What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2024-03-28 compared with 2023-03-30 · 136 added, 119 removed, 62 unchanged (80% of the section changed)

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities

Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities

Our common stock is currently traded on The NASDAQ Global Market (“NASDAQ”) under the symbol “CDZI.”

As of March 26, 2024, the number of stockholders of record of our common stock was 56.

To date, we have not paid a cash dividend on our common stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future. 

Holders of Series A Preferred Stock, when and as authorized by the Company’s Board of Directors, are entitled to cumulative cash dividends at the rate of 8.875% of the $25,000.00 ($25.00 per Depositary Share) liquidation preference per year (equivalent to $2,218.75 per share per year or $2.21875 per Depositary Share per year).

Dividends are payable quarterly in arrears, on or about the 15th of January, April, July and October, beginning on or about October 15, 2021.

To date, we have not paid a cash dividend on our common stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future.

Holders of Series A Preferred Stock, when and as authorized by the Company’s Board of Directors, are entitled to cumulative cash dividends at the rate of 8.875% of the $25,000.00 ($25.00 per Depositary Share) liquidation preference per year (equivalent to $2,218.75 per share per year or $2.21875 per Depositary Share per year).

Dividends are payable quarterly in arrears, on or about the 15 th of January, April, July and October, and began on or about October 15, 2021.

All securities sold by us during the three years ended December 31, 2023, which were not registered under the Securities Act of 1933, as amended, have been previously reported in accordance with the requirements of Rule 12b-2 of the Securities Exchange Act of 1934, as amended.

Management ’

s Discussion and Analysis of Financial Condition and Results of Operations

Management ’ s Discussion and Analysis of Financial Condition and Results of Operations

In connection with the “ safe harbor ” provisions of the Private Securities Litigation Reform Act of 1995, the following discussion contains trend analysis and other forward-looking statements.

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Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from these forward-looking statements.

These include, among others, our ability to maximize value from our land and water resources and our ability to obtain new financings as needed to meet our ongoing working capital needs.

See additional discussion under the heading "Risk Factors ”

These include, among others, our ability to maximize value from our portfolio of assets and our ability to obtain new financings as needed to meet our ongoing working capital needs.

See additional discussion under the heading “ Risk Factors ” above.

Our forward-looking statements are made only as of the date hereof.

We assume no duty to update these forward-looking statements to reflect new, changed or unanticipated events or circumstances, other than as may be required by law.

We are a water solutions provider dedicated to delivering clean, reliable, and affordable water for people through a variety of innovative water supply, storage, conveyance and treatment projects.

We are advancing human access to clean water with our unique combination of land, water, infrastructure and technology assets, cutting-edge innovation, and industry-leading standards of environmental stewardship.

We own approximately 46,000 acres of land with access to high-quality, naturally-recharging groundwater resources in three areas of Southern California’s Mojave Desert –

the Cadiz Valley (35,000 acres), Danby Dry Lake (2,000 acres), and the Piute Valley (9,000 acres) (“Cadiz Property”).

 Our land holdings with vested water rights were primarily assembled by our founders in the early 1980s, relying on NASA imagery that identified a unique desert aquifer system at the base of a vast Southern California watershed. 

This watershed underlying our property in the Cadiz Valley (“Cadiz Ranch”) presently holds 17-34 million acre-feet of groundwater in storage –

comparable in size to the largest reservoir in the United States, Lake Mead.

The aquifer system is part of a closed-basin watershed in which all water flows downgradient to desert playas where it evaporates at the surface forming what are known as “desert dry lakes”.

Water Supply –

We own vested water rights to withdraw 2.5 million acre-feet of groundwater to support farming and off property uses.

Because all water in the aquifer system will eventually be lost to evaporation, surplus water that is captured and withdrawn before it evaporates is a new water supply known as “conserved”

We have completed extensive environmental review in accordance with local, state and federal laws authorizing the management of the groundwater aquifer underlying the Cadiz Ranch to conserve an average of 50,000 acre-feet of water per year for 50 years for use in communities. 

Groundwater Storage - The alluvium aquifer that lies beneath the Cadiz Property is also large enough for conjunctive use as a water “banking”

facility, capable of storing an additional 1 million acre-feet of imported surplus water for delivery during drought periods.

Pipeline Conveyance –

We also own a 30”

steel natural gas pipeline (“Northern Pipeline”) that extends 220-miles from the Cadiz Ranch across Kern and San Bernardino Counties terminating in California’s Central Valley.

