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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period
ended March 31, 2003
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition
period from .. to ...
Commission File Number 0-12114
Cadiz Inc.
(Exact name of registrant specified in its charter)
DELAWARE 77-0313235
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
777 S. FIGUEROA STREET, SUITE 4250
LOS ANGELES, CALIFORNIA 90049
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (213) 271-1600
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes No X
--- ---
Indicate by check mark whether the Registrant is an accelerated
filer (as defined in Exchange Act Rule 12b-2).
Yes No X
--- ---
As of September 30, 2004, the Registrant had 6,612,674 shares of
common stock, par value $0.01 per share, outstanding.
CADIZ INC.
FOR THE THREE MONTHS ENDED MARCH 31, 2003 PAGE
- -----------------------------------------------------------------------
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CADIZ INC. CONSOLIDATED FINANCIAL STATEMENTS
Statement of Operations for the three months ended March 31,
2003 and 2002. . . . . . . . . . . . . . . . . . . . . . . . . 1
Balance Sheet as of March 31, 2003 and December 31, 2002. . . .2
Statement of Cash Flows for the three months ended March 31,
2003 and 2002. . . . . . . . . . . . . . . . . . . . . . . . . 3
Statement of Stockholders' Equity for the three months ended
March 31, 2003. . . . . . . . . . . . . . . . . . . . . . . . .4
Notes to the Consolidated Financial Statements. . . . . . . . .5
SUN WORLD INTERNATIONAL, INC. CONSOLIDATED FINANCIAL STATEMENTS
Statement of Operations for the three months ended March 31,
2003 and 2002. . . . . . . . . . . . . . . . . . . . . . . . . 17
Balance Sheet as of March 31, 2003 and December 31, 2002. . . .18
Statement of Cash Flows for the three months ended March 31,
2003 and 2002. . . . . . . . . . . . . . . . . . . . . . . . . 19
Statement of Stockholder's Deficit for the three months ended
March 31, 2003. . . . . . . . . . . . . . . . . . . . . . . . .20
Notes to the Consolidated Financial Statements. . . . . . . . .21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS. . . . . . . . . . . . . . . . . .25
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. 35
ITEM 4. CONTROLS AND PROCEDURES. . . . . . . . . . . . . . . . . . .35
PART II - OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . .35
Page i
CADIZ INC.
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
- -----------------------------------------------------------------------
FOR THE THREE MONTHS
ENDED MARCH 31,
(In thousands except per share data) 2003 2002
- -----------------------------------------------------------------------
Revenues $ 3,046 $ 7,750
--------- ---------
Costs and expenses:
Cost of sales 2,679 6,253
General and administrative 1,637 3,238
Reorganization costs 655 -
Write off of investment in subsidiary 195 -
Depreciation and amortization 337 726
--------- ---------
Total costs and expenses 5,503 10,217
--------- ---------
Operating loss (2,457) (2,467)
Interest expense, net 2,187 4,783
--------- ---------
Net loss before income taxes (4,644) (7,250)
Income tax expense - 23
--------- ---------
Net loss (4,644) (7,273)
Less: Preferred stock dividends 281 281
Imputed dividend on preferred stock 246 246
--------- ---------
Net loss applicable to common stock $ (5,171) $ (7,800)
========= =========
Basic and diluted net loss per common share $ (3.53) $ (5.39)
========= =========
Basic and diluted weighted average
shares outstanding 1,465 1,446
========= =========
See accompanying notes to the consolidated financial statements.
Page 1
CADIZ INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
- -----------------------------------------------------------------------
MARCH 31, DECEMBER 31,
($ IN THOUSANDS) 2003 2002
- -----------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 62 $ 3,229
Accounts receivable, net - 6,732
Note receivable from officer 1,007 1,022
Inventories - 13,513
Prepaid expenses and other 146 1,166
--------- ---------
Total current assets 1,215 25,662
Property, plant, equipment and water
programs, net 39,914 154,928
Goodwill 3,813 3,813
Other assets - 7,480
--------- ---------
$ 44,942 $ 191,883
========= =========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS'DEFICIT
Current liabilities:
Accounts payable $ 1,287 $ 7,394
Accrued liabilities 1,875 6,816
Revolving credit facility - 4,400
Notes payable and long-term debt, current
portion 35,265 41,019
--------- ---------
Total current liabilities 38,427 59,629
Long-term debt - 115,447
Deferred income taxes - 5,447
Other liabilities 1,563 1,539
Contingencies
Series D redeemable convertible
preferred stock - $0.01 par value:
5,000 shares authorized; shares issued
and outstanding - 5,000 at March 31,
2003 and December 31, 2002 4,609 4,536
Series E-1 and E-2 redeemable convertible
preferred stock - $0.01 par value:
7,500 shares authorized; shares issued
and outstanding - 7,500 at March 31,
2003 and December 31, 2002 6,579 6,406
Stockholders' deficit:
Common stock - $0.01 par value; 70,000,000
shares authorized; shares issued and
outstanding - 1,466,790 at March 31,
2003 and 1,458,659 at December 31, 2002 15 15
Additional paid-in capital 155,680 156,151
Accumulated deficit (161,931) (157,287)
--------- ---------
Total stockholders' deficit (6,236) (1,121)
--------- ---------
$ 44,942 $ 191,883
========= =========
See accompanying notes to the consolidated financial statements.
Page 2
CADIZ INC.
CONSOLIDATED STATEMENT OF CASHFLOWS (UNAUDITED)
- -----------------------------------------------------------------------
FOR THE THREE MONTHS
ENDED MARCH 31,
($ IN THOUSANDS) 2003 2002
- -----------------------------------------------------------------------
Cash flows from operating activities:
Net loss $ (4,644) $ (7,273)
Adjustments to reconcile net loss
from operations to cash used for
operating activities:
Depreciation and amortization 904 1,773
(Gain) loss on sale of assets 16 (45)
Write off of investment in subsidiary 195 -
Shares of KADCO stock earned
for services - (313)
Compensation charge for deferred
stock units 81 154
Accrued interest on loan to officer (15) -
Changes in operating assets
and liabilities:
Decrease in accounts receivable 1,488 2,124
Increase (decrease) in inventories (3,043) (6,359)
Decrease (increase) in prepaid
expenses and other (10) 48
Decrease in accounts payable 1,693 (5,086)
Increase (decrease) in accrued
liabilities 1,271 3,060
(Decrease) increase in other
liabilities - (8)
--------- ---------
Net cash used for operating activities (2,064) (11,925)
--------- ---------
Cash flows from investing activities:
Disposal of subsidiary (1,019) -
Additions to property, plant and equipment (140) (190)
Additions to water programs - (221)
Additions to developing crops (198) (1,002)
Payment on loan to officer 30 -
Proceeds from disposal of property,
plant and equipment - 45
(Increase) decrease in other assets (104) (746)
--------- ---------
Net cash (used) for investing activities (1,431) (2,114)
--------- ---------
Cash flows from financing activities:
Net proceeds from issuance of stock - 638
Proceeds (principal payments) on
long-term debt 135 (143)
Net proceeds from short-term debt - 12,900
Proceeds from convertible note payable 200 -
Principal payment on long-term debt (7) -
Decrease in bank overdraft - (410)
--------- ---------
Net cash provided by financing activities 328 12,985
--------- ---------
Net decrease in cash and cash equivalents (3,167) (1,054)
Cash and cash equivalents, beginning
of period 3,229 1,458
--------- ---------
Cash and cash equivalents, end of period $ 62 $ 404
========= =========
See accompanying notes to the consolidated financial statements.
Page 3
CADIZ INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
- --------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED MARCH 31, 2003
($ IN THOUSANDS)
- --------------------------------------------------------------------------------
ADDITIONAL TOTAL
COMMON STOCK PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
------ ------ ------- ------- ------
Balance as of
December 31, 2002 1,458,659 $ 15 $ 156,151 $(157,287) $ (1,121)
Shares issued in
exchange for
deferred stock units 131 - 24 - 24
Issuance of stock
with notes payable 8,000 - 32 - 32
Preferred stock
dividend - - (281) - (281)
Imputed dividend from
warrants and
deferred beneficial
conversion feature - - (246) - (246)
Net loss - - - (4,644) (4,644)
--------- ------ --------- --------- ---------
Balance as of
March 31, 2003 1,466,790 $ 15 $ 155,680 $(161,931) $ (6,236)
========= ====== ========= ========= =========
See accompanying notes to the consolidated financial statements.
Page 4
CADIZ INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
==============================================
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
GENERAL
The Consolidated Financial Statements have been prepared by
Cadiz Inc., sometimes referred to as "Cadiz" or "the Company",
without audit and should be read in conjunction with the
Consolidated Financial Statements and notes thereto included in
the Company's Form 10-K for the year ended December 31, 2002. On
January 30, 2003, Sun World filed voluntary petitions under
Chapter 11 of the Bankruptcy Code. See "General Development of
Business", in the Company's Form 10-K for the year ended December
31, 2002. Since the filing date, Sun World has operated its
business and managed its affairs as debtor and debtor in
possession. As of that date due to the Company's loss of control
over the operations of Sun World, the financial statements of Sun
World are no longer consolidated with those of Cadiz, but
instead, Cadiz is accounting for its investment in Sun World on
the cost basis of accounting. At January 31, 2003, Cadiz had a net
investment in Sun World of approximately $195 thousand consisting of
loans and other amounts due from Sun World of $13,500,000 less losses
in excess of investment in Sun World of $13,305,000. The
Company wrote off its net investment in Sun World of $195 thousand
at the Chapter 11 filing date because it does not anticipate being
able to recover its investment. The foregoing Consolidated Financial
Statements include the accounts of the Company and, until
January 30, 2003, those of its then wholly-owned subsidiary,
Sun World International, Inc. and its subsidiaries collectively
referred to as "Sun World", and contain all adjustments, consisting
only of normal recurring adjustments, which the Company considers
necessary for a fair presentation. Certain reclassifications have
been made to the prior period to conform to the current period
presentation.
