Cadiz, Inc. (NASDAQ:CDZI)

https://prnt.sc/279GMx9bBLrR

4 tap

I don’t understand what Apollo Management sees in this firm. I guess they are looking at the security they have, including some liens against ~34,000 acres of land. But as common equity shareholder, it begs the question, if all of the assets are being secured by a $60MM senior secured debt, what is really left for the shareholder?

“On May 25, 2017, the Company entered into a new$60million credit agreement with funds affiliated with Apollo Global Management, LLC("Apollo") that replaced and refinanced the Company's then existing $45million senior secured mortgage debt ("Prior Senior Secured Debt”) and provided $15million of new senior debt to fund immediate construction related expenditures ("New Senior Secured Debt"). The Company's New 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 New 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 June 30, 2017, the Company was in compliance with its debt covenants.”

The company has been around for a long time,it looks like all the way back into the 1990’s. And I have down thumbed it a few times before on Caps. I have been watching this recent run higher waiting for a slight pullback on the chart to prevent me from having a massive loss at the expense of the Momo traders, who seem to relish in pushing this little stock around. That’s not to say I won’t lose points here, but I have hopefully mitigated that loss somewhat by missing a good chunk of the run up.

As TSIF mentions, financials are horrible. They have about $100K a quarter in revenue, and are burning about $3-5MM per quarter in cash. This next statement was kind of funny:

“The Company's cash resources, provide the Company with sufficient funds to meet its working capital needs fora period beyond one year from this quarterly report issuance date. The Company may meet working capital requirements beyond this period through a variety of means, including construction financing, equity or debt placements, through the sale or other disposition of assets or reductions in operating costs. Equity placements may be made using our existing shelf registration. Equity placements, if made, would be undertaken only to the extent necessary, so as to minimize the dilutive effect of any such placements upon the Company's existing stockholders.”

Stating “only to the extent necessary” is a very bold statement, and printing it in the 10-Q is very bold. Especially from a company with two prior reverse splits in its history, a company that produces very little revenue and a firm that has negative equity of nearly ($71MM) on its balance sheet. I’d be very careful putting any real money here – this seems like a very good down thumb at this price.