The pipeline, originally constructed to transport fossil fuels, is idle, and we are presently preparing to convert the pipeline to transport water.

The route of the Northern Pipeline intersects three water conveyance facilities that deliver water to Southern California, the California Aqueduct, the Los Angeles Aqueduct, and the Mojave River Pipeline.

The capacity of the Northern Pipeline for water conveyance is 25,000 (“AFY”).

We are currently in discussions with multiple public water agencies to enter into agreements whereby project participating agencies would finance and operate the Northern Pipeline and lease 25,000 AFY of annual water supply from us.

In accordance with such potential agreements, we expect that we will contribute the Northern Pipeline and an annual supply of 25,000 AFY of water from us into a mutual water company to be owned jointly by the parties.  In such event, we expect that a JPA comprised of participating agencies will be able to purchase, for a 40-year term (take or pay), 25,000 AFY of water at our wellhead at an agreed upon market price estimated to start at approximately $850/AFY and subject to annual adjustment.

Through a JPA, the public water agencies would fund capital costs for conversion of the pipeline from gas to water, construction of pumping stations and appurtenant facilities, and would be able to seek infrastructure funding and grants to achieve their lowest possible cost for delivered water.

Any contracts and off take facility construction will be subject to standard environmental review and a project level permitting process.

We expect that similar agreements will be negotiated and entered into for water supplies and storage delivered via the Southern Pipeline. 

Treatment - In the fourth quarter of 2022, we completed the acquisition of the assets of ATEC Systems, Inc.

into ATEC Water Systems, LLC (“ATEC”), which provides innovative water filtration solutions for impaired or contaminated groundwater sources. 

ATEC’s specialized filtration media provide cost-effective, high-rate of removal for common groundwater impairments and contaminants that pose health risks in drinking water including iron, manganese, arsenic, Chromium-6, nitrates, and other constituents of concern. 

Our agricultural operations provide the Company’s current principal source of revenue, although our working capital needs are not fully supported by our agricultural lease and farming returns at this time.

We are a water solutions provider with a unique combination of land, water, pipeline and water filtration technology assets located in Southern California between water systems serving population centers in the Southwestern United States.

Our portfolio of assets includes 2.5 million acre-feet of water supply (permits complete), 220 miles of existing, buried pipeline, 1 million acre-feet of groundwater storage capacity, versatile, scalable and cost-effective water filtration technology.

We manage our landholdings, pipeline and water filtration technology assets to offer a suite of integrated products and services to public water systems, government agencies and commercial customers that include reliable water supply, groundwater storage, water conveyance and custom-designed water filtration technology systems.

Water Supply – We own vested water rights to withdraw 2.5 million acre-feet of groundwater for beneficial uses, including agricultural development on our property and export to serve communities across Southern California.

Because all water in the aquifer system will eventually be lost to evaporation, surplus water that is captured and withdrawn before it evaporates is a new water supply (“conserved” water).

We have completed environmental review in accordance with local, state and federal laws authorizing the management of the groundwater aquifer underlying the Cadiz Ranch which is expected to produce an average of 50,000 acre-feet of water per year for 50 years for beneficial use in Southern California communities.

Water Storage – The alluvium aquifer that lies beneath the Cadiz Property is also large enough for use as a water “banking” facility, capable of storing water “in-lieu” for supply customers and up to 1 million acre-feet of imported surplus water for return during drought periods.

For comparison, MWD stores approximately 1.2 million acre-feet of water in the largest surface reservoir in the United States, Lake Mead.

Water Conveyance Infrastructure – We own the Northern Pipeline, an existing 220-mile 30-inch steel pipeline, that intersects several water storage and conveyance facilities in Southern California, including the California Aqueduct, the Los Angeles Aqueduct, and the Mojave River Pipeline.

We also own a 99-year lease with the ARZC that will allow us to construct the Southern Pipeline within the existing, active railroad ROW that extends from the Cadiz Ranch to the Colorado River Aqueduct.

The capacity of the Northern Pipeline for water conveyance is 25,000 AFY.

The capacity of the Southern Pipeline, ranges from 75,000 AFY to 150,000 AFY depending on the pipeline diameter (54-inch to 84-inch) selected to accommodate imported water storage.

Water Filtration Technology – In 2022, we completed the acquisition of ATEC, which provides innovative water filtration solutions for impaired or contaminated groundwater sources.