The unaudited consolidated financial information furnished
herein has been prepared in accordance with generally accepted
accounting principles and reflects all adjustments, consisting
only of normal recurring adjustments, which in the opinion of
management, are necessary to fairly state the Company's financial
position, the results of its operations and its cash flows for
the periods presented.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and the accompanying notes. Actual
results could differ from those estimates and such differences
may be material to the financial statements. This quarterly
report on Form 10-Q should be read in conjunction with the
Company's Form 10-K for the year ended December 31, 2002. The
results of operations for the three months ended March 31, 2003
are not necessarily indicative of results for the entire fiscal
year ending December 31, 2003.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the Company have been
prepared using accounting principles applicable to a going
concern, which assumes realization of assets and settlement of
liabilities in the normal course of business. The Company
incurred losses of $4.6 million for the three months ended March
31, 2003 and $22.2 million for the year ended December 31, 2002,
Page 5
The Company had a working capital deficit of $37.2 million and
34.0 million at March 31, 2003 and December 31, 2002, and used
cash in operations of $2.1 million for the three months ended
March 31, 2003 and $10.1 million for the year ended December 31,
2002. In addition, Sun World filed for reorganization under
Chapter 11 of the Bankruptcy Code. The financial statements of
the Company do not purport to reflect or to provide for all of
the consequences of an ongoing Chapter 11 reorganization.
Specifically, but not all-inclusive, the financial statements of
the Company do not present: (a) the realizable value of assets
on a liquidation basis or the availability of such assets to
satisfy liabilities, (b) the amount which will ultimately be paid
to settle liabilities and contingencies which may be allowed in
the Chapter 11 reorganization, or (c) the effect of changes which
may be made resulting from a Plan of Reorganization. The
appropriateness of using the going-concern basis is dependent
upon, among other things, confirmation of a Plan of
Reorganization, future profitable operations, the ability to
comply with provisions of financing agreements and the ability to
generate sufficient cash from operations to meet obligations.
During the quarter ended June 30, 2003, the Company raised
$1.7 million cash and during the quarter ended December 31, 2003,
$8.6 million cash through private sales of common stock. Based on
current forecasts, the Company believes it has sufficient
resources to fund normal operations until May 2005. There is no
assurance that additional financing (public or private) will be
available on acceptable terms or at all. If the Company issues
additional equity securities to raise funds, the ownership percentage
of the Company's existing stockholders would be reduced. New investors
may demand rights, preferences or privileges senior to those of
existing holders of common stock. If the Company cannot raise needed
funds, it might be forced to make further substantial reductions
in its operating expenses, which could adversely affect its
ability to implement its current business plan and ultimately its
viability as a company. These financial statements do not include
any adjustments that might result from these uncertainties.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and those of Sun World until January 30, 2003, at which
date Sun World and certain of its subsidiaries (Sun Desert Inc.,
Coachella Growers, and Sun World/Rayo) filed voluntary petitions
for relief under Chapter 11 of the Bankruptcy Code. As of that
date due to the Company's loss of control over the operations of
Sun World, the financial statements of Sun World are no longer
consolidated with those of Cadiz, but instead, Cadiz accounts for
its investment in Sun World on the cost basis of accounting. As
a result of changing to the cost basis of accounting on January
31, 2003, the Company had a net investment in Sun World of $195,000
consisting of loans and other amounts due from Sun World of
$13,500,000 less losses in excess of investment in Sun World of
$13,305,000. The Company wrote off its net investment in Sun World
during the quarter ended March 31, 2003 because it does not anticipate
being able to recover its investment.
GOODWILL
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. This amount was
Page 6
being amortized on a straight-line basis over thirty years.
Accumulated amortization was $3,193,000 at December 31, 2001. In
June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 142, ("SFAS No.
142") "Goodwill and Other Intangible Assets". Under SFAS No. 142
goodwill and intangible assets deemed to have indefinite lives
are no longer amortized but will be subject to annual impairment
tests in accordance with the Statement. Upon adoption of SFAS
No. 142, effective at the beginning of fiscal 2002, the Company
performed a transitional fair value based impairment test and
determined that its goodwill was not impaired. Goodwill will be
tested for impairment annually in the first quarter, or earlier
if events occur which require an impairment analysis be
performed. As a result of the actions taken by Metropolitan in
the fourth quarter of 2002 as described in Cadiz' Annual Report
on Form 10-K for the year ended December 31, 2002, the Company,
with the assistance of an independent valuation firm, performed
an impairment test of its goodwill and determined that its
goodwill was not impaired. In addition, in the first quarter of
2003, the Company, with the assistance of an independent
appraisal firm, performed its annual impairment test of goodwill
and determined its goodwill was not impaired.
INTANGIBLE AND OTHER LONG-LIVED ASSETS
Property, plant and equipment, intangible and certain other
long-lived assets are amortized over their useful lives. Useful
lives are based on management's estimates of the period that the
assets will generate revenue. Long-lived assets are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. As a
result of the actions taken by Metropolitan in the fourth quarter
of 2002 as described in Note 1 in Cadiz' Annual Report on Form 10-
K for the year ended December 31, 2002, the Company, with the
assistance of an independent valuation firm, evaluated the
carrying value of its water program and determined that the asset
was not impaired and that the costs will be recovered through the
ultimate sale or operation of the project.
STOCK-BASED COMPENSATION
As permitted under Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation", the Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" in accounting for its stock options and other stock-
based employee awards. Pro forma information regarding net loss
and loss per share, as calculated under the provisions of SFAS
123, are disclosed in the table below. The Company accounts for
equity securities issued to non-employees in accordance with the
provision of SFAS 123 and Emerging Issues Task Force 96-18.
Had compensation cost for these plans been determined using
fair value the Company's net loss and net loss per common share
would have increased to the following pro forma amounts (dollars
in thousands):
Page 7
Three Months Ended March 31,
2003 2002
---- ----
Net loss applicable to
common stock: As reported $ (5,171) $ (7,800)
Expense under
SFAS 123 (50) (369)
--------- ---------
Pro forma $ (5,221) $ (8,169)
========= =========
Net loss per
common share: As reported $ (3.53) $ (5.39)
Expense under
SFAS 123 (0.03) (0.26)
--------- ---------
Pro forma $ (3.56) $ (5.65)
========= =========
See Note 2 to the Consolidated Financial Statements included
in the Company's Form 10-K for a discussion of the Company's
accounting policies.
NOTE 2 - INVENTORIES
- --------------------
Inventories consist of the following (dollars in thousands):
March 31, December 31,
2003 2002
---- ----
Growing crops $ - $ 10,702
Materials and supplies - 2,525
Harvested product - 286
--------- ---------
$ - $ 13,513
========= =========
NOTE 3 - PROPERTY, PLANT EQUIPMENT AND WATER PROJECT
- ----------------------------------------------------
Property, plant, equipment and water project consist of the
following (in thousands):
March 31, December 31,
2003 2002
---- ----
Land $ 22,010 $ 66,372
Permanent crops 6,493 61,994
Developing crops 159 11,624
Water programs 14,301 16,859
Buildings 1,408 22,620
Machinery and equipment 3,593 20,818
--------- ---------
47,964 200,287
Less accumulated depreciation (8,050) (45,359)
--------- ---------
$ 39,914 $ 154,928
========= =========
Page 8
NOTE 4 - DEBT
- -------------
On July 7 and 8, 2003, ING, the lender of the Company's senior
$25 million revolving credit facility and $10 million term loan
recorded a series of Notices of Default and Election to Sell
under Deed of Trust in the office of the San Bernardino County
Recorder evidencing a foreclosure action by ING against the
property which was securing the Company's senior secured loans
with ING. ING had declared these senior secured loans, which
then had a maturity date of January 31, 2003, to be in default in
February 2003.
In December 2003, subsequent to the completion of the Company's
comprehensive financial restructuring which included a three year
extension of the Company's loans with ING (as further described
below), ING recorded Notices of Rescission in San Bernardino
County whereby ING rescinded, canceled and withdrew each such
Notice of Default and Election to Sell.
On December 15, 2003, the Company entered into an amendment
of its senior term loan and revolving credit facility to extend
the maturity date through March 31, 2005 and can obtain further
extensions through September 30, 2006, by maintaining sufficient
balances, among other conditions, in a cash collateral account
with the lender. Interest under the amended credit facilities is
payable semiannually at the Company's option in either cash at 8%
per annum, or in cash and paid in kind ("PIK"), at 4% per annum
for the cash portion and 8% per annum for the PIK portion. The
PIK portion will be added to the outstanding principal balance.
