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Note 2 - Summary of Significant Accounting Policies | 12 Months Ended
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Dec. 31, 2019
Notes to Financial Statements |
Significant Accounting Policies [Text Block] | NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The Consolidated Financial Statements of the Company have been prepared on a going concern basis, which contemplates the continuity of operations, the realization of assets and the satisfaction of liabilities in the normal course of business. The Company incurred losses of $29.5 million and $26.3 million for the years ended December 31, 2019 and 2018, respectively. The Company had working capital of $11.3 million at December 31, 2019 and used cash in operations of $13.7 million for the year ended December 31, 2019. Cash requirements during the year ended December 31, 2019 primarily reflect certain administrative costs related to the Company’s water project development efforts. Currently, the Company’s sole focus is the development of its land and water assets. In November 2018, the Company entered into an At Market Issuance Sales Agreement under which the Company could issue and sell shares of its common stock having an aggregate offering price of up to $25 million from time to time in an “at-the-market” offering (the “November 2018 ATM Offering”). As of December 31, 2019, the Company issued 1,960,178 shares of common stock in the November 2018 ATM Offering for gross proceeds of $21.0 million and aggregate net proceeds of approximately $20.3 million. The November 2018 ATM Offering was completed in March 2020 ( see Note 14, “Subsequent Events”). In May 2017, the Company entered into a new $60 million credit agreement (“Credit Agreement”) with funds affiliated with Apollo Global Management, LLC (“Apollo”) that replaced and refinanced its then existing $45 million senior secured mortgage debt (“Prior Senior Secured Debt”) and provided $15 million of new senior debt to fund immediate construction related expenditures (“Senior Secured Debt”). The Company’s Senior Secured Debt and its convertible notes contain representations, warranties and covenants that are typical for agreements of this type, including restrictions that would limit the Company’s ability to incur additional indebtedness, incur liens, pay dividends or make restricted payments, dispose of assets, make investments and merge or consolidate with another person. However, while there are affirmative covenants, there are no financial maintenance covenants and no restrictions on the Company’s ability to issue additional common stock to fund future working capital needs. The debt covenants associated with the Senior Secured Debt were negotiated by the parties with a view towards the Company’s operating and financial condition as it existed at the time the agreements were executed. At December 31, 2019, the Company was in compliance with its debt covenants. Additionally, the Company entered into an agreement with Apollo that allows the Company to extend the maturity of the Apollo debt for an additional year from its current maturity of May 2021 to May 2022 at the Company’s option (see Note 14, “Subsequent Events”). As of December 31, 2019, the Company had principal and interest payments aggregating approximately $65.5 million coming due in March 2020 related to its 7.00% Convertible Senior Notes (“Convertible Senior Notes”). These Convertible Senior Notes were either converted into common stock pursuant to the terms of the existing Indenture or exchanged for a new Preferred Stock (see Note 14, “Subsequent Events”). The Company’s acquisition of a 124 -mile extension of its’ Northern Pipeline will require a $19 million payment within 180 days upon completion of certain conditions precedent under the purchase agreement with EPNG. If the acquisition of the 124 -mile segment is not completed, then the Company’s Northern Pipeline opportunities will be limited to the 96 -mile segment it already owns. The Company may meet its debt and working capital requirements through a variety of means, including extension, refinancing, equity placements, the sale or other disposition of assets, or reductions in operating costs. Limitations on the Company’s liquidity and ability to raise capital may adversely affect it. Sufficient liquidity is critical to meet the Company’s resource development 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. Principles of Consolidation The consolidated financial statements include the accounts of Cadiz Inc. and all subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. We apply the equity method of accounting for investments in which we have significant influence but not a controlling interest. Reclassifications Certain amounts in the prior year’s Consolidated Financial Statements have been reclassified to conform to the current year presentation. Use of Estimates in Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In preparing these financial statements, management has made estimates with regard to goodwill and other long-lived assets, stock compensation and deferred tax assets. Actual results could differ from those estimates. Revenue Recognition The Company recognizes rental income through its lease with Fenner Valley Farms LLC. Stock-Based Compensation General and administrative expenses include $0.6 million and $0.5 million of stock-based compensation expenses in the years ended December 31, 2019 and 2018, respectively. The Company applies the Black-Scholes valuation model in determining the fair value of options granted to employees and consultants. For employees, the fair value is then charged to expense on the straight-line basis over the requisite service period. For consultants, the fair value is remeasured at each reporting period and recorded as a liability until the award is settled. As of December 31, 2019, all options outstanding are fully vested; therefore, there is no potential impact of forfeitures. The Company is in a tax loss carryforward position and is not expected to realize a benefit from any additional compensation expense recognized under Topic 718 (see Note 7, “Income Taxes"). Net Loss Per Common Share Basic net loss per share is computed by dividing the net loss by the weighted-average common shares outstanding. Options, deferred stock units, warrants, and the zero -coupon term loan convertible into or exercisable for certain shares of the Company’s common stock were not considered in the computation of net loss per share because their inclusion would have been antidilutive. Had these instruments been included, the fully diluted weighted average shares outstanding would have increased by approximately 11,477,000 shares and 11,398,000 shares for the years ended December 31, 2019 and 2018, respectively. Property, Plant, Equipment and Water Programs Property, plant, equipment and water programs are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, generally ten to forty-five years for land improvements and buildings, and five to fifteen years for machinery and equipment. Leasehold improvements are amortized over the shorter of the term of the relevant lease agreement or the estimated useful life of the asset. Water rights, storage and supply programs are stated at cost. Certain costs directly attributable to the development of such programs have been capitalized by the Company. These costs, which are expected to be recovered through future revenues, consist of direct labor, drilling costs, consulting fees for various engineering, hydrological, environmental and additional feasibility studies, and other professional and legal fees. We have not commenced depreciation of these assets as they are not yet in service. While interest on borrowed funds is currently expensed, interest costs related to the construction of project facilities will be capitalized at the time construction of these facilities commences. Goodwill and Other Assets As a result of a merger in May 1988 between two companies which eventually became known as Cadiz Inc., goodwill in the amount of $7,006,000 was recorded. Approximately $3,193,000 of this amount was amortized prior to the adoption of Accounting Standards Codification 350, “Intangibles – Goodwill and Other” (“ASC 350” ) on January 1, 2002. Since the adoption of ASC 350, there have been no goodwill impairments recorded. The Cadiz reporting unit to which $3.8 million of goodwill is allocated had a negative carrying amount on December 31, 2019 and 2018. Deferred loan costs represent costs incurred to obtain debt financing. Such costs are amortized over the life of the related loan using the effective interest method. At December 31, 2019, the deferred loan fees are not material. Impairment of Goodwill and Long-Lived Assets The Company assesses long-lived assets, excluding goodwill, for recoverability whenever events or changes in circumstances indicate that their carrying value may not be recoverable through the estimated undiscounted future cash flows resulting from the use of the assets. If it is determined that the carrying value of long-lived assets may not be recoverable, the potential impairment charge is measured by using the projected discounted cash-flow method. The Company performs an annual impairment test to identify potential goodwill impairment and measure the amount of a goodwill impairment loss to be recognized (if any). This quantitative assessment is performed at least annually in the fourth quarter and compares a reporting unit’s fair value to its carrying amount to determine if there is a potential impairment. An impairment loss will be recognized for the amount by which the reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill in that reporting unit. No impairment charge was recorded during the current fiscal year. Income Taxes Income taxes are provided for using an asset and liability approach which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement and tax bases of assets and liabilities at the applicable enacted tax rates. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Fair Value of Financial Instruments Financial assets with carrying values approximating fair value include cash and cash equivalents and accounts receivable. Financial liabilities with carrying values approximating fair value include accounts payable and accrued liabilities due to their short-term nature. The carrying value of the Company’s secured debt approximates fair value, based on interest rates available to the Company for debt with similar terms. The fair value of the Company’s convertible debt exceeds its carrying value due to the increased value of its conversion feature, which is determined using the Black-Scholes model. See Note 6, “Long-Term Debt”, for discussion of fair value of debt. SoCal Hemp JV On July 31, 2019, SoCal Hemp JV LLC (the “JV”) was created by Cadiz Real Estate LLC (a fully owned subsidiary of Cadiz Inc.) and SoCal Hemp Co, LLC (a fully owned subsidiary of Glass House Farms, a division of California Cannabis Enterprises, Inc., which is an unrelated company to Cadiz Inc.) when the two parties entered into a Limited Liability Company Agreement (“LLC Agreement”). The JV is 50% owned by Cadiz Real Estate LLC and 50% owned by SoCal Hemp Co., LLC. Pursuant to the LLC Agreement, the JV profits and losses are allocated to the members based on their ownership share. The Company accounts for its investment in the JV using the equity method of accounting. Additionally, the LLC Agreement provides that, at the request of SoCal Hemp Co, LLC, their share of initial costs could be funded by Cadiz in the form of a loan which would bear interest at 8% per annum (“Stage 1 Loan”). Repayment of the Stage 1 Loan would be through priority distribution from the JV. As of December 31 st , 2019, the Company recorded a note receivable in the amount of $377 thousand related to the Stage 1 Loan. The carrying value of the investment was $729 thousand at December 31, 2019. During the year, we made contributions to the JV of $741 thousand through payment of JV expenses, capitalized $162 thousand of direct start-up costs and recorded $490 thousand of losses. In addition, $315 thousand of contributions to the JV were recorded in accrued expenses at December 31, 2019, and are expected to be paid in the first fiscal quarter of 2020. Supplemental Cash Flow Information Under the terms of the Senior Secured Debt, the Company is required to pay 25% of all future quarterly interest payments in cash. During the year ended December 31, 2019, approximately $1.37 million in interest payments on the Senior Secured Debt was paid in cash. No other payments are due on the Senior Secured Debt or the Company’s Convertible Senior Notes prior to their maturities. During the year ended December 31, 2019, approximately $12.7 million in convertible notes were converted by certain of the Company’s lenders. As a result, 1,918,444 shares of common stock were issued to the lenders. At December 31, 2019, accruals for purchases of PP&E received was $3.2 million, and are expected to be paid in the first fiscal quarter of 2020. At December 31, 2018, this amount was immaterial. The balance of cash, cash equivalents, and restricted cash as shown in the condensed consolidated statements of cash flows is comprised of the following:
Cash, Cash Equivalents and Restricted Cash |  | December 3 1 , 2019 |  |  | December 31, 2018 |
(in thousands) |  |  |  |  |  |  |  |
Cash and Cash Equivalents |  | $ | 15,682 |  |  | $ | 12,558 |
Restricted Cash included in Other Assets |  |  | 134 |  |  |  | 133 |
Cash, Cash Equivalents and Restricted Cash in the Consolidated Statement of Cash Flows |  | $ | 15,816 |  |  | $ | 12,691 |
The restricted cash amounts included in Other Assets primarily represent a deposit from a water project participant related to a cost-sharing agreement. Cash payments for income taxes were $6,000 for each of the years ended December 31, 2019 and 2018. Recent Accounting Pronouncements Accounting Guidance Not Yet Adopted In August 2018, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update which modifies the disclosure requirements for fair value measurements. This update is effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years, with early adoption permitted. The Company is currently assessing this new guidance and expects this new standard will not have a material impact on the consolidated financial statements. In August 2018, the FASB issued an accounting standards update on a customer’s accounting for implementation costs incurred in a cloud computing arrangement. This update is effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years, with early adoption permitted. The Company is currently assessing this new guidance and expects this new standard will not have a material impact on the consolidated financial statements. In June 2016, FASB issued an accounting standards update which introduces new guidance for the accounting for credit losses on certain financial instruments. This update is effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years, with early adoption permitted. The Company is currently assessing this new guidance and expects this new standard will not have a material impact on the consolidated financial statements. In December 2019, FASB issued an accounting standards update which reduces complexity in accounting standards by removing certain exceptions to the general principles in Topic 740. This update is effective for fiscal years beginning after December 15, 2021, and for interim periods within those fiscal years, with early adoption permitted. The Company is currently assessing this new guidance and expects this new standard will not have a material impact on the consolidated financial statements. Accounting Guidance Adopted In February 2016, the FASB issued ASU 2016 - 02, Leases (“Topic 842” ), which supersedes the existing guidance for lease accounting (“Topic 840” ). The new standard requires lessees to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged. The Company adopted the provisions of Topic 842 on January 1, 2019, using the modified retrospective approach and the option presented under ASU 2018 - 11 to transition only active leases as of January 1, 2019, with a cumulative effect adjustment as of that date. All comparative periods prior to January 1, 2019, retain the financial reporting and disclosure requirements of Topic 840. The Company elected to utilize the transition package of practical expedients permitted within the new standard, which among other things, allowed the Company to carryforward the historical lease classification. The Company made an accounting policy election that will keep leases with an initial term of 12 months or less off the Company’s Consolidated Balance Sheets which resulted in recognizing those lease payments in the Consolidated Statements of Operations and Comprehensive Loss on a straight-line basis over the lease term. The Company did not elect the hindsight practical expedient when determining the lease terms. The adoption of the new standard resulted in the recording of additional net right-of-use assets and corresponding lease liabilities of approximately $151 thousand and $100 thousand, respectively, as of January 1, 2019. The difference between the right-of-use assets and the lease liabilities was recorded to eliminate existing accrued rent balances recorded under Topic 840. The adoption of the new standard did not impact the Company’s consolidated net earnings and had no impact on cash flows. In June 2018, the FASB issued an accounting standards update which simplifies the accounting for share-based payments granted to nonemployees for goods and services. This update is effective for fiscal years beginning after December 15, 2018, and for interim periods within those fiscal years. The Company adopted this guidance on January 1, 2019, and the new standard had no impact on the Company’s condensed consolidated financial statements. In July 2017, the FASB issued an accounting standards update to provide new guidance for the classification analysis of certain equity-linked financial instruments, or embedded features, with down round features, as well as clarify existing disclosure requirements for equity-classified instruments. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The Company adopted this guidance on January 1, 2019. As a result, the Company reclassified a warrant liability in the amount of $865 thousand to additional paid-in capital, as the Company’s Warrant no longer met the definition of a derivative. In addition, during the years ended December 31, 2018 and 2017, the Company recognized annual gains of $1.5 million and $0.5 million, respectively, related to the historical remeasurement of the warrant derivative liability at fair value. Upon adoption of this guidance as of January 1, 2019, the Company recorded $2.0 million in additional paid-in capital with a corresponding adjustment to the opening balance of accumulated deficit related to these previously recorded gains.

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