Our addition of pipeline infrastructure and ATEC water filtration technology to our portfolio of land and water assets enabled us in 2023 to adjust our business model to begin offering integrated services and solutions to public water systems that address the urgent challenges of climate change and make significant progress in advancing contract negotiations for water supply with public water systems.

In the first quarter of 2024, we entered into agreements with multiple public water systems to purchase 15,000 AFY of annual water supply from us to be delivered via the Northern Pipeline.

These agreements cumulatively represent 60% of the full capacity (25,000 AFY) of the Northern Pipeline.

Through membership in FGMWC, a mutual water company to be owned by the participating water agencies, these agreements provide for delivery of purchased annual water supply over a 40-year term (take or pay), at an agreed upon market price estimated to start at approximately $850/AFY and subject to annual adjustment.

Participating public agencies are expected to fund capital costs for conversion of the Northern Pipeline from gas to water, construction of pumping stations and appurtenant facilities, and would be able to seek infrastructure funding and grants.

These agreements and off take facility construction will be subject to standard environmental review and a project-level permitting process.

ATEC and our agricultural operations provide our current principal source of revenue, although our working capital needs are not fully supported by these operations at this time.

We believe that our water supply, storage, pipeline conveyance and treatment solutions will provide a significant source of future cash flow for the business and our stockholders.

We presently rely upon debt and equity financing to support our working capital needs and development of our water solutions. 

In February 2023, we completed a direct offering for net proceeds of $38 million led by our largest equity shareholders to fund capital expenditures to accelerate the development of water supply, storage and conveyance infrastructure, reduce our outstanding debt from $50 million to $35 million and provide working capital to the Company (see, “Liquidity and Capital Resources”, below).

Our current and future operations also include activities that further our commitments to sustainable stewardship of our land and water resources, good governance and corporate social responsibility.

We presently rely upon debt and equity financing to support our working capital needs and development of our water solutions.

Our current and future operations also include activities that further our commitments to sustainable stewardship of our land, water, pipeline and water filtration technology assets, good governance and corporate social responsibility.

We believe these commitments are important investments that will assist in maintenance of sustained stockholder value.

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Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

We have not received significant revenues from our water supply, storage, treatment or conveyance assets to date.

Our revenues have been limited to rental income from our agricultural leases and from sales from our alfalfa plantings beginning in 2022.

We have not received significant revenues from our water supply, storage, or conveyance assets to date.

Our revenues have been limited to rental income from our agricultural leases, sales from our alfalfa plantings beginning in 2022 and ATEC sales beginning in 2023.

As a result, we have historically incurred a net loss from operations.

The net loss totaled $24.8 million for the year ended December 31, 2022, compared with a net loss of $31.2 million for the year ended December 31, 2021.

The higher loss in 2021 was primarily due to stock-based non-cash bonus awards to employees and higher interest expense in that period offset by gross margin losses from our alfalfa plantings during 2022.  

Our primary expenses are our ongoing overhead costs associated with the development of our water supply, storage or conveyance assets (i.e., general and administrative expense) and our interest expense.

We currently operate in two reportable segments.

Our largest segment is Land and Water Resources, which comprises all activities regarding our properties in the eastern Mojave Desert pre-revenue development of the Water Project (supply, storage and conveyance), and agricultural operations.

Our second operating segment is Water Filtration Technology comprised of ATEC which provides innovative water filtration technology solutions for impaired or contaminated groundwater sources.

Reporting of these two segments began in 2023 as the revenue and operating results for the water filtration technology segment were not material to our consolidated operations prior to the year ended December 31, 2023.

We incurred a net loss of $31.4 million for the year ended December 31, 2023, compared with a net loss of $24.8 million for the year ended December 31, 2022.

The higher loss in 2023 was primarily due to a loss on extinguishment of debt in the amount of $5.3 million resulting from 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.

Our primary expenses are our ongoing overhead costs associated with the development of our water supply, storage and conveyance assets (i.e., general and administrative expense), farming expenses at the Cadiz Ranch, manufacturing operations of ATEC and our interest expense.

We will continue to incur non-cash expense in connection with our management and director equity incentive compensation plans.

Revenue totaled $1.5 million during the year ended December 31, 2022, compared to $564 thousand during the year ended December 31, 2021.

The revenue is primarily related to rental income from our agricultural leases and our alfalfa crop harvest.

Revenue totaled $2.0 million during the year ended December 31, 2023, primarily related to ATEC sales totaling $0.8 million, sales from the harvest from our 760 acres of commercial alfalfa crop totaling $0.8 million and rental income from our agricultural leases totaling $0.4 million.

