipate paying cash dividends, which are prohibited by its senior secured term loan covenants[167] Item 6. Selected Financial Data As a smaller reporting company, Cadiz Inc. is not required to provide the information for this item - The company is a smaller reporting company and is not required to provide this information[169] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Cadiz reported a net loss of $37.8 million in 2020, an increase from the $29.5 million loss in 2019, primarily due to a non-cash $12.4 million loss on debt extinguishment Results of Operations (2020 vs. 2019) For the year ended December 31, 2020, Cadiz's net loss increased to $37.8 million from $29.5 million in 2019 Key Operational Results (in thousands) | Metric | 2020 | 2019 | Change Driver | | :--- | :--- | :--- | :--- | | Total Revenues | $541 | $441 | Increased rental income | | General & Admin. (excl. stock comp) | $9,800 | $11,600 | Decrease in legal and professional fees | | Interest Expense | $11,526 | $17,072 | Lower debt balance after note conversion | | Loss on Extinguishment of Debt | $12,394 | $0 | Non-cash charge from preferred stock exchange | | Net Loss | ($37,817) | ($29,528) | Primarily due to loss on debt extinguishment | - Loss from equity-method investments in the SoCal Hemp JV increased to $2.2 million in 2020 from $490 thousand in 2019, due to higher startup costs and lower hemp market prices[195] Liquidity and Capital Resources The company's liquidity depends on external financing - The company raised net proceeds of approximately $10.8 million from its July 2020 ATM offering as of Dec 31, 2020, and an additional $14.9 million in Q1 2021[197][210] - The company has the option to extend the maturity of its ~$78.5 million Senior Secured Debt to November 2022, which is entirely within its control[209][347] - A payment of $19 million is required by June 30, 2021, to complete the acquisition of the 124-mile pipeline segment of the Northern Pipeline[202][210] Cash Flow Summary (in millions) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Cash Used for Operating | ($13.4) | ($13.7) | | Cash Used for Investing | ($9.8) | ($2.5) | | Cash Provided by Financing | $14.9 | $19.3 | Item 7A. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, Cadiz Inc. is not required to provide the information for this item - The company is a smaller reporting company and is not required to provide this information[228] Item 8. Financial Statements and Supplementary Data This item refers to the consolidated financial statements and related index, which are provided in Part IV of the report - The required information is submitted in response to Part IV of the Form 10-K[229] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This item is not applicable - Not applicable[230] Item 9A. Controls and Procedures Management, including the CEO and CFO, concluded that as of December 31, 2020, the company's disclosure controls and procedures were effective - The Principal Executive Officer and Principal Financial Officer concluded that disclosure controls and procedures were effective as of December 31, 2020[231] - Management concluded that internal control over financial reporting was effective as of December 31, 2020[233] Item 9B. Other Information This item is not applicable - Not applicable[235] Part III Items 10 through 14, covering Directors, Executive Compensation, Security Ownership, Certain Relationships, and Principal Accounting Fees, are incorporated by reference from the company's definitive proxy statement for its 2021 Annual Meeting of Stockholders Items 10-14 (Incorporated by Reference) Information required for Item 10 (Directors, Executive Officers and Corporate Governance), Item 11 (Executive Compensation), Item 12 (Security Ownership), Item 13 (Certain Relationships and Related Transactions), and Item 14 (Principal Accounting Fees and Services) is incorporated by reference from the company's definitive proxy statement, to be filed within 120 days of the fiscal year-end - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the definitive proxy statement for the 2021 Annual Meeting of Stockholders[238][239][240] Part IV Item 15. Exhibits, Financial Statement Schedules This section lists all exhibits filed with or incorporated by reference into the Form 10-K, including corporate governance documents, material contracts, debt agreements, and certifications - This section contains a list of all filed exhibits, including the Certificate of Incorporation, debt agreements, and management contracts[247] Financial Statements The audited consolidated financial statements for the years ended December 31, 2020 and 2019 are presented Report of Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP issued an unqualified opinion on the consolidated financial statements for the years ended December 31, 2020 and 2019 - The auditor, PricewaterhouseCoopers LLP, issued an unqualified (clean) opinion on the financial statements[272] - The auditor identified the company's "Liquidity Assessment" as a Critical Audit Matter due to the significant management judgment required to project future cash flows and assess its going concern status[276][279] Consolidated Financial Statements Data The company reported a net loss of $37.8 million in 2020, compared to a $29.5 million loss in 2019 Consolidated Statement of Operations (in thousands) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Total Revenues | $541 | $441 | | Operating Loss | ($11,754) | ($11,989) | | Net Loss | ($37,817) | ($29,528) | | Basic and Diluted EPS | ($1.11) | ($1.11) | Consolidated Balance Sheet (in thousands) | Metric | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total Current Assets | $8,036 | $16,117 | | Total Assets | $74,363 | $76,724 | | Total Current Liabilities | $3,135 | $4,805 | | Long-Term Debt | $78,596 | $137,565 | | Total Liabilities | $99,664 | $158,842 | | Total Stockholders' Deficit | ($25,301) | ($82,118) | Consolidated Statement of Cash Flows (in thousands) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Net Cash Used for Operating Activities | ($13,428) | ($13,708) | | Net Cash Used for Investing Activities | ($9,838) | ($2,503) | | Net Cash Provided by Financing Activities | $14,874 | $19,336 | | Net (Decrease) Increase in Cash | ($8,392) | $3,125 | Notes to the Consolidated Financial Statements The notes detail the basis of the financial statements, confirming a going concern basis despite recurring losses, funded by financing activities - The financial statements are prepared on a going concern basis, with management acknowledging recurring losses and reliance on financing to fund operations[301][302] - In March 2020, the company exchanged $27.3 million of convertible notes for 10,000 shares of new Series 1 Preferred Stock, resulting in a non-cash loss on extinguishment of debt of $12.4 million[307][356] - The company has an obligation to pay $19 million by June 2021 to finalize the acquisition of a 124-mile pipeline segment from El Paso Natural Gas Company[308][386] - Subsequent to year-end, in Q1 2021, the company raised $14.9 million in net proceeds from its ATM offering and secured an option to further extend its senior debt maturity to November 2022[401][402] Item 16. Form 10-K Summary No summary is provided under this item - None[259]