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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 June 30, 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 90017
(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 SIX MONTHS ENDED JUNE 30, 2003 PAGE
- --------------------------------------------------------------------
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CADIZ INC. CONSOLIDATED FINANCIAL STATEMENTS
Statement of Operations for the three months ended June 30,
2003 and 2002. . . . . . . . . . . . . . . . . . . . . . . .1
Statement of Operations for the six months ended June 30,
2003 and 2002. . . . . . . . . . . . . . . . . . . . . . . .2
Balance Sheet as of June 30, 2003 and December 31, 2002. . .3
Statement of Cash Flows for the six months ended June 30,
2003 and 2002. . . . . . . . . . . . . . . . . . . . . . . .4
Statement of Stockholders' Equity for the six months ended
June 30, 2003. . . . . . . . . . . . . . . . . . . . . . . .5
Notes to the Consolidated Financial Statements. . . . . . . 6
SUN WORLD INTERNATIONAL, INC. CONSOLIDATED FINANCIAL STATEMENTS
Statement of Operations for the three months ended June 30,
2003 and 2002. . . . . . . . . . . . . . . . . . . . . . . 19
Statement of Operations for the six months ended June 30,
2003 and 2002. . . . . . . . . . . . . . . . . . . . . . . 20
Balance Sheet as of June 30, 2003 and December 31, 2002. . 21
Statement of Cash Flows for the six months ended June 30,
2003 and 2002. . . . . . . . . . . . . . . . . . . . . . . 22
Statement of Stockholder's Deficit for the six months ended
June 30, 2003. . . . . . . . . . . . . . . . . . . . . . . 23
Notes to the Consolidated Financial Statements. . . . . . .24
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS. . . . . . . . . . . . . . . .28
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK. . . . . . . . . . . . . . . . . . . . . . . . . . 37
ITEM 4. CONTROLS AND PROCEDURES. . . . . . . . . . . . . . . . .38
PART II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . 38
CADIZ INC.
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
- ----------------------------------------------------------------------
FOR THE THREE MONTHS
ENDED JUNE 30,
($ IN THOUSANDS EXCEPT PER SHARE DATA) 2003 2002
- ----------------------------------------------------------------------
Revenues $ 97 $ 23,063
--------- ---------
Costs and expenses:
Cost of sales 50 16,848
General and administrative 743 4,232
Depreciation and amortization 142 1,729
--------- ---------
Total costs and expenses 935 22,809
--------- ---------
Operating profit (loss) (838) 254
Interest expense, net 585 5,685
--------- ---------
Net loss before income taxes (1,423) (5,431)
Income tax expense - 3
--------- ---------
Net loss (1,423) (5,434)
Less: Preferred stock dividends 282 282
Imputed dividend on preferred stock 246 246
--------- ---------
Net loss applicable to common stock $ (1,951) $ (5,962)
========= =========
Basic and diluted net loss per common share $ (0.92) $ (4.11)
========= =========
Basic and diluted weighted average
shares outstanding 2,132 1,450
========= =========
See accompanying notes to the consolidated financial statements.
Page 1
CADIZ INC.
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
- -------------------------------------------------------------------
FOR THE SIX MONTHS
ENDED JUNE 30,
($ IN THOUSANDS EXCEPT PER SHARE DATA) 2003 2002
- -------------------------------------------------------------------
Revenues $ 3,143 $ 30,813
--------- ---------
Costs and expenses:
Cost of sales 2,729 23,101
General and administrative 2,380 7,470
Write off of investment in subsidiary 195 -
Reorganization costs 655 -
Depreciation and amortization 479 2,455
--------- ---------
Total costs and expenses 6,438 33,026
--------- ---------
Operating loss (3,295) (2,213)
Interest expense, net 2,772 10,468
--------- ---------
Net loss before income taxes (6,067) (12,681)
Income tax expense - 26
--------- ---------
Net loss (6,067) (12,707)
Less: Preferred stock dividends 563 563
Imputed dividend on preferred stock 492 492
--------- ---------
Net loss applicable to common stock $ (7,122) $ (13,762)
========= =========
Basic and diluted net loss per common share $ (3.60) $ (9.50)
========= =========
Basic and diluted weighted average
shares outstanding 1,981 1,448
========= =========
See accompanying notes to the consolidated financial statements.