Revenue totaled $1.5 million during the year ended December 31, 2022, primarily related to rental income from our agricultural leases and sales from the harvest from our then 610 acres of commercial alfalfa crop.

Cost of Sales .

Cost of sales totaled $2.1 million during the year ended December 31, 2022, compared to $0 cost of sales recorded during the year ended December 31, 2021.

Cost of sales totaled $2.9 million during the year ended December 31, 2023, comprised of $2.2 million related to our alfalfa crop harvest and $0.7 million related to ATEC.

The 2023 alfalfa crop harvest net operating loss of $1.4 million primarily relates to increased diesel costs for farming as well as suppressed market conditions for alfalfa on the West Coast.

Cost of sales totaled $2.1 million during the year ended December 31, 2022.

In June 2022, the Company converted 610 acres of agricultural development to alfalfa commercial production.

The 2022 expense was primary due to non-recurring start-up costs and higher than expected fuel costs for the initial short year of commercial production.

The 2022 loss was primarily due to non-recurring start-up costs for the initial short year of commercial production.

General and Administrative Expenses .

General and administrative expenses during the year ended December 31, 2022, exclusive of stock-based compensation costs, totaled $13.5 million compared with $12.9 million for the year ended December 31, 2021.

General and administrative expenses during the year ended December 31, 2023, exclusive of stock-based compensation costs, totaled $17.3 million compared with $13.5 million for the year ended December 31, 2022.

The increase in 2023 was primarily a result of community partnership and communications investments, including $2.2 million in water quality and infrastructure costs in coordination with community partners that will improve access to clean water in disadvantaged communities in the Coachella Valley and $1.3 million in corporate communications modernization expenses to the Company’s online, print, digital and social materials.

General and administrative expense for ATEC totaled $0.8 million for 2023.

Compensation costs from stock and option awards for the year ended December 31, 2023, totaled $1.5 million compared with $1.9 million for the year ended December 31, 2022.

The higher 2022 expense was primarily due to stock-based non-cash bonus awards to employees.

Interest Expense .

Depreciation.

Depreciation expense totaled $1.2 million during the year ended December 31, 2023, compared to $0.7 million during the year ended December 31, 2022.

The higher 2023 depreciation expense is primarily due to construction in progress placed into service in 2023, which included land development and stand establishment related to the planting of 150 acres of alfalfa, as well as $0.2 million of depreciation for ATEC assets in 2023.

Interest Expense, Net .

Interest expense totaled $4.9 million during the year ended December 31, 2023, compared to $8.3 million during the year ended December 31, 2022.

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Interest on outstanding debt

Unrealized gains on warrants

Amortization of debt discount

Amortization of deferred loan costs

Gain (Loss) from Equity-Method Investments .

Gain from equity-method investments related to our 50% ownership in the SoCal Hemp JV LLC totaled $40 thousand during the year ended December 31, 2022, compared to a $942 thousand loss during the year ended December 31, 2021. 

No plantings of hemp were made by the Joint Venture during 2022 due to continued poor market conditions for hemp prices which resulted in the Joint Venture being dissolved on December 30, 2022. 

As a result of the dissolution, we recognized a gain of $211 thousand. 

Interest Income

Interest income primarily relates to interest on investments in short-term deposits.

Losses on Derivative Liabilities.

Losses on derivative liabilities totaled $220 thousand during the year ended December 31, 2023 compared to $0 in the year ended December 31, 2022.

The losses recorded in 2023 were a result of a remeasurement of a conversion option under our senior secured debt.

Loss on Early Extinguishment of Debt.

Loss on early extinguishment of debt totaled $5.3 million during the year ended December 31, 2023 compared to $0 in the year ended December 31, 2022.

The 2023 loss on early extinguishment of debt was a result 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.

Liquidity and Capital Resources

(a)          

Current Financing Arrangements

As we have not received significant revenues from our development or treatment activities to date, we have been required to obtain financing to bridge the gap between the time water resource and other development expenses are incurred and the time that revenue will commence.

As we have not received significant revenues or gross profits from our water, agriculture or water filtration technology activities to date, we have been required to obtain financing to bridge the gap between the time water resource and other development expenses are incurred and the time that revenue will commence.

Historically, we have addressed these needs primarily through secured debt financing arrangements and private equity placements.

