CDZI

Cadiz Inc. 10-Q Filing Summary

Business Context and Reporting Period

This is a Quarterly Report (Form 10-Q) for Cadiz Inc. for the period ended September 30, 2010. Cadiz is a development company focused on realizing the value of 45,000 acres of land and underlying groundwater resources in eastern San Bernardino County, California. The company's primary strategic focus is the Cadiz Water Conservation and Storage Project, which aims to capture, deliver, and store groundwater. Current revenue is derived primarily from agricultural operations (organic raisins and lemons), which management does not expect to be material to future results once the Water Project generates revenue.

Key Financial Metrics (Nine Months Ended Sept 30, 2010)

Note: Working Capital calculated as Current Assets ($3,779) minus Current Liabilities ($1,123).

Material Changes vs. Prior Period

• Revenue: Increased to $281,000 from $186,000 in the prior year period, primarily due to higher prices received for raisins harvested in 2010.
• Net Loss: Increased to $11.5 million from $10.9 million. The higher loss was driven by increased stock-based compensation costs ($3.2 million in 2010 vs. $1.8 million in 2009) related to the 2009 Equity Incentive Plan.
• Cost of Sales: Decreased to $256,000 from $348,000. The prior year included a write-down of 2008 raisin inventory.
• Interest Expense: Net interest expense decreased slightly to $3.2 million from $3.3 million, largely due to reduced amortization of debt discount, partially offset by a rate increase on the term loan.
• Liquidity: Cash and cash equivalents declined significantly from $8.88 million at year-end 2009 to $2.99 million at September 30, 2010, due to operating cash burn and capital expenditures.

Outlook, Management Commentary, and Risks

Financing and Liquidity: On October 19, 2010 (subsequent to the period end), Cadiz closed a new $10 million working capital facility with existing lenders. The company drew the first $5 million immediately. Management states this facility, combined with existing cash, is sufficient to meet working capital needs through fiscal year 2011. However, the company anticipates requiring additional working capital commencing in the second quarter of fiscal 2012.

Project Development: Significant progress was made on the Water Project, including securing a pipeline right-of-way and entering into option and environmental cost-sharing agreements with four water providers (Golden State Water, Three Valleys, Santa Margarita, and Suburban Water Systems). A comprehensive aquifer study by CH2M Hill confirmed the project's sustainability.

Risks:

• Capital Requirements: The company has no assurance that additional financing will be available on acceptable terms. Failure to raise funds could force substantial expense reductions or threaten viability.
• Debt Obligations: The company carries approximately $45.6 million in principal debt maturing in June 2013. While convertible, significant cash payments may be required if lenders do not exercise conversion rights.
• Regulatory: Future cash flows depend on obtaining environmental permits and completing the California Environmental Quality Act (CEQA) review.

Investor Verification Checklist

• Verify the status of the CEQA environmental review and the timeline for final permit approvals.
• Confirm the terms and drawdown schedule of the $10 million working capital facility closed in October 2010.
• Assess the company's ability to secure additional financing by Q2 2012 as projected by management.
• Review the conversion features of the existing $45.6 million term loan and the new facility to understand potential dilution.
• Monitor the progress of water supply agreements with the four identified water providers to ensure they convert from options to binding contracts.