Page 2
CADIZ INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
- ---------------------------------------------------------------------
JUNE 30, DECEMBER 31,
($ IN THOUSANDS) 2003 2002
- ---------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 370 $ 3,229
Accounts receivable, net - 6,732
Note receivable from officer 1,013 1,022
Inventories - 13,513
Prepaid expenses and other 693 1,166
--------- ---------
Total current assets 2,076 25,662
Property, plant, equipment and water
programs, net 39,745 154,928
Goodwill 3,813 3,813
Other assets - 7,480
--------- ---------
$ 45,634 $ 191,883
========= =========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,032 $ 7,394
Accrued liabilities 2,555 6,816
Revolving credit facility - 4,400
Notes payable and long-term debt, current
portion 35,281 41,019
--------- ---------
Total current liabilities 38,868 59,629
Long-term debt - 115,447
Deferred income taxes - 5,447
Other liabilities 608 1,539
Commitments and contingencies
Series D redeemable convertible preferred
stock - $.01 par value:
5,000 shares authorized, shares issued
and outstanding - 5,000 at June 30, 2003
and December 31, 2002 4,683 4,536
Series E-1 and Series E-2 redeemable
convertible preferred stock - $.01 par
value:
7,500 total shares authorized; shares
issued and outstanding - 7,500 at June
30, 2003 and December 31, 2002 6,752 6,406
Stockholders' equity:
Common stock - $.01 par value; 70,000,000
shares authorized; shares issued and
outstanding - 2,260,686 at June 30, 2003
and 1,458,659 at December 31, 2002 23 15
Additional paid-in capital 158,054 156,151
Accumulated deficit (163,354) (157,287)
--------- ---------
Total stockholders' deficit (5,277) (1,121)
--------- ---------
$ 45,634 $ 191,883
========= =========
See accompanying notes to the consolidated financial statements.
Page 3
CADIZ INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
- ------------------------------------------------------------------
FOR THE SIX MONTHS
ENDED JUNE 30,
($ IN THOUSANDS) 2003 2002
- ------------------------------------------------------------------
Cash flows from operating activities:
Net loss $ (6,067) $ (12,707)
Adjustments to reconcile net loss to
net cash used for operating activities:
Depreciation and amortization 1,062 5,216
Write off of investment in subsidiary 195 -
Loss (gain) on disposal of assets 43 (41)
Shares of KADCO stock earned for services - (625)
Stock issued for services 72 -
Compensation charge for deferred
stock units 106 308
Accrued interest on loan to officer (29) -
Changes in operating assets and
liabilities:
(Increase) decrease in accounts
receivable 1,488 (18,835)
Increase in inventories (3,043) (17,158)
Increase (decrease) in prepaid
expenses and other (557) 125
Increase (decrease) in accounts payable 1,567 12,370
Increase (decrease) in accrued
liabilities 1,718 842
Increase in other liabilities - 244
--------- ---------
Net cash used for operating activities (3,445) (30,261)
--------- ---------
Cash flows from investing activities:
Disposal of subsidiary (1,019) -
Additions to property, plant
and equipment (140) (337)
Additions to water programs - (593)
Additions to developing crops (198) (1,906)
Payment on loan to officer 38 -
Proceeds from disposal of property,
plant and equipment - 45
(Increase) decrease in other assets (103) (430)
--------- ---------
Net cash used for investing activities (1,422) (3,221)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 135 -
Net proceeds from short-term debt - 33,400
Net proceeds from issuance of stock 1,680 763
Proceeds from issuance of
convertible note payable 200 -
Decrease in bank overdraft - (410)
Principal payments on long-term debt (7) (358)
--------- ---------
Net cash provided by financing activities 2,008 33,395
--------- ---------
Net decrease in cash and cash equivalents (2,859) (87)
Cash and cash equivalents, beginning
of period 3,229 1,458
--------- ---------
Cash and cash equivalents, end of period $ 370 $ 1,371
========= =========
See accompanying notes to the consolidated financial statements.
Page 4
CADIZ INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
- --------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 2003
($ IN THOUSANDS)
- --------------------------------------------------------------------------------
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 26,027 - 1,054 - 1,054
Issuance of common
stock for cash 672,000 7 1,673 1,680
Issuance of stock with
notes payable 8,000 - 32 - 32
Issuance of common
stock for services 96,000 1 199 200
Preferred stock
dividend - - (563) - (563)
Imputed dividend from
warrants and deferred
beneficial conversion
feature - - (492) - (492)
Net loss - - - (6,067) (6,067)
--------- ------ --------- --------- --------
Balance as of
June 30, 2003 2,260,686 $ 23 $ 158,054 $(163,354) $ (5,277)
========= ======= ========= ========== ========
See accompanying notes to the consolidated financial statements.
Page 5
CADIZ INC.
NOTES TO 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 and six months ended June 30,
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 $6.1 million for the six months ended June 30,
2003 and $22.2 million for the year ended December 31, 2002, The
Company had a working capital deficit of $36.8 million and $34.0
million at June 30, 2003 and
Page 6
December 31, 2002, and used cash in operations of $3.4 million for
the six months ended June 30, 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 30, 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 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
Page 7
(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):
THREE AND SIX MONTHS ENDED JUNE 30,
2003 2002
THREE MONTHS SIX MONTHS THREE MONTHS SIX MONTHS
------------ ---------- ------------ ----------
Net loss applicable
to common stock:
As reported $ (1,951) $ (7,122) $ (5,962) $ (13,762)
Expense under
SFAS 123 (24) (74) (127) (496)
--------- --------- --------- ----------
Page 8
Pro forma $ (1,975) $ (7,196) $ (6,089) $ (14,258)
========= ========= ========= ==========
Net loss per
common share:
As reported $ (0.92) $ (3.60) $ (4.11) $ (9.50)
Expense under
SFAS 123 (0.01) (0.03) (0.09) (0.35)
--------- --------- --------- ----------
Pro forma $ (0.93) $ (3.63) $ (4.20) $ (9.85)
========= ========= ========= ==========
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):
June 30, 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 PROGRAM
- ----------------------------------------------------
Property, plant, equipment and water program consist of the
following (in thousands):
June 30, December 31,
2003 2002
---- ----
Land $ 22,010 $ 66,372
Permanent crops 6,493 61,994
Developing crops 159 11,624
Water programs 14,274 16,859
Buildings 1,408 22,620
Machinery and equipment 3,593 20,818
--------- ---------
47,937 200,287
Less accumulated depreciation (8,192) (45,359)
--------- ---------
$ 39,745 $ 154,928
========= =========
Page 9
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 10
CONDENSED CONSOLIDATING FINANCIAL INFORMATION
Condensed consolidating financial information for the six
months ended June 30, 2003 and 2002 and for the three months
ended June 30, 2002, and consolidating balance sheet information
as of December 31, 2002 for the Company is as follows. Consolidating
balance sheet information at June 30, 2003 and consolidating
financial information for the three months ended June 30, 2003 is
not presented as Sun World was deconsolidated effective January
30, 2003 as described in Note 1 (in thousands):
STATEMENT OF OPERATIONS INFORMATION
FOR THE SIX MONTHS ENDED JUNE 30, 2003
($ IN THOUSANDS)
CADIZ SUN WORLD ELIMINATIONS CONSOLIDATED
----- --------- ------------ ------------
Revenues $ 284 $ 3,005 $ (146) $ 3,143
--------- --------- --------- ---------
Costs and expenses:
Cost of sales 97 2,653 (21) 2,729
General and
administrative 1,798 707 (125) 2,380
Write off of
investment in
subsidiary 195 - - 195
Reorganization costs - 655 - 655
Depreciation and
amortization 289 190 - 479
--------- --------- --------- ---------
Total costs and
expenses 2,379 4,205 (146) 6,438
--------- --------- --------- ---------
Operating loss (2,095) (1,200) - (3,295)
Income (loss) from
subsidiary (2,469) - 2,469 -
Interest expense, net 1,503 1,269 - 2,772
--------- --------- --------- ---------
Net income (loss) (6,067) (2,469) 2,469 (6,067)
Less: Preferred stock
dividends 563 - - 563
Imputed dividend
on preferred
stock 492 - - 492
--------- --------- --------- ---------
Net income loss
applicable to
common stock $ (7,122) $ (2,469) $ 2,469 $ (7,122)
========= ========= ========= =========
Page 11
CONSOLIDATING STATEMENT OF
CASH FLOW INFORMATION
SIX MONTHS ENDED JUNE 30, 2003
CADIZ SUN WORLD ELIMINATIONS CONSOLIDATED
----- --------- ------------ ------------
Net cash used for
operating activities $ (1,742) $ (1,703) $ - $ (3,445)
--------- --------- --------- ---------
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 38 - - 38
Decrease (increase)
in other assets 6 (109) - (103)
--------- --------- --------- ---------
Net cash provided by
(used for)investing
activities 43 (1,465) - (1,422)
--------- --------- --------- ---------
Cash flows from
financing activities:
Net proceeds from
issuance of stock 1,680 - - 1,680
Proceeds from
issuance of
long-term debt - 135 - 135
Proceeds from
convertible note
payable 200 - - 200
Principal payments
on long-term debt - (7) - (7)
--------- --------- --------- ---------
Net cash provided by
financing activities 1,880 128 - 2,008
--------- --------- --------- ---------
Net increase (decrease)
in cash and cash
equivalents 181 (3,040) - (2,859)
Cash and cash
equivalents,
beginning of period 189 3,040 - 3,229
--------- --------- --------- ---------
Cash and cash
equivalents, end
of period $ 370 $ - $ - $ 370
========= ========= ========= =========
Page 12
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' EQUITY
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 13
CONSOLIDATING STATEMENT
OF OPERATIONS INFORMATION
THREE MONTHS ENDED JUNE 30, 2002
CADIZ SUN WORLD ELIMINATIONS CONSOLIDATED
----- --------- ------------ ------------
Revenues $ 400 $ 23,063 $ (400) $ 23,063
--------- --------- --------- ---------
Costs and expenses:
Cost of sales 25 16,925 (102) 16,848
General and
administrative 2,472 2,135 (375) 4,232
Depreciation and
amortization 244 1,485 - 1,729
--------- --------- --------- ---------
Total costs and
expenses 2,741 20,545 (477) 22,809
--------- --------- --------- ---------
Operating profit
(loss) (2,341) 2,518 77 254
Income (loss) from
subsidiary (1,497) - 1,497 -
Interest expense, net 1,596 4,062 27 5,685
--------- --------- --------- ---------
Net loss before
income taxes (5,434) (1,544) 1,547 (5,431)
Income tax expense - 3 - 3
--------- --------- --------- ---------
Net loss (5,434) (1,547) 1,547 (5,434)
Less: Preferred stock
dividends 282 - - 282
Imputed dividend
on preferred
stock 246 - - 246
--------- --------- --------- ---------
Net loss applicable
to common stock $ (5,962) $ (1,547) $ 1,547 $ (5,962)
========= ========= ========= =========
Page 14
CONSOLIDATING STATEMENT
OF OPERATIONS INFORMATION
SIX MONTHS ENDED JUNE 30, 2002
CADIZ SUN WORLD ELIMINATIONS CONSOLIDATED
----- --------- ------------ ------------
Revenues $ 882 $ 30,806 $ (875) $ 30,813
--------- --------- --------- ---------
Costs and expenses:
Cost of sales 57 23,246 (202) 23,101
General and
administrative 3,877 4,343 (750) 7,470
Depreciation and
amortization 471 1,984 - 2,455
--------- --------- --------- ---------
Total costs and
expenses 4,405 29,573 (952) 33,026
--------- --------- --------- ---------
Operating profit
(loss) (3,523) 1,233 77 (2,213)
Income (loss) from
subsidiary (6,792) - (6,792) -
Interest expense, net 2,390 8,094 (16) 10,468
--------- --------- --------- ---------
Net loss before
income taxes (12,705) (6,861) 6,885 (12,681)
Income tax expense 2 24 - 26
--------- --------- --------- ---------
Net loss (12,707) (6,885) 6,885 (12,707)
Less: Preferred stock
dividends 563 - - 563
Imputed dividend
on preferred
stock 492 - - 492
--------- --------- --------- ---------
Net loss applicable
to common stock $ (13,762) $ (6,885) $ 6,885 $ (13,762)
========= ========= ========= =========
Page 15
CONSOLIDATING STATEMENT OF
CASH FLOW INFORMATION
SIX MONTHS ENDED JUNE 30, 2002
CADIZ SUN WORLD ELIMINATIONS CONSOLIDATED
----- --------- ------------ ------------
Net cash used for
operating activities $ (12,943) $ (17,318) $ - $ (30,261)
--------- --------- --------- ---------
Cash flows from
investing activities:
Additions to
property, plant and
equipment (93) (244) - (337)
Additions to water
programs (593) - - (593)
Additions to
developing crops (66) (1,840) - (1,906)
Proceeds from
disposal of property,
plant and equipment - 45 - 45
Decrease (increase)
in other assets 300 (730) - (430)
--------- --------- --------- ---------
Net cash used for
investing activities (452) (2,769) - (3,221)
--------- --------- --------- ---------
Cash flows from
financing activities:
Net proceeds from
issuance of stock 763 - - 763
Principal payments on
long-term debt - (358) - (358)
Borrowings from
intercompany
revolver, net 3,142 (3,142) - -
Net proceeds from
short-term debt 10,000 23,400 - 33,400
Decrease in bank
overdrafts (410) - - (410)
--------- --------- --------- ---------
Net cash provided by
financing activities 13,495 19,900 - 33,395
--------- --------- --------- ---------
Net increase (decrease)
in cash and cash
equivalents 100 (187) - (87)
Cash and cash
equivalents,
beginning of period 400 1,058 - 1,458
--------- --------- --------- ---------
Cash and cash
equivalents, end
of period $ 500 $ 871 $ - $ 1,371
========= ========= ========= =========
Page 16
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 317,000 shares and 184,000 shares at
June 30, 2003 and 2002, respectively
NOTE 6 - COMMON STOCK
- ---------------------
During the quarter ended June 30, 2003, we issued 752,000
shares of common stock at $2.50 per share in connection with a
private placement offering in consideration for $1.68 million
cash and $200,000 in services, and an additional 16,000 shares
issued as part of the cost of the offering. We also issued 25,896
shares of common stock to holders of deferred stock units who
exchanged their deferred stock units for shares of common stock
upon their vesting expiration dates.
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 June 30, 2003 are due to the
deconsolidation of Sun World in January 2003.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
2003 2002 2003 2002
---- ---- ---- ----
External sales
Water resources $ 97 $ - $ 138 $ 7
Agricultural - 23,063 3,005 30,806
--------- --------- --------- ---------
Consolidated $ 97 $ 23,063 $ 3,143 $ 30,813
========= ========= ========= =========
Inter-segment sales
Water resources $ - $ 400 $ 146 $ 875
Agricultural - (400) (146) (875)
--------- --------- --------- ---------
Consolidated $ - $ - $ - $ -
========= ========= ========= =========
Total sales
Water resources $ 97 $ 400 $ 284 $ 882
Agricultural - 23,063 3,005 30,806
Other - (400) (146) (875)
--------- --------- --------- ---------
Page 17
Consolidated $ 97 $ 23,063 $ 3,143 $ 30,813
========= ========= ========= =========
Loss before income
taxes
Water resources $ (838) $ (2,341) $ (1,900) $ (3,523)
Agricultural - 2,518 (1,200) 1,233
Interest expense (585) (5,685) (2,772) (10,468)
Other - 77 (195) 77
--------- --------- --------- ---------
Consolidated $ (1,423) $ (5,431) $ (6,067) $ (12,681)
========= ========= ========= =========
June 30, December 31,
2003 2002
Assets
Water resources $ 45,634 $ 47,330
Agricultural - 146,417
Other - (1,864)
--------- ---------
Consolidated $ 45,634 $ 191,883
========= =========
Page 18
SUN WORLD INTERNATIONAL, INC.
(DEBTOR-IN-POSSESSION)
(A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.)
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
- ------------------------------------------------------------------------
THREE MONTHS ENDED
JUNE 30,
($ IN THOUSANDS) 2003 2002
- ------------------------------------------------------------------------
Revenues $ 23,723 $ 23,063
--------- ---------
Costs and expenses:
Cost of sales 19,063 16,925
General and administrative 2,210 2,135
Removal of underperforming crops 86 -
Depreciation and amortization 1,945 1,485
--------- ---------
Total costs and expenses 23,304 20,545
--------- ---------
Operating profit 419 2,518
Loss on sale of property 258 -
Interest expense, net (contractual interest
for 2003 was $4,134) 534 4,062
--------- ---------
Loss before reorganization items and
income taxes (373) (1,544)
Reorganization items:
Debt issuance costs - -
Professional fees 1,266 -
--------- ---------
Total reorganization items 1,266 -
--------- ---------
Net loss before income taxes (1,639) (1,544)
Income tax expense - 3
--------- ---------
Net loss $ (1,639) $ (1,547)
========= =========
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 OPERATIONS (UNAUDITED)
- ------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30,
($ IN THOUSANDS) 2003 2002
- ------------------------------------------------------------------------
Revenues $ 33,284 $ 30,806
--------- ---------
Costs and expenses:
Cost of sales 28,134 23,246
General and administrative 4,356 4,343
Removal of underperforming crops 86 -
Depreciation and amortization 2,471 1,984
--------- ---------
Total costs and expenses 35,047 29,573
--------- ---------
Operating profit (loss) (1,763) 1,233
Loss on sale of property 258 -
Interest expense, net (contractual interest
for 2003 was $8,163) 2,137 8,094
--------- ---------
Loss before reorganization items and
income taxes (4,158) (6,861)
Reorganization items:
Debt issuance costs 912 -
Professional fees 2,631 -
--------- ---------
Total reorganization items 3,543 -
--------- ---------
Net loss before income taxes (7,701) (6,861)
Income tax expense 20 24
--------- ---------
Net loss $ (7,721) $ (6,885)
========= =========
See accompanying notes to the consolidated financial statements.
Page 20
SUN WORLD INTERNATIONAL, INC.
(DEBTOR-IN-POSSESSION)
(A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.)
CONSOLIDATED BALANCE SHEET (UNAUDITED)
- ------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
($ IN THOUSANDS) 2003 2002
- ------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,947 $ 3,040
Accounts receivable, net 19,803 6,732
Inventories 28,536 13,638
Prepaid expenses and other 1,865 843
--------- ---------
Total current assets 54,151 24,253
Property, plant, and equipment, net 109,720 112,293
Intangible assets 1,922 1,934
Other assets 7,604 7,937
--------- ---------
Total assets $ 173,397 $ 146,417
========= =========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Accounts payable $ 14,509 $ 6,252
Accrued liabilities 2,464 5,829
Due to parent - 13,546
Revolving credit facility 26,825 4,400
Long-term debt, current portion 125 6,250
--------- ---------
Total current liabilities 43,923 36,277
Long-term debt 792 115,447
Deferred income taxes 5,447 5,447
Other liabilities 447 928
--------- ---------
Total liabilities not subject
to compromise 50,609 158,099
Liabilities subject to compromise under
reorganization proceedings 141,576 -
Commitments and contingencies
Stockholder's deficit:
Common stock, $.01 par value, 300,000
shares authorized; 42,000 shares
issued and outstanding - -
Additional paid-in capital 39,123 38,508
Accumulated deficit (57,911) (50,190)
--------- ---------
Total stockholder's deficit (18,788) (11,682)
--------- ---------
Total liabilities and stockholder's deficit $ 173,397 $ 146,417
========= =========
See accompanying notes to the consolidated financial statements.
Page 21
SUN WORLD INTERNATIONAL, INC.
(DEBTOR-IN-POSSESSION)
(A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.)
CONSOLDIATED STATEMENT OF CASH FLOWS (UNAUDITED)
- ------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30,
($ IN THOUSANDS) 2003 2002
- ------------------------------------------------------------------------
Cash flows from operating activities:
Net loss $ (7,721) $ (6,885)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 2,563 2,800
Write-off of debt issuance costs 912 -
(Gain) loss on disposal of assets 258 (41)
Removal of under performing crops 86 -
Shares of KADCO stock earned for services (625) (625)
Compensation charge for deferred stock units 144 160
Changes in operating assets and liabilities:
Increase in accounts receivable (13,071) (18,835)
Increase in inventories (13,975) (17,081)
Decrease (increase) in prepaid expenses
and other (1,022) 61
Increase in accounts payable 11,963 12,484
Increase (decrease) in accrued liabilities 430 743
Increase (decrease) in due to parent (47) 9,656
Increase (decrease) in other liabilities (10) 245
--------- ---------
Net cash used for operating activities
before reorganization items (20,115) (17,318)
--------- ---------
Increase in liabilities subject to compromise
under reorganization proceedings 525 -
--------- ---------
Net cash used for operation activities (19,590) (17,318)
--------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment (556) (244)
Additions to developing crops (1,298) (1,840)
Proceeds from disposal of property, plant
and equipment 844 45
(Increase) decrease in other assets (189) (730)
--------- ---------
Net cash used for investing activities (1,199) (2,769)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 136 -
Principal payments on long-term debt (916) (358)
Borrowings from intercompany revolver, net 51 (3,142)
Proceeds from short-term borrowings 22,425 23,400
--------- ---------
Net cash provided by financing activities 21,696 19,900
--------- ---------
Net increase (decrease) in cash and cash
equivalents 907 (187)
Cash and cash equivalents at beginning
of period 3,040 1,058
--------- ---------
Cash and cash equivalents at end of period $ 3,947 $ 871
========= =========
See accompanying notes to the consolidated financial statements.
Page 22
SUN WORLD INTERNATIONAL, INC.
(DEBTOR-IN-POSSESSION)
(A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 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)
Exchange of deferred
stock units for
parent's common
stock - - 615 - 615
Net loss - - - (7,721) (7,721)
--------- ------ --------- --------- ----------
Balance as of
June 30, 2003 42,000 $ - $ 39,123 $ (57,911) $ (18,788)
========= ====== ========= ========= ==========
See accompanying notes to the consolidated financial statements.
Page 23
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
the 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 note 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 24
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 and six months ended June 30, 2003 are not necessarily
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
$2,631,000.
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 25
NOTE 3 - INVENTORIES
- --------------------
Inventories consist of the following (dollars in thousands):
JUNE 30, DECEMBER 31,
2003 2002
---- ----
Growing crops $ 23,454 $ 10,702
Harvested product 396 411
Materials and supplies 4,686 2,525
--------- ---------
$ 28,536 $ 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 26
Liabilities subject to compromise under reorganization
proceedings are summarized as follows (dollars in thousands):
JUNE 30,
2003
----
Accounts payable $ 4,252
Interest payable 3,795
Due to parent company 13,529
Long-term debt 120,000
---------
Total $ 141,576
=========
Page 27
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 28
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.
Our financing activities during 2003 were directed
primarily towards completion of an overall restructuring of
our
Page 29
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;
* 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.
Page 30
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 $13,500,000
less losses in excess of investment in Sun World of
$13,305,000. Cadiz wrote off the net investment in Sun
World of $195 thousand at the Chapter 11 filing date because
it does not anticipate being able to recover from its
investment.
Our consolidated financial statements for the six
month period ended June 30, 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 six months ended June 30, 2003 with
results for the three and six months ended June 30, 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.
Tables which disclose the results of Cadiz Inc.
separate from its consolidated subsidiary Sun World for the
six month periods ending June 30, 2003 and 2002, 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 JUNE 30, 2003 COMPARED TO THREE MONTHS
ENDED JUNE 30, 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. We had
revenues of $97 thousand for the three months ended June 30,
2003 and $0.4 million for the three months
Page 31
ended June 30, 2002. Our net loss totaled $1.4 million for
the three months ended June 30, 2003 compared to $5.4 million
for the three months ended June 30, 2002. The loss for the
three months ended June 30, 2002 included $1.5 million equity
loss from Sun World, without which the Cadiz loss would be
$3.9 million.
Our primary expenses are our ongoing overhead costs
(i.e. general and administrative expense) and our interest
expense.
REVENUES. Cadiz standalone revenue during the three months
ended June 30, 2003 totaled $0.1 million compared to $0.4 million
during the same period in the preceding year. The decrease is
primarily due to discontinuation of the management fee payable
by Sun World as of January 30, 2003 due to Sun World's Chapter
11 filing.
GENERAL AND ADMINISTRATIVE EXPENSES. General and
administrative expenses for Cadiz during the three months
ended June 30, 2003 totaled $0.7 million compared to $2.5
million for the three months ended June 30, 2002. The
decrease in general and administrative expenses is primarily
due to $0.8 million of fees related to a financing that was
not completed in the 2002 period, and $0.5 in reduced
salaries along with other costs associated with a reduction
in staffing.
DEPRECIATION AND AMORTIZATION. Depreciation and
amortization expense for the three months ended June 30,
2003 and 2002 totaled $142 thousand and $244 thousand
respectively. The decrease in depreciation was primarily
attributable to certain assets being removed in 2002 and
certain assets becoming fully depreciated during the past
year.
INTEREST EXPENSE, NET. Net interest expense totaled
$0.6 million during the three months ended June 30, 2003,
compared to $1.6 million during the same period in 2002.
The following table summarizes the components of net
interest expense for the two periods (in thousands):
THREE MONTHS ENDED JUNE 30,
2003 2002
---- ----
Interest on outstanding debt $ 583 $ 448
Amortization of financing costs 15 1,313
Interest income (13) (165)
--------- ---------
$ 585 $ 1,596
========= =========
Financing costs, which include legal fees and warrant
costs, are amortized over the life of the debt agreement, most
of which relate 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.
Page 32
SIX MONTHS ENDED JUNE 30, 2003 COMPARED TO SIX MONTHS ENDED
JUNE 30, 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. We had
revenues of $284,000 for the six months ended June 30, 2003 and
$882,000 for the six months ended June 30, 2002. Our net loss
totaled $6.1 million for the six months ended June 30, 2003
compared to $12.7 million for the six months ended June 30,
2002. During the six months ended June 30, 2003, Cadiz
recorded a $2.5 million loss from Sun World compared to a
$6.8 million loss during the same period in 2002. Without
the Sun World losses, Cadiz loss would be $3.6 million for
the six months ended June 30, 2003 and $5.9 million for the
same period in 2002.
Our primary expenses are our ongoing overhead costs
(i.e. general and administrative expense) and our interest
expense.
REVENUES. Cadiz standalone revenue totaled $0.3 million
during the six months ended June 30, 2003 compared to
$0.9 million during the same period in the preceding year. The
decrease is primarily due to discontinuation of the management fee
payable by Sun World as of January 30, 2003 due to Sun World's
Chapter 11 filing.
GENERAL AND ADMINISTRATIVE EXPENSES. General and
administrative expenses for the six months ended June 30,
2003 totaled $1.8 million compared to $3.9 million for the
same 2002 period. The decrease in general and administrative
expenses is primarily due to $0.8 million of fees related to
a financing that was not completed, $0.8 in reduced salaries
and wages, and a general reduction in other expense levels
associated with a reduction of 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 net
investment in Sun World of $195,000.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and
amortization expense for the six months ended June 30, 2003
totaled $289 thousand compared to $471 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 33
INTEREST EXPENSE, NET. Net interest expense totaled
$1.5 million during the six months ended June 30, 2003 as
compared to $2.4 million in 2002. The following table
summarizes the components of net interest expense for the
two periods (in thousands):
SIX MONTHS ENDED JUNE 30,
2003 2002
---- ----
Interest on outstanding debt - Cadiz 1,216 778
Amortization of financing costs 366 1,961
Interest income (79) (349)
--------- ---------
$ 1,503 $ 2,390
========= =========
Financing costs, which include legal fees and warrant
costs, are amortized over the life of the debt agreement, most
of which relate 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
(A) 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. Additional details
concerning the terms of this December 2003 restructuring are
included in our Form 10-K for the year ended December 31,
2003.
Page 34
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 35
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 for
operating activities totaled $3.4 million for the six months
ended June 30, 2003, as compared to $30.3 million for the
six months ended June 30, 2002. These amounts are not
comparable because of the deconsolidation of Sun World in
January. Cash used by Cadiz for operating activities totaled
$1.7 million for the six months ended June 30, 2003 compared to
$12.9 million for the same period in 2002. The reduced cash
usage is primarily due to $2.4 million reduced losses in the
2003 period and a $10.0 million reduction from reduced
advances to Sun World from the 2002 period.
CASH USED FOR INVESTING ACTIVITIES. Cash used for
investing activities was $1.4 million for the six months
ended June 30, 2003, as compared to $3.2 million for the
same period in 2002. The decrease was primarily attributable
to reduced capital expenditures offset by a decline in cash
resulting from the deconsolidation of Sun World in January 2003.
Net cash provided by Cadiz investing activities was
negligible for the six months ended June 30, 2003 compared to
cash used for investing activities for the six months ended
June 30, 2002 of $0.5 million primarily for capital expenditures
for water projects.
CASH PROVIDED BY FINANCING ACTIVITIES. Cash provided
by financing activities totaled $2.0 million for the six
months ended June 30, 2003, consisting of $1.7 million net
proceeds from the issuance of Cadiz stock, $0.1 million from
issuance of long-term debt by Sun World and $0.2 of borrowings
from a convertible note payable by Cadiz. Net cash provided by
financing activities totaled $33.4 million for the six months
ended June 30, 2002 consisting primarily of $0.8 million net
proceeds from the issuance of stock by Cadiz, $10.0 million
in short-term borrowings by Cadiz and $23.4 million in borrowings
under the Sun World revolver, offset by $0.4 million in repayment
of bank overdraft at Cadiz and $0.4 million in principal repayments
on long-term debt.
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
Page 36
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.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Information about market risks for the three months
ended June 30, 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.
Page 37
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 June 30, 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
On April 7, 2003 we filed an administrative claim
against The Metropolitan Water District of California
("Metropolitan"), asserting the breach by Metropolitan of
various obligations specified in our Principles of Agreement
with Metropolitan. We believe that by failing to complete
the environmental review process for the Cadiz Program, as
specified in the Principles of Agreement, Metropolitan
violated this contract, breached its fiduciary duties to us
and interfered with our prospective economic advantages.
The filing was made with the Executive Secretary of
Metropolitan. We are seeking recovery of compensatory and
punitive damages.
In discussions following presentation of this claim, we
and Metropolitan have agreed to evaluate alternative
approaches to implementation of the Cadiz Program.
Metropolitan has not to date responded to the claim and we
have until October 2005 to file a lawsuit against the
agency.
Also, see Item 1 "Legal Proceedings" located in Part
II - "Other Information" included in Cadiz' Quarterly Report
on Form 10-Q for the quarter ended March 31, 2003.
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER
PURCHASES OF EQUITY SECURITIES
During the quarter ended June 30, 2003, we completed a
private placement offering of 800,000 shares of common stock
at $2.50 per share in consideration for $1.68 million cash,
$280,000 in services, and an additional 16,000 shares which
were issued as part of the cost of the offering. 80,000 of the
shares for services were not issued until subsequent periods.
We also issued 25,896 shares of common stock to holders of
deferred stock units who exchanged their deferred stock units
for shares of common stock upon their vesting expiration dates.
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.
Page 38
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
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 June 26, 2003
reporting the private placement of 800 thousand registered
shares of its common stock at a price of $2.50 per share for
a total consideration of $2 million. 672,000 of the shares
were sold for cash and 128,000 shares were issued as
consideration for services previously rendered.
Page 39
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
Page 40