On June 7, 2021, we completed the sale and issuance of 1,219,512 shares of our common stock to certain institutional investors under a placement agent agreement with B.

Riley Securities, Inc.

(“BRS”).

The shares of common stock were sold at a purchase price of $12.30 per share, for aggregate gross proceeds of $15 million and aggregate net proceeds of approximately $14.1 million.

We used the net proceeds from this offering, together with cash on hand, to fund the $19 million payment made on June 30, 2021 to complete the acquisition of a 124-mile extension of the Northern Pipeline.

On June 29, 2021, we entered into an Underwriting Agreement with BRS as representative of the several underwriters named therein, to issue and sell an aggregate of 2,000,000 depositary shares (the “Depositary Shares”), as well as up to 300,000 Depositary Shares that may be sold pursuant to the exercise of an option to purchase additional Depositary Shares, each representing 1/1000 th of a share of Series A Preferred Stock (“Depositary Share Offering”).

The liquidation preference of each of each share of Series A Preferred Stock is $25,000 ($25.00 per Depositary Share).

The Depositary Share Offering was completed on July 2, 2021 for net proceeds of approximately $54 million.

On July 2, 2021, we entered into a $50 million new credit agreement (“Credit Agreement”) (see Note 7 to the Condensed Consolidated Financial Statements –

“Long-Term Debt”).

The proceeds of the Credit Agreement, together with the proceeds from the Depositary Share Offering, were used to (a) to repay all our outstanding obligations under the Prior Senior Secured Debt in the amount of approximately $77.6 million (b) to deposit approximately $10.2 million into a segregated account, representing an amount sufficient to pre-fund eight quarterly dividend payments on the Series A Preferred Stock underlying the Depositary Shares issued in the Depositary Share Offering, and (c) to pay transaction related expenses.

The remaining proceeds were used for working capital needs and for general corporate purposes.

Equity Offerings

In July 2021, we completed the sale of 2,300,000 depositary shares each representing 1/1000 th of a share of Series A Preferred Stock (“Depositary Share Offering”) for net proceeds of approximately $54 million.

On March 23, 2022, we completed the sale and issuance of 6,857,140 shares of our common stock to certain institutional and individual investors in a registered direct offering.

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The proceeds were used for working capital needs and for general corporate purposes.

On November 14, 2022, we completed the sale and issuance of 5,000,000 shares of our common stock to certain institutional investors in a registered direct offering (“November 2022 Direct Offering”).

The shares of common stock were sold at a purchase price of $2.00 per share, for aggregate gross proceeds of $10 million and aggregate net proceeds of approximately $9.9 million.

On January 30, 2023, we completed the sale and issuance of 10,500,000 shares of our 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 $2.00 per share, for aggregate gross proceeds of $10 million and aggregate net proceeds of approximately $9.9 million.

On January 30, 2023, we completed the sale and issuance of 10,500,000 shares of 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 net proceeds were used to repay our debt in the principal amount of $15 million, together with fees and interest required to be paid in connection with such repayment.

The remaining proceeds from the January 2023 Direct Offering, together with the remaining proceeds from the November 2022 Direct Offering will be used for capital expenditures to accelerate development of water supply, storage, conveyance and treatment assets, working capital and development of additional water resources to meet increase demand on an accelerated timetable.

On February 2, 2023, we entered into a First Amendment to Credit Agreement with BRF Finance Co., LLC and B.

Riley Securities, Inc., 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 our common stock at a conversion price of $4.80 per share (the “Conversion Price”).

The lenders’

right to convert is conditioned upon us obtaining stockholder approval of an amendment to its certificate of incorporation to increase the number of authorized shares of the Company at its next annual meeting of stockholders, expected to be held in June 2023 (“Stockholder Approval”).

In addition, prior to the maturity of the Credit Agreement, we will have the right to require that the lenders convert the outstanding principal amount, plus any PIK Interest and accrued and unpaid interest, of the Convertible Loan if the following conditions are met:

(i) the average VWAP of the Company’s common stock on The Nasdaq Stock Market, or such other national securities exchange on which the shares of common stock are listed for trading, over 30 consecutive trading dates exceeds 115% of the then Conversion Price, (ii) a registration statement registering the resale of the shares issuable upon conversion of the Convertible Loan has been declared effective by the Securities and Exchange Commission, (iii) the Stockholder Approval has been obtained, and (iv) there is no event of default under certain provisions of the Credit Agreement.