In April 1997, Sun World issued $115 million of Series A First
Mortgage Notes through a private placement. The notes have
subsequently been exchanged for Series B First Mortgage Notes,
which are registered under the Securities Act of 1933 and are
publicly traded. The First Mortgage Notes are secured by a first
lien (subject to certain permitted liens) on substantially all
of the assets of Sun World and its subsidiaries other than
growing crops, crop inventories and accounts receivable and
proceeds thereof, which secure the Revolving Credit Facility.
With the entering into the DIP Facility as described in Note 9
to the Company's filing on Form 10-K for the year ended
December 31, 2002, the note holders now have a second position
on substantially all of the Company's assets for so long as the
DIP Facility is outstanding. The First Mortgage Notes mature
April 15, 2004, but are redeemable at the option of Sun World, in
whole or in part, at any time prior to the maturity date. The
First Mortgage Notes include covenants that do not allow for
the payment of dividends by the Company other than out of
cumulative net income.
The First Mortgage Notes are also secured by the guarantees
of Coachella Growers, Inc., Sun Desert, Inc., Sun World/Rayo, and
Sun World International de Mexico S.A. de C.V. (collectively, the
"Sun World Subsidiary Guarantors") and by Cadiz. Cadiz also
pledged all of the stock of Sun World as collateral for its
guarantee. The guarantees by the Sun World Subsidiary Guarantors
are full, unconditional, and joint and several. Sun World and the
Sun World Subsidiary Guarantors comprise all of the direct and
indirect subsidiaries of the Company other than inconsequential
subsidiaries.
Page 9
CONDENSED CONSOLIDATING FINANCIAL INFORMATION
Condensed consolidating financial information as of and for
the three months ended March 31, 2003 and 2002 and consolidating
balance sheet information as of December 31, 2002 for the Company
is as follows. Consolidating balance sheet information at March
31, 2003 is not presented as Sun World was deconsolidated
effective January 30, 2003 as further described in Note 1
(in thousands):
CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
THREE MONTHS ENDED MARCH 31, 2003
CADIZ SUN WORLD ELIMINATIONS CONSOLIDATED
----- --------- ------------ ------------
Revenues $ 187 $ 3,005 $ (146) $ 3,046
--------- --------- --------- ---------
Costs and expenses:
Cost of sales 47 2,653 (21) 2,679
General and
administrative 1,055 707 (125) 1,637
Write off of
investment in
subsidiary 195 - - 195
Reorganization
expense - 655 - 655
Depreciation and
amortization 147 190 - 337
--------- --------- --------- ---------
Total costs and
expenses 1,444 4,205 (146) 5,503
--------- --------- --------- ---------
Operating (loss) (1,257) (1,200) - (2,457)
Income (loss) from
subsidiary (2,469) - 2,469 -
Interest expense, net 918 1,269 - 2,187
--------- --------- --------- ---------
Net loss before income
taxes (4,644) (2,469) 2,469 (4,644)
Income tax expense - - - -
--------- --------- --------- ---------
Net loss (4,644) (2,469) 2,469 (4,644)
Less: Preferred stock
dividends 281 - - 281
Imputed dividend
on preferred
stock 246 - - 246
--------- --------- --------- ---------
Net loss applicable
to common stock $ (5,171) $ (2,469) $ 2,469 $ (5,171)
========= ========= ========= =========
Page 10
CONSOLIDATING STATEMENT OF
CASH FLOW INFORMATION
QUARTER ENDED MARCH 31, 2003
CADIZ SUN WORLD ELIMINATIONS CONSOLIDATED
----- --------- ------------ ------------
Net cash used for
operating activities $ (361) $ (1,703) $ - $ (2,064)
--------- --------- --------- ---------
Cash flows from
investing activities:
Disposal of subsidiary - (1,019) - (1,019)
Additions to property,
plant and equipment - (140) - (140)
Additions to
developing crops (1) (197) - (198)
Payment of loan to
officer 30 - - 30
(Increase) decrease
in other assets 5 (109) - (104)
--------- --------- --------- ---------
Net cash provided by
(used for) investing
activities 34 (1,465) - (1,431)
--------- --------- --------- ---------
Cash flows from
financing activities:
Net proceeds from
issuance of
long-term debt - 135 - 135
Net proceeds from
convertible notes
payable 200 - - 200
Principal payments
on long-term debt - (7) - (7)
--------- --------- --------- ---------
Net cash provided by
financing activities 200 128 - 328
--------- --------- --------- ---------
Net decrease in cash
and cash equivalents (127) (3,040) - (3,167)
Cash and cash
equivalents, beginning
of period 189 3,040 - 3,229
--------- --------- --------- ---------
Cash and cash
equivalents, end
of period $ 62 $ - $ - $ 62
========= ========= ========= =========
Page 11
CONSOLIDATING BALANCE SHEET INFORMATION
DECEMBER 31, 2002
CADIZ SUN WORLD ELIMINATIONS CONSOLIDATED
----- --------- ------------ ------------
ASSETS
Current assets:
Cash and cash
equivalents $ 189 $ 3,040 $ - $ 3,229
Accounts receivable,
net - 6,732 - 6,732
Net investment
in and advances and
loans to subsidiary 1,739 - (1,739) -
Note receivable from
officer 1,022 - - 1,022
Inventories - 13,638 (125) 13,513
Prepaid expenses and
other 323 843 - 1,166
--------- --------- --------- ---------
Total current
assets 3,273 24,253 (1,864) 25,662
Property, plant,
equipment and water
programs, net 40,076 114,852 - 154,928
Other assets 3,981 7,312 - 11,293
--------- --------- --------- ---------
$ 47,330 $ 146,417 $ (1,864) $ 191,883
========= ========= ========= =========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 1,142 $ 6,252 $ - $ 7,394
Accrued liabilities 987 5,829 - 6,816
Due to parent company - 13,546 (13,546) -
Revolving credit
facility - 4,400 - 4,400
Notes payable and
long-term debt,
current portion 34,769 6,250 - 41,019
--------- --------- --------- ---------
Total current
liabilities 36,898 36,277 (13,546) 59,629
--------- --------- --------- ---------
Long-term debt - 115,447 - 115,447
Deferred income taxes - 5,447 - 5,447
Other liabilities 611 928 - 1,539
Series D redeemable
preferred stock 4,536 - - 4,536
Series E-1 and E-2
redeemable preferred
stock 6,406 - - 6,406
Stockholders' deficit:
Common stock 15 - - 15
Additional paid-in
capital 156,151 38,508 (38,508) 156,151
Accumulated deficit (157,287) (50,190) 50,190 (157,287)
--------- --------- --------- ---------
Total stockholders'
deficit (1,121) (11,682) 11,682 (1,121)
--------- --------- --------- ---------
$ 47,330 $ 146,417 $ (1,864) $ 191,883
========= ========= ========= =========
Page 12
CONSOLIDATING STATEMENT
OF OPERATIONS INFORMATION
QUARTER ENDED MARCH 31, 2002
CADIZ SUN WORLD ELIMINATIONS CONSOLIDATED
----- --------- ------------ ------------
Revenues $ 482 $ 7,743 $ (475) $ 7,750
--------- --------- --------- ---------
Costs and expenses:
Cost of sales 31 6,322 (100) 6,253
General and
administrative 1,406 2,207 (375) 3,238
Depreciation and
amortization 227 499 - 726
--------- --------- --------- ---------
Total costs and
expenses 1,664 9,028 (475) 10,217
--------- --------- --------- ---------
Operating loss (1,182) (1,285) - (2,467)
Loss from subsidiary (5,295) - 5,295 -
Interest expense, net 794 4,032 (43) 4,783
--------- --------- --------- ---------
Net loss before income
taxes (7,271) (5,317) 5,338 (7,250)
Income tax expense 2 21 - 23
--------- --------- --------- ---------
Net loss (7,273) (5,338) 5,338 (7,273)
Less: Preferred stock
dividends 281 - - 281
Imputed dividend
on preferred
stock 246 - - 246
--------- --------- --------- ---------
Net loss applicable to
common stock $ (7,800) $ (5,338) $ 5,338 $ (7,800)
========= ========= ========= =========
Page 13
CONSOLIDATING STATEMENT OF
CASH FLOW INFORMATION
QUARTER ENDED MARCH 31, 2002
CADIZ SUN WORLD ELIMINATIONS CONSOLIDATED
----- --------- ------------ ------------
Net cash used for
operating activities $ (853) $ (11,072) $ - $ (11,925)
--------- --------- --------- ---------
Cash flows from
investing activities:
Additions to property,
plant and
equipment (28) (162) - (190)
Additions to water
programs (221) - - (221)
Additions to
developing crops (36) (966) - (1,002)
Proceeds from disposal
of property, plant
and equipment - 45 - 45
Increase in other
assets (416) (330) - (746)
--------- --------- --------- ---------
Net cash used for
investing activities (701) (1,413) - (2,114)
--------- --------- --------- ---------
Cash flows from
financing activities:
Net proceeds from
issuance of stock 638 - - 638
Principal payments on
long-term debt - (143) - (143)
Borrowings from
intercompany revolver,
net (9,074) 9,074 - -
Net proceeds from
short-term borrowings 10,000 2,900 - 12,900
Decrease in bank
overdraft (410) - - (410)
--------- --------- --------- ---------
Net cash provided by
financing activities 1,154 11,831 - 12,985
--------- --------- --------- ---------
Net decrease in cash
and cash equivalents (400) (654) - (1,054)
Cash and cash
equivalents, beginning
of period 400 1,058 - 1,458
--------- --------- --------- ---------
Cash and cash
equivalents, end of
period $ - $ 404 $ - $ 404
========= ========= ========= =========
Page 14
NOTE 5 - NET LOSS PER COMMON SHARE
- ----------------------------------
Basic Earnings Per Share (EPS) is computed by dividing the
net loss, after deduction for preferred dividends either accrued
or imputed, if any by the weighted-average common shares
outstanding. Options, deferred stock units, warrants,
convertible debt, and preferred stock that are convertible into
shares of the Company's common stock were not considered in the
computation of diluted EPS because their inclusion would have
been antidilutive. Had these instruments been included, the
fully diluted weighted average shares outstanding would have
increased by approximately 323,000 shares 176,000 shares at March
31, 2003 and 2002, respectively.
