-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ct3IMwWtduBcaRwFnbpNSLK1wECBsZE4tauijLVCk1oLwyXtBF8adF/MY1k7opu5 zuDbaibJSmXKmli1AAyvdw== 0000727273-04-000002.txt : 20041102 0000727273-04-000002.hdr.sgml : 20041102 20041102065247 ACCESSION NUMBER: 0000727273-04-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20041102 DATE AS OF CHANGE: 20041102 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CADIZ INC CENTRAL INDEX KEY: 0000727273 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE SERVICES [0700] IRS NUMBER: 770313235 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12114 FILM NUMBER: 041111578 BUSINESS ADDRESS: STREET 1: 100 WILSHIRE BLVD. STREET 2: SUITE 1600 CITY: SANTA MONICA STATE: CA ZIP: 90401 BUSINESS PHONE: 3108994700 MAIL ADDRESS: STREET 1: 100 WILSHIRE BLVD. STREET 2: SUITE 1600 CITY: SANTA MONICA STATE: CA ZIP: 90401-1111 FORMER COMPANY: FORMER CONFORMED NAME: CADIZ LAND CO INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: PACIFIC AGRICULTURAL HOLDINGS INC DATE OF NAME CHANGE: 19920602 FORMER COMPANY: FORMER CONFORMED NAME: ARIDTECH INC DATE OF NAME CHANGE: 19880523 10-Q 1 q_mar2003.txt 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 EX-32 2 exhibit32-1.txt STATEMENT PURSUANT TO SECTION 906 THE SARBANES-OXLEY ACT OF 2002 BY PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER I, Keith Brackpool, herby certify that, to my knowledge, that: 1. the accompanying Quarterly Report on Form 10-Q of Cadiz Inc. for the period ended ended March 31, 2003 (the "Report") fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities and Exchange Act of 1934, as amended; and 2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Cadiz Inc. IN WITNESS WHEREOF, the undersigned has executed this Statement as of the date first written above. Dated: November 1, 2004 /s/ Keith Brackpool ---------------------------------- Keith Brackpool Chairman, Chief Executive Officer and Chief Financial Officer EX-31 3 exhibit31-1.txt CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I , Keith Brackpool, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Cadiz Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies in the design or operation of internal controls which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: November 1, 2004 /s/ Keith Brackpool --------------------------------- Keith Brackpool Chairman, Chief Executive Officer and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----