Under the First Amended Credit Agreement, the maturity date of the Credit Agreement has been extended from July 2, 2024 to June 30, 2025.

Upon obtaining the Stock Approval and so long as there is no event of default under certain provisions of the Credit Agreement, the maturity date for the Credit Agreement will automatically be extended to June 30, 2026.

The annual interest rate will remain unchanged at 7.00%.

The remaining proceeds from the January 2023 Direct Offering, together with the remaining proceeds from the November 2022 Direct Offering were used for capital expenditures to accelerate development of water supply, storage, conveyance and treatment assets, working capital, development of additional water resources to meet increase demand on an accelerated timetable, and general corporate purposes.

Debt Offerings

In July 2021, we entered into a $50 million new credit agreement (“Credit Agreement”) (see Note 8 to the Condensed Consolidated Financial Statements – “Long-Term Debt”).

The proceeds of the Credit Agreement, together with the proceeds from the Depositary Share Offering, were used to (a) repay all our outstanding senior secured debt obligations in the amount of approximately $77.6 million, (b) to deposit approximately $10.2 million into a segregated account, representing an amount sufficient to pre-fund eight quarterly dividend payments on the Series A Preferred Stock underlying the Depositary Shares issued in the Depositary Share Offering, and (c) to pay transaction related expenses.

The remaining proceeds were used for working capital needs and for general corporate purposes.

On February 2, 2023, we entered into a First Amendment to Credit Agreement to amend certain provisions of the Credit Agreement (“First Amended Credit Agreement”).

Under the First Amended Credit Agreement, the lenders 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 our common stock at a conversion price of $4.80 per share (the “Conversion Price”).

In addition, prior to the maturity of the Credit Agreement, we have the right to require that the lenders convert the outstanding principal amount, plus any PIK Interest and accrued and unpaid interest, of the Convertible Loan if the following conditions are met:

Under the First Amended Credit Agreement, the maturity date of the Credit Agreement was extended from July 2, 2024 to June 30, 2026.

On March 6, 2024, we entered into a Third Amendment to Credit Agreement and First Amendment to Security Agreement (“Third Amended Credit Agreement”) with HHC $ Fund 2012 (“Heerema”) (see Note 15 to the Condensed Consolidated Financial Statements – “Subsequent Events”).

Before entering into the Third Amended Credit Agreement, Heerema purchased the outstanding secured non-convertible term loans under the Credit Agreement (“Assignment”).

In connection with the Assignment, the existing holders of both the Convertible Loan and non-convertible term loans consented to effectuate the Third Amended Credit Agreement in consideration of a consent fee in the aggregate amount of $479,845 payable in the form of our common stock (valued at $2.89 per share, or 166,036 shares), which will be registered pursuant to an effective shelf registration statement on Form S-3 and a prospectus supplement thereunder.

The Third Amended Credit Agreement provides, among other things, (a) a new tranche of senior secured convertible terms loans from Heerema in an aggregate principal amount of $20 million, having a maturity date of June 30, 2027 (“New Secured Convertible Debt”);

(b) the aggregate principal amount of the secured non-convertible term loans acquired by Heerema has been increased from $20 million to $21.2 million and the applicable repayment fee in respect thereof has been eliminated;

(c) the Convertible Loan existing prior to the Third Amended Credit Agreement, in an aggregate principal amount of approximately $16 million plus interest accruing thereon, has become unsecured;

and (d) extension of the maturity date for the existing Convertible Loan and non-convertible loans to June 30, 2027.

The annual interest rate remains unchanged at 7.00%.

Interest on $21.2 million of the remaining principal amount will be paid in cash.

Interest on the $15 million principal amount of the Convertible Loan will be paid in kind on a quarterly basis by addition such amount to the outstanding principal amount of the outstanding Convertible Loan.

Interest on the aggregate $36 million principal amount of the New Secured Convertible Debt and existing Convertible Loan is paid in kind on a quarterly basis.

Limitations on our liquidity and ability to raise capital may adversely affect us.

Sufficient liquidity is critical to meet our resource development activities.

Sufficient liquidity is critical to meet our resource development, agricultural development and water filtration technology activities.

To the extent additional capital is required, we may increase liquidity through a variety of means, including equity or debt placements, through the lease, sale or other disposition of assets or reductions in operating costs.

If additional capital is required, no assurances can be given as to the availability and terms of any new financing.

As we continue to actively pursue our business strategy, additional financing will continue to be required (see “Outlook”, below). The covenants in the Credit Agreement do not prohibit our use of additional equity financing and allow us to retain 100% of the proceeds of any common equity financing.

