Cadiz Inc. 10-Q Summary: Period Ended June 30, 2009
Business Context and Reporting Period
This is an unaudited quarterly report (Form 10-Q) for Cadiz Inc. for the three and six months ended June 30, 2009. Cadiz is a development company focused on land and water assets in eastern San Bernardino County, California. Its primary objective is the development of the "Cadiz Project," a water storage and supply initiative, alongside agricultural operations (organic vineyards and lemons) and potential renewable energy projects. The company currently generates minimal revenue and relies on financing to fund development activities.
Key Financial Metrics
| Metric ($ in thousands) | Three Months Ended June 30, 2009 | Six Months Ended June 30, 2009 | Balance Sheet (June 30, 2009) |
|---|---|---|---|
| Revenues | $19 | $48 | - |
| Net Loss | $(4,386) | $(7,781) | - |
| Operating Loss | $(3,245) | $(5,455) | - |
| Interest Expense, Net | $(1,140) | $(2,324) | - |
| Cash and Cash Equivalents | - | - | $1,167 |
| Short-Term Investments | - | - | $1,500 |
| Total Current Assets | - | - | $3,498 |
| Total Current Liabilities | - | - | $1,253 |
| Working Capital | - | - | $2,245 |
| Long-Term Debt (Net) | - | - | $34,695 |
| Total Stockholders' Equity | - | - | $7,635 |
| Net Loss Per Share (Basic/Diluted) | $(0.35) | $(0.62) | - |
Material Changes vs. Prior Period
- Net Loss Improvement (Six Months): The net loss decreased to $7.8 million for the six months ended June 30, 2009, compared to $8.7 million in the same period in 2008. This improvement was primarily driven by a reduction in non-cash stock-based compensation expenses and the settlement of a lawsuit against the Metropolitan Water District of Southern California in the first quarter of 2009.
- Net Loss Increase (Three Months): Conversely, the net loss for the three months ended June 30, 2009, increased to $4.4 million from $3.7 million in the prior year quarter. This was due to higher stock-based compensation and a $500,000 stock-based incentive fee earned for legal and advisory services related to Cadiz Project milestones.
- Revenue Growth: Revenues increased slightly to $48,000 for the six-month period (from $33,000 in 2008), derived entirely from agricultural lemon harvests.
- Debt Restructuring: On June 4, 2009, the company amended its $36.4 million zero-coupon convertible term loan, extending the maturity date from June 2011 to June 2013 and modifying conversion terms. This modification resulted in a $1.6 million additional debt discount recorded as interest expense.
- Liquidity: Cash and cash equivalents decreased from $2.0 million at year-end 2008 to $1.2 million at June 30, 2009. Short-term investments decreased from $4.5 million to $1.5 million as a $3.0 million deposit matured.
Guidance, Outlook, and Risks
- Liquidity Outlook: Management states that current resources are insufficient to fund a full water development project. The company anticipates requiring additional working capital commencing in the first quarter of fiscal 2010. If internal development activities do not generate sufficient funds, the company will need to seek additional debt or equity financing.
- Project Status: In June 2009, Cadiz executed Letters of Intent with five Southern California water providers to develop a cost-sharing agreement for the Cadiz Project. The company continues to pursue environmental permits and financing.
- Risks: The filing highlights significant risks regarding the availability of capital in dislocated markets. If the company cannot raise needed funds, it may be forced to reduce operating expenses, which could adversely affect its business plan and viability. There is no assurance that additional financing will be available on acceptable terms.
- Subsequent Event: Following the period end, the company issued 59,312 shares of common stock valued at $500,000 to satisfy a milestone payment for legal and advisory services.
Investor Verification Checklist
- Financing Timeline: Verify the company's ability to secure the additional working capital required starting in Q1 2010, given the current cash burn rate of approximately $3.8 million over six months.
- Debt Conversion Terms: Review the specific implications of the amended convertible term loan, particularly the "Initial Convert Portion" at $7/share versus the remaining balance at $35/share, and the potential dilution if lenders elect conversion.
- Project Milestones: Monitor progress on the Letters of Intent with the five water providers and the status of the pipeline right-of-way lease with the Arizona & California Railroad Company.
- Stock-Based Compensation: Assess the volatility of future expenses related to the 2007 Management Equity Incentive Plan and milestone-based deferred stock, which significantly impacts reported net loss.
- Legal Settlements: Confirm that the settlement with the Metropolitan Water District remains final and that no new litigation has arisen regarding the Cadiz Project.