Cadiz Inc. — FY2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. This is an annual report, not a standalone Q4 filing; quarterly figures are identified separately below. Cadiz is a land and water resource development company with approximately 45,000 acres in California. Its principal initiative is the Cadiz Valley Water Project; current revenues are primarily agricultural.
Financial performance and liquidity
| Metric | FY2015 | FY2014 |
|---|---|---|
| Revenue | $304,000 | $336,000 |
| Cost of sales | $334,000 | $357,000 |
| Gross profit (loss) | $(30,000) | $(21,000) |
| General and administrative expense | $13.7 million | $10.1 million |
| Operating loss | $(14.0) million | $(10.4) million |
| Net interest expense | $10.1 million | $8.5 million |
| Net loss | $(24.0) million | $(18.9) million |
| Basic and diluted loss per share | $(1.35) | $(1.15) |
| Cash used in operations | $12.6 million | $10.1 million |
| Capital expenditures | $906,000 | $72,000 |
Revenue fell about 10%, while net loss widened about 27%. Higher G&A reflected increased Water Project litigation and pre-construction engineering costs; net interest expense rose with debt balances and additional debt-discount amortization. Revenue remained far below operating costs, producing a negative gross margin.
At year-end, cash and cash equivalents were $2.69 million, down from $16.21 million; working capital was $1.2 million. Total assets were $55.4 million and total liabilities $111.9 million, resulting in a $56.5 million stockholders’ deficit. Debt outstanding was approximately $115.6 million before unamortized discounts; reported debt carrying value was $108.3 million. Senior secured debt bore 8% interest and convertible notes 7%. The company reported compliance with debt covenants at December 31, 2015.
Q4 2015: Revenue was $21,000, operating loss $3.9 million, net loss $7.2 million, and loss per share $0.40.
Business developments and outlook
- The Water Project is designed to deliver no more than a long-term average of 50,000 acre-feet annually for 50 years, with a proposed Phase II offering approximately one million acre-feet of storage capacity. Estimated Phase I construction cost is $225–$250 million; financing depends on project agreements, approvals, and construction funding.
- Project approvals under California environmental review were upheld by a trial court, but six appeals remained pending, with oral argument scheduled for late March 2016. The BLM’s California office concluded in October 2015 that the proposed pipeline was outside the railroad right-of-way and would require a new federal permit; the determination was described as non-final and subject to reconsideration. Metropolitan conveyance terms and final purchase-and-sale agreements also remained outstanding.
- In February 2016, related-party Fenner Valley Farms LLC entered a 99-year lease for 2,100 acres and paid Cadiz $12 million. The tenant may lease up to 7,500 additional acres for further payments totaling up to $43 million, subject to specified 2016 deadlines. Cadiz applied $10.5 million of the initial payment toward a condition for extending senior debt maturity.
- After amendments and extensions disclosed through March 2016, the first senior secured debt tranche was extended to September 28, 2017. Cadiz also agreed to pay 50% of future quarterly secured-debt interest in cash beginning June 2016. Most convertible notes were exchanged into notes due March 2020, with the conversion price reduced from $8.05 to $6.75 per share.
- Management stated that year-end cash was insufficient for expected working-capital needs through 2016 and that additional financing would be required. Possible sources include debt or equity financings, asset dispositions, and cost reductions; availability is not assured. The auditor’s report and management disclosures state that recurring losses, a capital deficiency, and funding needs raise substantial doubt about the company’s ability to continue as a going concern.
Risks, contingencies, and other items
- Key execution risks include obtaining federal right-of-way or other permits, resolving the CEQA appeals, securing Metropolitan approvals, finalizing customer contracts, and financing and constructing the Water Project. Delays or adverse decisions could defer or prevent expected project revenues.
- A securities class action against the company and certain officers and directors was pending; a motion to dismiss had been heard, with no ruling disclosed. A shareholder derivative action filed in February 2016 was also pending. The company said it could not predict outcomes or estimate potential losses.
- Convertible-note conversion and potential equity financing could dilute existing shareholders. The filing estimated possible dilution of up to 9.5 million shares as of March 5, 2016, and up to an additional 3.0 million shares if notes remained outstanding to maturity.
- Management reported effective disclosure controls and internal control over financial reporting; the auditor also reported effective internal control. No cash dividends were paid, and debt covenants restrict dividends.
Most important facts for investors to verify
- Whether the company can fund operations and required cash interest payments, given $2.69 million of year-end cash and the going-concern warning.
- Current status and outcome of the BLM right-of-way review, CEQA appeals, Metropolitan conveyance approvals, and remaining permits.
- Whether definitive customer agreements and financing can support the estimated $225–$250 million Phase I construction cost.
- Whether Fenner Valley Farms exercises the additional lease options, and how lease proceeds and associated debt amendments affect liquidity and obligations.
- Updated debt maturities, cash-interest requirements, conversion terms, and potential share dilution.