We do not expect the loan covenants to materially limit our ability to finance our water and agricultural development activities.

As we continue to actively pursue our business strategy, additional financing will continue to be required (see “Outlook”, below).

The covenants in the Credit Agreement do not prohibit our use of additional equity financing and allow us to retain 100% of the proceeds of any common equity financing.

We do not expect the loan covenants to materially limit our ability to finance our water, agricultural development, and water filtration technology activities.

Cash Used for Operating Activities .

Cash used for operating activities totaled $20.9 million for the year ended December 31, 2023, and $18.6 million for the year ended December 31, 2022.

The cash was primarily used to fund general and administrative expenses related to our water development efforts and agricultural development efforts.

The cash was primarily used to fund general and administrative expenses related to our water development efforts, agricultural development efforts, and our ATEC business including increased working capital needs related to accounts receivable and inventory offset by increased accounts payable.

Cash Used for Investing Activities .

Cash used for investing activities in the year ended December 31, 2023, was $5.8 million, compared with $4.1 million for the year ended December 31, 2022.

The cash used in the 2022 period primarily related to development costs for the initial planting of 760 acres of alfalfa. 

The cash used in the 2021 period primarily related to the Northern Pipeline acquisition totaling $19 million and additions to well development and water quality and structural testing of a five-mile segment of pipeline.

The cash used in the 2023 period primarily related to development costs of three new wells at the Cadiz Ranch.

The cash used in the 2022 period primarily related to development costs for the initial planting of 760 acres of alfalfa.

Cash Provided by Financing Activities .

Cash provided by financing activities totaled $17.6 million for the year ended December 31, 2023, compared with cash provided by financing activities of $16.6 million for the year ended December 31, 2022.

Proceeds from financing activities for the 2022 period are related to the issuance of shares under direct offerings. Proceeds from financing activities for the 2021 period are related to the completion of the Depositary Share Offering, issuance of shares under at-the market and direct offerings and refinancing of the Company’s Prior Senior Secured Debt.

(b)          

Proceeds from financing activities for both periods reported are primarily related to the issuance of shares under direct offerings, offset by the paydown of $15 million of senior secured debt in February 2023.

Short-Term Outlook.

The November 2022 Direct Offering and the January 2023 Direct Offering provided net cash proceeds of approximately $48.4 million.

A portion of these net proceeds were used to repay our debt in the principal amount of $15 million, together with fees and interest required to be paid in connection with such repayment.

The remaining proceeds, together with cash on hand, provide us with sufficient funds to meet our short-term working capital needs. 

The Company's agricultural & farming and water treatment operations will be funded using existing capital and cash profits generated from operations.

The net proceeds of approximately $19.0 million from the completion of the Third Amended Credit Agreement in March 2024, together with cash on hand, provide us with sufficient funds to meet our short-term working capital needs.

Our agricultural development and ATEC operations are expected to be funded using existing capital and cash profits generated from operations.

Long-Term Outlook .

In the longer term, we will need to raise additional capital to finance working capital needs and capital expenditures (see “Current Financing Arrangements”, above).

Our future working capital needs will depend upon the specific measures we pursue in the entitlement and development of our water resources and other developments.

Future capital expenditures will depend on the progress of the Water Project and further expansion of our agricultural assets.

In the longer term, we will need to raise additional capital to finance working capital needs and capital expenditures (see “Current Financing Arrangements”, above).

Our future working capital needs will depend upon the specific measures we pursue in the entitlement and development of our water supply, storage, conveyance resources and other developments.

Future capital expenditures will depend on the progress of the Water Project, further expansion of our agricultural assets, and ATEC operational needs.

We are evaluating the amount of cash needed, and the manner in which such cash will be raised, on an ongoing basis.

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Sufficient liquidity is critical to meet our resource development activities.

(c)          

Critical Accounting Estimates

As discussed in Note 2 to our Consolidated Financial Statements, “Summary of Significant Accounting Policies”, the preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect amounts reported in the accompanying consolidated financial statements and related footnotes.

In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements based on all relevant information available at the time and giving due consideration to materiality.

However, application of these policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates.

Management has concluded that the following critical accounting policy described below affect the most significant judgments and estimates used in the preparation of the consolidated financial statements.

Management has concluded that the following critical accounting policies described below affect the most significant judgments and estimates used in the preparation of the consolidated financial statements.