NOTE 6 - COMMON STOCK
- ---------------------
During the quarter ended March 31, 2003, we issued 8,000
shares of common stock in conjunction with the issuance of 8%
unsecured convertible promissory notes in the aggregate amount of
$200,000, due September 15, 2003. The proceeds were allocated
between the note payable and shares issued based on the fair
value of the shares issued. The notes and accrued interest were
originally convertible into common stock at a price of $5.00 per
share, which was subsequently reduced in August 2003 to $2.50 per
share in consideration for an extension of the notes' maturity
date to December 31, 2003. The notes and accrued interest were
converted into 84,699 shares of common stock on December 15, 2003.
NOTE 7 - SEGMENT INFORMATION
- -----------------------------
Financial information by reportable business segment is
reported in the tables below. The changes in the agricultural
segment for the period ended March 31, 2003 are due to the
deconsolidation of Sun World in January 2003($ in thousands).
THREE MONTHS ENDED MARCH 31
2003 2002
---- ----
External sales
Water resources $ 41 $ 7
Resources agricultural 3,005 7,743
--------- ---------
Consolidated $ 3,046 $ 7,750
========= =========
Inter-segment sales
Water resources $ 146 $ 475
Resources agricultural (146) (475)
--------- ---------
Consolidated $ - $ -
========= =========
Page 15
Total sales
Water resources $ 187 $ 482
Agricultural 3,005 7,743
Other (146) (475)
--------- ---------
Consolidated $ 3,046 $ 7,750
========= =========
Loss before income taxes
Water resources $ (1,062) $ (1,182)
Agricultural (1,200) (1,285)
Interest expense (2,187) (4,783)
Other (195) -
--------- ---------
Consolidated $ (4,644) $ (7,250)
========= =========
MARCH 31, DECEMBER 31,
2003 2002
---- ----
Assets
Water resources $ 44,942 $ 47,330
Agricultural - 146,417
Other - (1,864)
--------- ---------
Consolidated $ 44,942 $ 191,883
========= =========
Page 16
SUN WORLD INTERNATIONAL, INC.
(DEBTOR-IN-POSSESSION)
(A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.)
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
- ---------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31,
($ IN THOUSANDS) 2003 2002
- ---------------------------------------------------------------------
Revenues $ 9,561 $ 7,743
--------- ---------
Costs and expenses:
Cost of sales 9,071 6,322
General and administrative 2,146 2,207
Depreciation and amortization 526 499
--------- ---------
Total costs and expenses 11,743 9,028
--------- ---------
Operating loss (2,182) (1,285)
Interest expense, net (contractual interest
for 2003 was $4,029) 1,603 4,032
--------- ---------
Loss before reorganization items and
income taxes (3,785) (5,317)
Reorganization items:
Debt issuance costs 912 -
Professional fees 1,365 -
--------- ---------
Total reorganization items 2,277 -
--------- ---------
Loss before income taxes (6,062) (5,317)
Income tax expense 20 21
--------- ---------
Net loss $ (6,082) $ (5,338)
========= =========
See accompanying notes to the consolidated financial statements.
Page 17
SUN WORLD INTERNATIONAL, INC.
(DEBTOR-IN-POSSESSION)
(A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.)
CONSOLIDATED BALANCE SHEET (Unaudited)
- ---------------------------------------------------------------------
MARCH 31, DECEMBER 31,
($ IN THOUSANDS) 2003 2002
- ---------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,736 $ 3,040
Accounts receivable, net 5,226 6,732
Inventories 20,454 13,638
Prepaid expenses and other 2,138 843
--------- ---------
Total current assets 29,554 24,253
Property, plant, and equipment, net 111,472 112,293
Intangible assets 1,958 1,934
Other assets 7,305 7,937
--------- ---------
Total assets $ 150,289 $ 146,417
========= =========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Accounts payable $ 3,000 $ 6,252
Accrued liabilities 2,301 5,829
Due to parent - 13,546
Revolving credit facility 14,062 4,400
Long-term debt, current portion 123 6,250
--------- ---------
Total current liabilities 19,486 36,277
Long-term debt 825 115,447
Deferred income taxes 5,447 5,447
Other liabilities 997 928
--------- ---------
Total liabilities not subject to
compromise 26,755 158,099
--------- ---------
Liabilities subject to compromise under
reorganization proceedings 141,298 -
--------- ---------
Contingencies
Stockholder's deficit:
Common stock, $0.01 par value, 300,000
shares authorized; 42,000 shares
issued and outstanding - -
Additional paid-in capital 38,508 38,508
Accumulated deficit (56,272) (50,190)
--------- ---------
Total stockholder's deficit (17,764) (11,682)
--------- ---------
Total liabilities and stockholder's deficit $ 150,289 $ 146,417
========= =========
See accompanying notes to the consolidated financial statements.
Page 18
SUN WORLD INTERNATIONAL, INC.
(DEBTOR-IN-POSSESSION)
(A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.)
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
- ---------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31,
($ IN THOUSANDS) 2003 2002
- ---------------------------------------------------------------------
Cash flows from operating activities:
Net loss $ (6,082) $ (5,338)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 602 942
Write-off of debt issuance costs 912 -
Gain on disposal of assets (9) (45)
Shares of KADCO stock earned for services (313) (313)
Compensation charge for deferred stock units 79 80
Changes in operating assets and liabilities:
Decrease in accounts receivable 1,520 2,123
Increase in inventories (5,735) (6,359)
Decrease (increase) in prepaid expenses
and other (1,295) 14
Decrease in accounts payable 454 (5,189)
Increase in accrued liabilities 268 2,917
Increase in due to parent (61) 104
(Decrease) increase in other liabilities (10) (8)
--------- ---------
Net cash used before reorganization items (9,670) (11,072)
--------- ---------
Increase in liabilities subject to compromise
under reorganization proceedings 247 -
--------- ---------
Net cash used for operating activities (9,423) (11,072)
--------- ---------
Cash flows from investing activities:
Additions to property, plant, and equipment (187) (162)
Additions to developing crops (548) (966)
Proceeds from disposal of property, plant
and equipment 21 45
Increase in other assets (131) (330)
--------- ---------
Net cash used for investing activities (845) (1,413)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of long term debt 136 -
Principal payments on long-term debt (885) (143)
Borrowings from intercompany revolver, net 51 9,074
Proceeds from short-term borrowings 9,662 2,900
--------- ---------
Net cash provided by financing activities 8,964 11,831
--------- ---------
Net decrease in cash and cash equivalents (1,304) (654)
Cash and cash equivalents at beginning
of period 3,040 1,058
--------- ---------
Cash and cash equivalents at end of period $ 1,736 $ 404
========= =========
See accompanying notes to the consolidated financial statements.
Page 19
SUN WORLD INTERNATIONAL, INC.
(DEBTOR-IN-POSSESSION)
(A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2003
- --------------------------------------------------------------------------------
($ IN THOUSANDS)
ADDITIONAL TOTAL
COMMON STOCK PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT DEFICIT
------ ------ ------- ------- --------
Balance as of
December 31, 2002 42,000 $ - $ 38,508 $ (50,190) $ (11,682)
Net loss - - - (6,082) (6,082)
--------- ------ --------- ---------- ----------
Balance as of
March 31, 2003 42,000 $ - $ 38,508 $ (56,272) $ (17,764)
========= ====== ========= ========== ==========
See accompanying notes to the consolidated financial statements.
Page 20
SUN WORLD INTERNATIONAL, INC.
(DEBTOR-IN-POSSESSION)
(A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.)
NOTES OF CONSOLIDATED FINANCIAL STATEMENTS
==========================================
NOTE 1 - NATURE OF OPERATIONS AND REORGANIZATION UNDER CHAPTER 11
- -----------------------------------------------------------------
Founded in 1975, Sun World International, Inc. ("SWII" or
"Sun World") and its subsidiaries (collectively, the "Company")
operate as the agricultural segment of Cadiz Inc. ("Cadiz"). The
Company is an integrated agricultural operation that owns
approximately 17,100 acres of land, primarily located in two
major growing areas of California: the San Joaquin Valley and
the Coachella Valley. Fresh produce, including table grapes,
stonefruit, citrus, peppers and watermelons is marketed, packed
and shipped to food wholesalers and retailers located throughout
the United States and to more than 30 foreign countries. The
Company owns and operates three cold storage and/or packing
facilities located in California, of which two are operated and
one is leased to a third party.
On January 30, 2003 (the "Petition Date"), SWII and certain
of its subsidiaries (Sun Desert Inc., Coachella Growers, and Sun
World/Rayo) filed voluntary petitions for relief under Chapter 11
of the Bankruptcy Code. The filing was made in the United States
Bankruptcy Court, Central District of California, Riverside
Division ("Bankruptcy Court"). Included in the Consolidated
Financial Statements are subsidiaries operated outside the United
States, which have not commenced Chapter 11 cases or other
similar proceedings elsewhere, and are not debtors. The assets
and liabilities of such no-filing subsidiaries are not considered
material to the Consolidated Financial Statements. SWII sought
bankruptcy protection in order to access a seasonal financing
package of up to $40 million to provide working capital through
the 2003-2004 growing seasons.
As a debtor-in-possession, Sun World is authorized to
continue to operate as an ongoing business, but may not engage in
transactions outside the ordinary course of business without the
approval of the Bankruptcy Court. Under the Bankruptcy Code,
actions to collect pre-petition indebtedness, as well as most
other pending litigation, are stayed and other contractual
obligations against Sun World may not be enforced. In addition,
under the Bankruptcy Code, Sun World may assume or reject
executory contracts, including lease obligations. Parties
affected by these rejections may file claims with the Court in
accordance with the reorganization process. Absent an order of
the Court, substantially all pre-petition liabilities are subject
to settlement under a plan of reorganization to be voted upon by
creditors and equity holders and approved by the Bankruptcy
Court.
The financial statements of the Company have been prepared
using accounting principles applicable to a going concern, which
assumes realization of assets and settlement of liabilities in
the normal course of business and in accordance with Statement of
Position 90-7, "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code". Accordingly, all pre-petition
liabilities subject to compromise have been segregated in the
Consolidated Balance Sheet and classified as "Liabilities subject
to compromise under reorganization proceedings", at the estimated
amount of allowable claims. The financial statements of the
Company do not purport to reflect or to provide for all of the
consequences of an ongoing Chapter 11 reorganization.
Specifically, but not all-inclusive, the financial statements of
the Company do not present: (a) the realizable value of assets
on a liquidation basis or the availability of such assets to
satisfy liabilities, (b) the amount which will ultimately be paid
to settle liabilities and contingencies which may be allowed in
the Chapter 11 reorganization, or (c) the effect of
Page 21
changes which may be made resulting from a Plan or Reorganization.
The appropriateness of using the going-concern basis is dependent
upon, among other things, confirmation of a Plan of
Reorganization, future profitable operations, the ability to
comply with debtor-in-possession financing agreements and the
ability to generate sufficient cash from operations to meet
obligations.
Inherent in a successful Plan of Reorganization is a capital
structure that permits the Company to generate cash flows after
reorganization to meet its restructured obligations and fund the
current operations of the Company. The Company's objective in
the Chapter 11 proceeding is to achieve the highest possible
recovery for all creditors and shareholders consistent with the
Company's ability to pay and the continuation of its business.
There can be no assurance that the Company will be able to attain
these objectives or reorganize successfully. Because of the
ongoing nature of the reorganization case, the financial
statements contained herein are subject to material
uncertainties.
NOTE 2 - BASIS OF PRESENTATION
- ------------------------------
The Consolidated Financial Statements have been prepared by
Sun World International, Inc. and its subsidiaries, collectively
referred to as "Sun World" without audit and should be read in
conjunction with the Sun World Consolidated Financial Statements
and notes thereto included in the Cadiz Inc. Form 10-K for the
year ended December 31, 2002. The foregoing Consolidated
Financial Statements include all adjustments, consisting only of
normal recurring adjustments, which Sun World considers necessary
for a fair presentation. The results of operations for the three
months ended March 31, 2003 are not indicative of the results to
be expected for the full fiscal year as Sun World's harvest
seasons and revenues are seasonal in nature.
Since the Chapter 11 bankruptcy filing, the Company has
applied the provisions of SOP 90-7, which does not significantly
change the application of accounting principles generally
accepted in the United States of America; however, it does
require that the financial statements for periods including and
subsequent to filing the Chapter 11 petition distinguish
transactions and events that are directly associated with the
reorganization from the ongoing operations of the business. As
disclosed in the Consolidated Statements of Operations,
reorganization items consist of the write off of unamortized debt
issuances costs as of the Petition Date of $912,000 and
professional fees directly associated with the reorganization of
$1,365,000.
See Note 2 to the Sun World Consolidated Financial
Statements included in the Cadiz Inc. latest Form 10-K for a
discussion of Sun World's accounting policies.
Page 22
NOTE 3 - INVENTORIES
- --------------------
Inventories consist of the following (dollars in thousands):
MARCH 31, DECEMBER 31,
2003 2002
---- ----
Growing crops $ 17,978 $ 10,702
Harvested product 118 411
Materials and supplies 2,358 2,525
--------- ---------
$ 20,454 $ 13,638
========= =========
NOTE 4 - LIABILITIES SUBJECT TO COMPROMISE UNDER REORGANIZATION
PROCEEDINGS
- ---------------------
Under bankruptcy law, actions by creditors to collect
indebtedness Sun World owed prior to the Petition Date are stayed
and certain other pre-petition contractual obligations may not be
enforced against the Company. We have received approval from the
Bankruptcy Court to pay certain pre-petition liabilities
including employee salaries and wages, benefits, other employee
obligations, and certain grower liabilities entitled to trust
protection under the Perishable Agricultural Commodities Act
(PACA). Except for certain secured debt obligations, all pre-
petition liabilities have been classified as "Liabilities subject
to compromise under reorganization proceedings" in the
Consolidated Balance Sheet. Adjustments to the claims may result
from negotiations, payments authorized by Bankruptcy Court order,
rejection of executory contracts including leases, or other
events.
Pursuant to an order of the Bankruptcy Court, Sun World
mailed notices to all known creditors that the deadline for
filing proofs of claim with the Court was August 29, 2003. An
estimated 340 claims were filed as of August 29, 2003. Amounts
that Sun World has recorded are in many instances different from
amounts filed by our creditors. Differences between amounts
scheduled by Sun World and claims by creditors are being
investigated and resolved in connection with our claims
resolution process. Until the process is complete, the ultimate
number and amount of allowable claims cannot be ascertained. The
ultimate resolution of these claims will be based upon the final
plan of reorganization.
Page 23
Liabilities subject to compromise under reorganization
proceedings are summarized as follows (dollars in thousands):
MARCH 31,
2003
----
Accounts payable $ 3,941
Interest payable 3,795
Due to parent company 13,562
Long-term debt 120,000
---------
Total $ 141,298
=========
Page 24
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (UNAUDITED)
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. Forward-looking statements can be identified by the
use of words such as "intends", "anticipates", "believes",
"estimates", "projects", "forecasts", "expects", "plans" and
"proposes". 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 Cadiz, California land and
water resources; the uncertainty of the outcome of Sun World's
bankruptcy proceedings; our outstanding guarantee of Sun World's
First Mortgage Notes; and our ability to obtain new financings as
needed to meet our ongoing working capital needs. See additional
discussion under the heading "Certain Trends and Uncertainties"
in Item 7 of our Annual Report on Form 10-K for the year ended
December 31, 2002.
OVERVIEW
As discussed in further detail below, as of January 30,
2003 the financial statements of our Sun World subsidiary are no
longer being consolidated with ours. Presently, our operations
(and, accordingly, our working capital requirements) relate
primarily to our water development activities and, more
specifically, to the Cadiz Groundwater Storage and Dry-Year
Supply Program. Our results of operations for periods subsequent
to January 2003 have been, and in future fiscal periods will be,
largely reflective of the operations of our water development
activities.
CADIZ GROUNDWATER STORAGE AND DRY-YEAR SUPPLY PROGRAM. In
1997, we commenced discussions with the Metropolitan Water
District of Southern California (Metropolitan) in order to
develop principles and terms for a long-term agreement for a
joint venture water storage and supply program on and under our
Cadiz, California property. In July 1998, Cadiz and Metropolitan
approved the Principles and Terms for Agreement for the Cadiz
Groundwater Storage and Dry-Year Supply Program (the Cadiz
Program). At the same time, Cadiz and Metropolitan authorized
preparation of a final agreement based on these principles and
initiated the environmental review process for the Cadiz Program.
Following extensive negotiations with Cadiz to further refine and
finalize these basic principles, Metropolitan's Board of
Directors approved definitive economic terms and responsibilities
at their April 2001 board meeting. The Cadiz Program definitive
economic terms were to serve as the basis for a final agreement
to be executed between Metropolitan and Cadiz, subject to the
then-ongoing environmental review process.
Under the Cadiz Program, during wet years or periods of
excess supply, surplus water from the Colorado River Aqueduct
would be stored in the groundwater basin underlying our property.
During dry years or times of reduced allocations from the
Colorado River, the previously imported water, together with
additional existing groundwater, would be extracted and
delivered, via a conveyance pipeline, back to the aqueduct.
Page 25
On August 29, 2002, the U.S. Department of Interior
approved the Final Environmental Impact Statement for the Cadiz
Program and issued its Record of Decision, the final step in the
federal environmental review process for the Cadiz Program. The
Record of Decision amends the California Desert Conservation Area
Plan for an exception to the utility corridor element and offered
to Metropolitan a right-of-way grant necessary for the
construction and operation of the Cadiz Program.
On September 17, 2002, the Metropolitan Subcommittee on
Rules and Ethics scheduled a series of meetings in October and
November 2002 to consider (a) acceptance of the Record of
Decision and the terms and conditions of the right-of-way grant,
(b) certification of the environmental documentation for the
Cadiz Program under state law, and (c) the final agreement
between Cadiz and Metropolitan.
On October 8, 2002, Metropolitan's Board considered
acceptance of the Record of Decision and the terms and conditions
of the right-of-way grant. The Board voted not to adopt
Metropolitan staff's recommendation to approve the terms and
conditions of the right-of-way grant issued by the Department of
the Interior for the Cadiz Program by a vote of 47.11% in favor
and 47.36% against the recommendation. Instead, the Board voted
for an alternative motion to reject the terms and conditions of
the right-of-way grant and to not proceed with the Cadiz Program
by a vote of 50.25% in favor and 44.22% against.
Irrespective of Metropolitan's actions, Southern
California's need for water storage and supply programs has not
abated. We believe there are several different scenarios to
maximize the value of this water resource, all of which are under
current evaluation.
Until October 2002 we had expected that the Cadiz Program
would be implemented upon the previously negotiated terms, and we
had structured our financing arrangements with a view to such
implementation. Following Metropolitan's vote in October 2002 to
not proceed with the Cadiz Program, these financing arrangements
were no longer workable on their then existing terms.
In January 2003, Sun World filed a voluntary petition for
Chapter 11 bankruptcy protection in order to access seasonal
financing. Historically, we, as the parent company of Sun World,
had supplemented Sun World's annual working capital requirements.
However, at the time of Sun World's filing we did not have the
ability to do this. The only way Sun World could obtain the new
financing needed to provide working capital for its 2003-2004
growing seasons was to seek court approval, pursuant to Chapter
11, to a new Debtor in Possession ("DIP") facility.
Sun World's financial situation and bankruptcy filing, in
turn, negated an agreement we had previously reached with our
primary lender, ING Capital LLC ("ING") for a three year
extension of approximately $35 million of senior secured loans
with a maturity date of January 31, 2003. As we were unable to
make payment of this debt when due, in February 2003 ING declared
these loans to be in default, although we remained in
negotiations with ING for an overall restructuring of this debt.
Page 26
In March 2003, the Company's common stock was delisted from
Nasdaq, and thereafter traded on the OTC Bulletin Board until May
2003, at which time the common stock was removed from the
Bulletin Board and began trading on the Pink Sheets.
Our financing activities during 2003 were directed primarily
towards completion of an overall restructuring of our capital
structure which would preserve our ability to continue with our
water resource development programs. This overall capital
restructuring was successfully completed in December 2003, and
featured the following components, in chronological order:
* In June 2003 we completed a private equity offering of
800,000 shares of our common stock (after giving effect
to our one for twenty-five reverse stock split effective
December 15, 2003 (the "Reverse Split")). 672,000 shares
were issued in consideration of $1.68 million in cash,
112,000 were issued in consideration for $280 thousand in
services rendered to us, and 16,000 were issued as
consideration for fees related to the equity offering.
The proceeds raised in this offering provided sufficient
working capital for us to continue operations pending
completion of the larger $8.6 million private placement
in December 2003 described below.
* In August 2003 our stockholders approved implementation of
a reverse split of our outstanding common stock, with the
exact ratio for the split to be determined by our Board
of Directors at the time of the split. The reverse split
was intended to increase the likelihood of our being
able to meet the minimum trading price required for
listing our stock on The Nasdaq SmallCap Market or other
national securities exchange, as well as to provide us
with additional authorized but unissued shares of common
stock to be used for capital raising and other purposes.
* In October 2003 we entered into an agreement with the
holders of all of our outstanding Series D, Series E-1 and
Series E-2 preferred stock whereby we issued 400,000
shares of our common stock (after giving effect to the
Reverse Split) in exchange of all of our then outstanding
Series D, Series E-1 and Series E-2 preferred stock. In
connection with this conversion, we recorded a charge
against paid-in capital as an inducement to convert.;
* In December 2003, as described in further detail in
our most recent Form 10-K, we simultaneously completed:
* An extension of up to three years of our $35
million debt facility with ING,
* A one for twenty-five reverse split of our
outstanding common stock;
* An additional equity infusion of $8.6 million
through the issuance of 3,440,000 shares of common
stock;
Page 27
* The transfer of our properties to Cadiz Real
Estate LLC, a Delaware limited liability company
wholly owned by us and created at the behest of ING;
and
* The completion of our global settlement agreement
with the holders of a majority of Sun World's
First Mortgage Notes (the "Bondholders") which
provides for the pledge of our equity in Sun World
together with an unsecured claim due to us from
Sun World of $13.5 million to a trust controlled
by the Bondholders.
As a consequence of all of these transactions, the number
of outstanding shares of our common stock (after giving effect to
our December 2003 one for twenty-five reverse stock split) has
increased from 1,858,659 shares as of December 31, 2002
(including 400,000 common shares issuable upon the conversion of
outstanding Series D and E preferred stock) to 8,200,340 shares
as of December 31, 2003 (including 1,728,955 common shares
issuable upon the conversion of outstanding Series F preferred
stock).
With the completion of these transactions, we have provided
for our short-term working capital needs and are able to refocus
our efforts on obtaining and utilizing the capital necessary to
proceed with our water resource development programs.
RESULTS OF OPERATIONS
On January 30, 2003, Sun World filed a voluntary petition
for Chapter 11 bankruptcy protection. As of that date due to the
Company's loss of control over the operations of Sun World, the
financial statements of Sun World will no longer be consolidated
with ours, but instead, we will account for our investment in Sun
World on the cost basis of accounting. As a result of changing
to the cost basis of accounting on January 31, 2003, we had a net
investment in Sun World of approximately $195 thousand consisting
of loans and other amounts due from Sun World of approximately
$13,500,000 less losses in excess of investment in Sun World of
$13,305,000. We wrote off the net investment in Sun World of $195
thousand at the Chapter 11 filing date because we do not
anticipate being able to recover our investment.
Our consolidated financial statements for the three month
period ended March 31, 2003 include the results of operations for
Sun World only for the period January 1, 2003 through January 30,
2003. The results of operations of Sun World subsequent to
January 30, 2003 are not consolidated in these consolidated
financial statements. As a result of the foregoing, direct
comparisons of our consolidated results of operations for the
three months ended March 31, 2003 with results for the three
months ended March 31, 2002 will not, in our view, prove
meaningful.
For this reason, we believe that material trends and
developments with respect to our results of operations from
period to period are more readily identifiable by comparing the
unconsolidated results of Cadiz Inc., which do not include the
January 2003 operations of Sun World, rather than our
consolidated results of operations, which include the January
2003 operations of Sun World. Therefore, in the following
discussion of results of operations, we are using only the
unconsolidated results of Cadiz Inc.
Page 28
Tables which disclose the results of Cadiz Inc. separate
from its consolidated subsidiary Sun World for the period ending
March 31, 2003, and from which the numbers used in the following
discussion are derived, can be found in Note 4 to the
Consolidated Financial Statements in Item 1 above.
THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THREE MONTHS ENDED
MARCH 31, 2002
- -----------------------------------------------------------------
We have not received significant revenues from our water
resource activity to date. As a result, we have historically
incurred a net loss from operations. Cadiz had revenues of $187
thousand for the three months ended March 31, 2003 and $482
thousand for the three months ended March 31, 2002. Our net loss
was $4.6 million for the three months ended March 31, 2003 and $7.3
million for the three months ended March 31, 2002. During the three
months ended March 31, 2003 Cadiz net loss included its equity loss from
Sun World of $2.5 million and for the same period in 2002, an equity
loss of $5.3 million. Without the losses from Sun World, Cadiz would
have had a loss of $2.2 million in the three months ended March 31,
2003 and $2.0 million for the three months ended March 31, 2002.
Our primary expenses are our ongoing overhead costs (i.e.
general and administrative expense) and our interest expense.
REVENUES. Cadiz had standalone revenues of $187 thousand for
the three months ended March 31, 2003 and $482 thousand for the three
months ended March 31, 2002 with the reduction attributable to the
discontinuation of management fees payable by Sun World as of January
2003 due to Sun World's Chapter 11 filing.
GENERAL AND ADMINISTRATIVE EXPENSES. General and
administrative expenses for the three months ended March 31, 2003
totaled $1.1 million compared to $1.4 million for the same 2002
period. The decrease in general and administrative expenses is
primarily due to reductions in salaries and other costs
associated with a reduction in staffing.
WRITE OFF OF INVESTMENT IN SUBSIDIARY. On January 30, 2003 Sun
World and certain of its subsidiaries filed voluntary petitions for
relief under Chapter 11 of the Bankruptcy Code. As of that date
due to the Company's loss of control over the operations of Sun
World, the financial statements are no longer consolidated with those
of Cadiz, but instead Cadiz accounts for its investment in Sun World
on the cost basis of accounting. As a result of changing to the
cost basis of accounting and because the Company does not believe it
will be able to recover its investment, the Company wrote off its
investment in Sun World of $195,000.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and
amortization expense for the three months ended March 31, 2003
totaled $147 thousand compared to $227 thousand during the same
period in 2002. The decrease in depreciation was primarily
attributable to certain assets being removed in 2002 and certain
assets becoming fully depreciated during the past year.
Page 29
INTEREST EXPENSE, NET. Net interest expense totaled $0.9
million during the three months ended March 31, 2003 as compared
to $0.8 million in 2002. The following table summarizes the
components of net interest expense for the period (in thousands):
THREE MONTHS ENDED
MARCH 31
2003 2002
---- ----
Interest on outstanding debt - Cadiz $ 633 $ 330
Amortization of financing costs 351 648
Interest income (66) (184)
--------- ---------
$ 918 $ 794
========= =========
Financing costs, which include legal fees and warrant costs,
are amortized over the life of the debt agreement, most of which
related to the ING obligation which became due near the beginning
of 2003 resulting in lower costs during 2003. The lower interest
income in 2003 was the result of no interest accruing on the
intercompany loans to Sun World following the Chapter 11 petition
and interest expense was higher because of increased borrowings
and a higher rate of interest on the ING loan.
LIQUIDITY AND CAPITAL RESOURCES
CURRENT FINANCING ARRANGEMENTS
- ------------------------------
CADIZ OBLIGATIONS. As we have not received significant
revenues from our water resource activity to date, we have been
required to obtain financing to bridge the gap between the time
water resource development expenses are incurred and the time
that revenue will commence. Historically, we have addressed these
needs primarily through secured debt financing arrangements with
our lenders, private equity placements and the exercise of
outstanding stock options.
As of December 31, 2002, we were obligated for approximately
$10,095,068 under a senior term loan facility and $25 million
under a revolving credit facility with our primary secured
lender, ING Capital LLC. Each facility had a maturity date of
January 31, 2003. Sun World's bankruptcy filing negated an
agreement we had previously reached with ING for a three year
extension of these loans, and in February 2003 ING declared these
loans to be in default.
During 2003 we remained in continuing discussions with ING
concerning an overall restructuring of this debt and in December
2003, as part of an overall restructuring of our capital
structure, we entered into agreements with ING which provided for
establishing the outstanding principal balance owed to ING at $35
million and extended the maturity date of the credit facilities
until March 31, 2005, with three additional automatic 6 month
extensions conditioned on our maintaining, as of the commencement
date of each extension, cash in an amount equal to at least 4% of
the outstanding principal balance of the credit facilities in a
cash collateral account held by ING.
Page 30
Additional details concerning the terms of this December
2003 restructuring are included in our Form 10-K for the year
ended December 31, 2002.
As we continue to actively pursue our business strategy,
additional financing specifically in connection with our water
programs will be required. See "Outlook", below. As the parties
anticipated this need at the time of our credit restructuring,
the restrictive covenants in our credit facility were crafted in
a way that, in our view, should not materially limit our ability
to undertake debt or equity financing in order to finance our
water development activities.
Subsequent to the conversion of Series D and E preferred
stock discussed in Item 5 of our Form 10-K for the year ended
December 31, 2002, we have no outstanding credit facilities
or preferred stock other than the Series F preferred stock issued
to ING as part of the restructuring described above.
SUN WORLD OBLIGATIONS. Sun World has outstanding $115
million of First Mortgage Notes. The First Mortgage Notes were
originally to mature on April 15, 2004. The First Mortgage Notes
are currently in default as a consequence of the Sun World
bankruptcy filing. Sun World's proposed plan of reorganization
currently provides for settlement of claims held by the holders
of these notes through the issuance of equity interests in Sun
World to such holders.
The Sun World notes are also secured by the guarantee of
Cadiz. As we are not a party to the Sun World bankruptcy filing,
the effectiveness of a plan of reorganization which discharges
Sun World's obligation to holders of these notes will not, in and
of itself, release us of any obligations which we may still have
under this guarantee. The Plan, as currently proposed, includes a
release in our favor with respect to any of our remaining
obligations under this guarantee; however, we do not know whether
this provision of the Plan will be approved by the Bankruptcy
Court.
We have limited any potential obligation we may have
otherwise had under the guarantee by entering into release
agreements with the majority of the holders of the Sun World notes.
For example, in December 2003 we entered into a global settlement
agreement with Sun World and with the holders of a majority of Sun
World's First Mortgage Notes (the "Bondholders"). Pursuant to this
global settlement agreement, the Bondholders waived their rights to
seek recovery against us on account of our guarantee of Sun World's
obligations under the First Mortgage Notes. This right will
similarly be waived by any other note holder which elects to opt
into this settlement. The identity and ownership interests of Sun
World's bondholders is not a matter of public record, however,
based on the results of investigations performed on behalf of Sun
World, we believe that we have obtained waivers and/or releases
to date from Bondholders which hold, together with their
affiliates, approximately 88% in interest of outstanding Sun
World notes. All of the remaining Sun World notes (other than a
nominal interest of less than 1%) are held by persons who are
also shareholders of ours.
No non-releasing bondholder has sought to enforce our
guarantee of Sun World's obligations against us, nor has any such
bondholder given any indication to us that it plans to do so. As
part of our December 2003 global settlement agreement, the
Bondholders gave written direction to the indenture trustee
irrevocably instructing the trustee to take no action against us
on behalf of bondholders or on account of the guarantee.
Further, we believe that if a
Page 31
bondholder's claim against Sun World is ultimately satisfied in
whole or in part through a Sun World plan of reorganization, then
such bondholder will not be entitled to enforce the guarantee against
us as to the amount of the claim so satisfied.
In view of all of these factors, we do not anticipate that
significant claims will be made against us under the guarantee
and we are not setting aside existing working capital or seeking
to raise additional working capital in order to pay claims under
the guarantee.
We have no other obligations or working capital needs with
respect to Sun World. As part of our December 2003 global
settlement, we have settled all of our claims and obligations
with Sun World. Although we continue to be the record owner of
Sun World's stock, Sun World will not be receiving working
capital contributions from us while it is in bankruptcy
proceedings. Sun World's currently proposed plan of
reorganization provides for our ownership interests in Sun World
to be canceled.
CASH USED FOR OPERATING ACTIVITIES. Cash used by operating
activities totaled $2.1 million for the three months ended March
31, 2003, as compared to $11.9 million used for operating
activities for the three months ended March 31, 2002. The
improvement in cash flows is primarily due to the deconsolidation
of Sun World in January 2003.
Cash used by Cadiz for operating activities totaled $0.4
million for the three months ended March 31, 2003, and $0.9 million
for the three months ended March 31, 2002. The primary cause for the
improvement was an increase in accounts payable and accrued
liabilities of $0.8 million.
CASH USED FOR INVESTING ACTIVITIES. Cash used by investing
activities was $1.4 million for the three months ended March 31,
2003, as compared to $2.1 million used by investing activities
for the same period in 2002. The use of cash for the three months
ended March 31, 2003 was primarily due to the decline in cash of
$1.0 million resulting from the deconsolidation of Sun World. The
2002 expenditures were for additions to the water programs, property,
plant and equipment, to developing crops, and to other assets.
Cash used by Cadiz for investing activities was negligible for
the three months ended March 31, 2003, as compared to $0.7
million used for investing activities for the three months ended
March 31, 2002 which were primarily due to capital expenditures for
water programs and other assets.
CASH PROVIDED BY FINANCING ACTIVITIES. Cash provided by
financing activities totaled $0.3 million for the three months
ended March 31, 2003, consisting of $0.2 of borrowings from a
convertible note payable by Cadiz and $0.1 million in borrowings by
Sun World. Net cash provided by financing activities totaled $13.0
million for the three months ended March 31, 2002 consisting
primarily of $10.0 million in net proceeds from short-term borrowings
at Cadiz, $2.9 million in borrowings under the Sun World revolver,
and $0.6 million in net proceeds from common stock issuances, offset
by $0.4 million in repayment of a bank overdraft at Cadiz and
$0.1 million in payment of Sun World term debt.
Page 32
OUTLOOK
SHORT TERM OUTLOOK. The proceeds of our 2003 private
placements have provided us with sufficient cash to meet our
expected working capital needs through approximately May 2005.
$2.0 million of the proceeds of our December 2003 private
placement were used to bring current our outstanding interest
payments owed to ING under our ING credit facilities. $2.1
million of the proceeds of our December 2003 private placement
were placed in a cash collateral account with ING in order to
extend the maturity date of the credit facility through March 31,
2005. These funds can be applied, if necessary, to the payment of
accrued interest due under our credit facilities with ING. The
remainder of the proceeds will be used to meet our ongoing
working capital needs.
LONG TERM OUTLOOK. In the longer term, our working capital
needs will be determined based upon the specific measures we
pursue in the development of our water resources. Whichever
measure or measures are chosen, we expect that we will need to
raise additional cash from time to time until we are able to
generate cash through our development activities. We will
evaluate the amount of cash needed, and the manner in which such
cash will be raised, on an ongoing basis. We may meet any such
future cash requirements through a variety of means to be
determined at the appropriate time. Such means may include equity
or debt placements, or the sale or other disposition of assets.
Equity placements would be undertaken only to the extent
necessary so as to minimize the dilutive effect of any such
placements upon our existing stockholders.
CRITICAL ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The Consolidated Financial Statements have been prepared by
Cadiz Inc., sometimes referred to as "Cadiz" or "the Company",
without audit and should be read in conjunction with the
Consolidated Financial Statements and notes thereto included in
the Company's Form 10-K for the year ended December 31, 2002. On
January 30, 2003, Sun World filed voluntary petitions under
Chapter 11 of the Bankruptcy Code. See "General Development of
Business", in the Company's Form 10-K for the year ended December
31, 2002. Since the filing date, Sun World has operated its
business and managed its affairs as debtor and debtor in
possession. As of that date due to the Company's loss of control
over the operations of Sun World, the financial statements of Sun
World are no longer consolidated with those of Cadiz, but
instead, Cadiz is accounting for its investment in Sun World on
the cost basis of accounting. The foregoing Consolidated
Financial Statements include the accounts of the Company and,
until January 30, 2003, those of its then wholly-owned
subsidiary, Sun World International, Inc. and its subsidiaries
collectively referred to as "Sun World", and contain all
adjustments, consisting only of normal recurring adjustments,
which the Company considers necessary for a fair presentation.
Certain reclassifications have been made to the prior period to
conform to the current period presentation.
Page 33
GOODWILL
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. This amount was being
amortized on a straight-line basis over thirty years.
Accumulated amortization was $3,193,000 at December 31, 2001. In
June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 142, ("SFAS No.
142") "Goodwill and Other Intangible Assets". Under SFAS No. 142
goodwill and intangible assets deemed to have indefinite lives
are no longer amortized but will be subject to annual impairment
tests in accordance with the Statement. Upon adoption of SFAS
No. 142, effective at the beginning of fiscal 2002, the Company
performed a transitional fair value based impairment test and
determined that its goodwill was not impaired. In addition,
cessation of amortization of goodwill upon adoption of SFAS No.
142 did not have a material impact upon the Company's financial
position or results of operations. Goodwill will be tested for
impairment annually in the first quarter, or earlier if events
occur which require an impairment analysis be performed. As a
result of the actions taken by Metropolitan in the fourth quarter
of 2002 as described in Cadiz' Annual Report on Form 10-K for the
year ended December 31, 2002, the Company, with the assistance of
an independent valuation firm, performed an impairment test of
its goodwill and determined that its goodwill was not impaired.
In addition, in the first quarter of 2003, the Company, with the
assistance of an independent appraisal firm, performed its annual
impairment test of goodwill and determined its goodwill was not
impaired.
INTANGIBLE AND OTHER LONG-LIVED ASSETS
Property, plant and equipment, intangible and certain other
long-lived assets are amortized over their useful lives. Useful
lives are based on management's estimates of the period that the
assets will generate revenue. Long-lived assets are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. As a
result of the actions taken by Metropolitan in the fourth quarter
of 2002 as described in Note 1 in Cadiz' Annual Report on Form 10-
K for the year ended December 31, 2002, the Company, with the
assistance of an independent valuation firm, evaluated the
carrying value of its water program and determined that the asset
was not impaired and that the costs will be recovered through the
ultimate sale or operation of the project.
STOCK-BASED COMPENSATION
The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, ("SFAS123"),
"Accounting for Stock-Based Compensation." Accordingly, no
compensation cost has been recognized for the stock-based
compensation other than for non-employees. The adoption of this
standard during the quarter did not have a material impact on its
financial position or results of its operations.
Page 34
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information about market risks for the three months ended
March 31, 2003 does not differ materially from that discussed
under Item 7A of Cadiz' Annual Report on Form 10-K for the year
ended December 31, 2002.
ITEM 4. CONTROLS AND PROCEDURES
We carried out an evaluation, under the supervision and with
the participation of our management, including our Chairman,
Chief Executive Officer and Chief Financial Officer (Principal
Executive and Financial Officer), of the effectiveness of the
design and operation of our disclosure controls and procedures as
of March 31, 2003. As of the date of that evaluation, our
Chairman, Chief Executive Officer and Chief Financial Officer
concluded that these disclosure controls and procedures are
effective in timely alerting him to material information relating
to Cadiz (including our consolidated subsidiaries) required to be
included in our periodic Securities and Exchange Commission
filings. There was no significant change in our internal control
over financial reporting that occurred during the most recent
fiscal quarter that materially affected, or is reasonably likely
to affect, our internal control over financial reporting, and no
corrective actions with regard to significant deficiencies or
weaknesses.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
SUN WORLD BANKRUPTCY FILING
On January 30, 2003, Sun World and three of its wholly owned
subsidiaries (Sun Desert, Inc., Coachella Growers and Sun
World/Rayo) filed voluntary petitions under Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court, Central
District of California, Riverside Division (Case Nos: RS 03-11370
DN, RS 03-11369 DN, RS 03-11371 DN, RS 03-11374 DN). See Item 1,
"Business - General Development of Business" in the Company's
Form 10-K for the year ended December 31, 2002.
OTHER PROCEEDINGS
There are no other material pending legal proceedings to
which we are a party or of which any of our property is the
subject.
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER
PURCHASES OF EQUITY SECURITIES
During the quarter ended March 31, 2003, we issued 8,000
shares of common stock in connection with our issuance of 8%
unsecured convertible promissory notes in the aggregate amount of
$200,000. The notes were originally convertible into our common
stock at a price of $5.00 per share, which was subsequently
reduced to $2.50 per share in consideration for an
Page 35
extension of the notes' maturity date. The notes and accrued
interest were converted into 84,699 shares of common stock on
December 15, 2003 and are no longer outstanding. We believe that
the transactions described are exempt from the registration
requirements of the Securities Act by virtue of Section 4(2) of the
Securities Act as the transactions did not involve public offerings,
the number of investors was limited, the investors were provided
with information about us, and we placed restrictions on resale of
the securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
SUN WORLD FIRST MORTGAGE NOTES
Sun World has outstanding $115 million of First Mortgage
Notes. The First Mortgage Notes were originally to mature on
April 15, 2004. The Sun World bankruptcy filing (see Item 1,
"Legal Proceedings" above) constituted a default under the First
Mortgage Notes.
ING NOTICE OF DEFAULT
On February 13, 2003, ING delivered to Cadiz a Notice of
Default and Demand for Payment with respect to approximately $35
million in senior secured loans which then had a maturity date of
January 31, 2003.
On July 7 and 8, 2003, ING recorded a series of Notices of
Default and Election to Sell under Deed of Trust in the office of
the San Bernardino County Recorder evidencing a foreclosure
action by ING against the property which was securing our senior
secured loans with ING.
In December 2003, subsequent to the completion of our
comprehensive financial restructuring which included a three year
extension of our loans with ING (See Item 2. "Management's
Discussion and Analysis"), ING recorded Notices of Rescission in
San Bernardino County whereby ING rescinded, canceled and
withdrew each such Notice of Default and Election to Sell.
SERIES D, E-1 AND E-2 PREFERRED STOCK
The Certificate of Designations for our Series D, E-1 and E-
2 Preferred Stock provided that dividends were payable with
respect to each such series on January 15 and July 15 of each
year. On January 15, 2003, we notified the holders of such
Preferred Stock that, due to the requirements of Delaware law, we
were not able to declare or pay a dividend on our outstanding
Series D, E-1 and E-2 Preferred Stock on the January 15, 2003
dividend payment date applicable to each such series of Preferred
Stock.
In October 2003, we entered into an Exchange Agreement with
the holders of each such series of Preferred Stock whereby we
issued an aggregate of 400,000 shares of our common stock in
exchange for the cancellation of all of our outstanding Series D,
Series E-1 and Series E-2 Preferred Stock. Pursuant to this
Exchange Agreement, the 400,000 shares of
Page 36
common stock were issued in full satisfaction of any rights of the
holders pertaining to the Preferred Stock including, without
limitation, any rights to accrued but unpaid dividends.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
--------
The following exhibits are filed or incorporated by
reference as part of this Quarterly Report on Form 10-Q.
31.1 Certification of Keith Brackpool, Chairman,
Chief Executive Officer and Chief Financial Officer
of Cadiz Inc. pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification of Keith Brackpool, Chairman,
Chief Executive Officer and Chief Financial Officer
of Cadiz Inc. pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
B. REPORTS ON FORM 8-K
-------------------
We filed a report on Form 8-K dated January 31, 2003
reporting that Sun World International, Inc., a wholly-owned
subsidiary of Cadiz, and three of Sun World's wholly-owned
subsidiaries, Coachella Growers, Sun World/Rayo and Sun Desert,
Inc., each filed a voluntary petition for Chapter 11 bankruptcy
protection in the U.S. Bankruptcy Court, Central District of
California, Riverside Division on January 30, 2003.
We filed a report on Form 8-K dated February 14, 2003
reporting that ING Capital LLC had delivered to Cadiz a Notice of
Default and Demand for Payment following the failure to meet
conditions precedent required for the extension of the maturity
of Cadiz' senior debt precipitated by the Chapter 11 filing by
Sun World International, Inc.
We filed a report on Form 8-K dated March 21, 2003 reporting
that the Company elected not to proceed with a proposed reverse
stock split at that time, causing the Company to be de-listed
from trading on the Nasdaq National Market effective March 27,
2003 due to failure to comply with Nasdaq's stockholder's equity
and minimum bid price requirements.
Page 37
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CADIZ INC.
By: /s/ Keith Brackpool November 1, 2004
--------------------------------------------- ----------------
Keith Brackpool, Chairman of the Board and Date
Chief Executive and Financial Officer