(1) Liquidity.

Management assesses whether the Company has sufficient liquidity to fund its costs for the next twelve months from the 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 significant assumptions related to the projected cash flows of the Company including the following:

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 significant assumptions related to 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 activities.

Limitations on the Company’s liquidity and ability to raise capital may adversely affect it.

Sufficient liquidity is critical to meet the Company’s 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 impact its viability as a company.

(2) Business Combinations The results of acquired businesses are included in our Consolidated Financial Statements from their acquisition date.

Assets and liabilities of an acquired business are recorded at their estimated fair values on the acquisition date.

We engage third-party valuation specialists to assist us in determining these fair values as necessary.

Any excess consideration over the fair value of assets acquired and liabilities assumed is recognized as goodwill.

The allocation of purchase price, including contingent consideration arrangements, requires management to make significant estimates and assumptions.

While we believe our assumptions and estimates are reasonable, they are inherently uncertain and based in part on experience, market conditions, projections of future performance and information obtained from management of the acquired companies.

(2) Goodwill.

Business combinations are accounted for using the acquisition method, with the excess of the acquisition cost over the fair value of net tangible assets and identified intangible assets acquired considered goodwill.

As a result, we disclose goodwill separately from other intangible assets.

Our reporting units are composed of either a discrete business or an aggregation of businesses with similar economic characteristics.

We perform our annual impairment test of goodwill during the fourth quarter.

Certain factors may cause us to perform an impairment test prior to the fourth quarter, including significant underperformance of a business relative to expected operating results, significant adverse economic and industry trends, significant decline in our market capitalization for an extended period of time relative to net book value, or a decision to divest a portion of a reporting unit.

In performing impairment tests, we have the option to first assess qualitative factors to determine whether it is necessary to perform a quantitative assessment for goodwill impairment.

If the qualitative assessment indicates that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value, we perform a quantitative assessment.

A quantitative assessment primarily consists of using the present value (discounted cash flow) method to determine the fair value of reporting units with goodwill.

We compare the fair value of each reporting unit to its carrying amount, and, to the extent the carrying amount exceeds the unit’s fair value, we recognize an impairment of goodwill for the excess up to the amount of goodwill of that reporting unit.

In consultation with outside specialists, we estimate the fair value of our reporting units using various valuation techniques, with the primary technique being a discounted cash flow analysis.

A discounted cash flow analysis requires us to make various assumptions about our reporting units, including their respective forecasted sales, operating margins and growth rates, as well as discount rates.

Our assumptions about discount rates are based on the weighted average cost of capital for comparable companies.

Our assumptions about sales, operating margins and growth rates are based on our forecasts, business plans, economic projections, anticipated future cash flows, and marketplace data.

We also make assumptions for varying perpetual growth rates for periods beyond our long-term business plan period.

We base our fair value estimates on projected financial information and assumptions that we believe are reasonable.

However, actual future results may differ materially from these estimates and projections.

The valuation methodology we use to estimate the fair value of reporting units requires inputs and assumptions that reflect current market conditions, as well as the impact of planned business and operational strategies that require management judgment.

The estimated fair value could increase or decrease depending on changes in the inputs and assumptions.

In our annual impairment analysis in the fourth quarter of 2023, the goodwill of all reporting units in our water and land resources and water filtration technology reportable segments were tested utilizing a qualitative assessment.

Based on this assessment, we determined that the fair values of these reporting units were more-likely-than-not greater than their respective carrying values.

Therefore, the goodwill of our reporting units was not impaired.

(3) Long-Lived Assets .

Property, plant and equipment, and water program assets are depreciated or amortized over their useful lives.

Useful lives are based on management’s estimates of the period over which the assets will generate revenue. 

Assets are placed into service when they are in a condition or state of readiness for a specifically assigned function on a regular and ongoing basis. 

(d)          

New Accounting Pronouncements

See Note 2 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies”.

Useful lives are based on management’s estimates of the period over which the assets will generate revenue.

Assets are placed into service when they are in a condition or state of readiness for a specifically assigned function on a regular and ongoing basis.

(d) New Accounting Pronouncements

See Note 2 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies”.

Quantitative and Qualitative Disclosures about Market Risk

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240.12b-2 of the Securities and Exchange Act of 1934 and are not required to provide the information under this item.

Financial Statements and Supplementary Data

The information required by this item is submitted in response to Part IV below.

See the Index to Consolidated Financial Statements.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity