10-Q 1 q_june2003.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 June 30, 2003 OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from .. to ... Commission File Number 0-12114 Cadiz Inc. (Exact name of registrant specified in its charter) DELAWARE 77-0313235 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 777 S. FIGUEROA STREET, SUITE 4250 LOS ANGELES, CALIFORNIA 90017 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (213) 271-1600 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No X --- --- Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes No X --- --- As of September 30, 2004, the Registrant had 6,612,674 shares of common stock, par value $0.01 per share, outstanding. CADIZ INC. FOR THE SIX MONTHS ENDED JUNE 30, 2003 PAGE -------------------------------------------------------------------- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CADIZ INC. CONSOLIDATED FINANCIAL STATEMENTS Statement of Operations for the three months ended June 30, 2003 and 2002. . . . . . . . . . . . . . . . . . . . . . . .1 Statement of Operations for the six months ended June 30, 2003 and 2002. . . . . . . . . . . . . . . . . . . . . . . .2 Balance Sheet as of June 30, 2003 and December 31, 2002. . .3 Statement of Cash Flows for the six months ended June 30, 2003 and 2002. . . . . . . . . . . . . . . . . . . . . . . .4 Statement of Stockholders' Equity for the six months ended June 30, 2003. . . . . . . . . . . . . . . . . . . . . . . .5 Notes to the Consolidated Financial Statements. . . . . . . 6 SUN WORLD INTERNATIONAL, INC. CONSOLIDATED FINANCIAL STATEMENTS Statement of Operations for the three months ended June 30, 2003 and 2002. . . . . . . . . . . . . . . . . . . . . . . 19 Statement of Operations for the six months ended June 30, 2003 and 2002. . . . . . . . . . . . . . . . . . . . . . . 20 Balance Sheet as of June 30, 2003 and December 31, 2002. . 21 Statement of Cash Flows for the six months ended June 30, 2003 and 2002. . . . . . . . . . . . . . . . . . . . . . . 22 Statement of Stockholder's Deficit for the six months ended June 30, 2003. . . . . . . . . . . . . . . . . . . . . . . 23 Notes to the Consolidated Financial Statements. . . . . . .24 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. . . . . . . . . . . . . . . .28 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. . . . . . . . . . . . . . . . . . . . . . . . . . 37 ITEM 4. CONTROLS AND PROCEDURES. . . . . . . . . . . . . . . . .38 PART II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . 38 CADIZ INC. CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) ---------------------------------------------------------------------- FOR THE THREE MONTHS ENDED JUNE 30, ($ IN THOUSANDS EXCEPT PER SHARE DATA) 2003 2002 ---------------------------------------------------------------------- Revenues $ 97 $ 23,063 --------- --------- Costs and expenses: Cost of sales 50 16,848 General and administrative 743 4,232 Depreciation and amortization 142 1,729 --------- --------- Total costs and expenses 935 22,809 --------- --------- Operating profit (loss) (838) 254 Interest expense, net 585 5,685 --------- --------- Net loss before income taxes (1,423) (5,431) Income tax expense - 3 --------- --------- Net loss (1,423) (5,434) Less: Preferred stock dividends 282 282 Imputed dividend on preferred stock 246 246 --------- --------- Net loss applicable to common stock $ (1,951) $ (5,962) ========= ========= Basic and diluted net loss per common share $ (0.92) $ (4.11) ========= ========= Basic and diluted weighted average shares outstanding 2,132 1,450 ========= ========= See accompanying notes to the consolidated financial statements. Page 1 CADIZ INC. CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) ------------------------------------------------------------------- FOR THE SIX MONTHS ENDED JUNE 30, ($ IN THOUSANDS EXCEPT PER SHARE DATA) 2003 2002 ------------------------------------------------------------------- Revenues $ 3,143 $ 30,813 --------- --------- Costs and expenses: Cost of sales 2,729 23,101 General and administrative 2,380 7,470 Write off of investment in subsidiary 195 - Reorganization costs 655 - Depreciation and amortization 479 2,455 --------- --------- Total costs and expenses 6,438 33,026 --------- --------- Operating loss (3,295) (2,213) Interest expense, net 2,772 10,468 --------- --------- Net loss before income taxes (6,067) (12,681) Income tax expense - 26 --------- --------- Net loss (6,067) (12,707) Less: Preferred stock dividends 563 563 Imputed dividend on preferred stock 492 492 --------- --------- Net loss applicable to common stock $ (7,122) $ (13,762) ========= ========= Basic and diluted net loss per common share $ (3.60) $ (9.50) ========= ========= Basic and diluted weighted average shares outstanding 1,981 1,448 ========= ========= See accompanying notes to the consolidated financial statements. Page 2 CADIZ INC. CONSOLIDATED BALANCE SHEET (UNAUDITED) --------------------------------------------------------------------- JUNE 30, DECEMBER 31, ($ IN THOUSANDS) 2003 2002 --------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 370 $ 3,229 Accounts receivable, net - 6,732 Note receivable from officer 1,013 1,022 Inventories - 13,513 Prepaid expenses and other 693 1,166 --------- --------- Total current assets 2,076 25,662 Property, plant, equipment and water programs, net 39,745 154,928 Goodwill 3,813 3,813 Other assets - 7,480 --------- --------- $ 45,634 $ 191,883 ========= ========= LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,032 $ 7,394 Accrued liabilities 2,555 6,816 Revolving credit facility - 4,400 Notes payable and long-term debt, current portion 35,281 41,019 --------- --------- Total current liabilities 38,868 59,629 Long-term debt - 115,447 Deferred income taxes - 5,447 Other liabilities 608 1,539 Commitments and contingencies Series D redeemable convertible preferred stock - $.01 par value: 5,000 shares authorized, shares issued and outstanding - 5,000 at June 30, 2003 and December 31, 2002 4,683 4,536 Series E-1 and Series E-2 redeemable convertible preferred stock - $.01 par value: 7,500 total shares authorized; shares issued and outstanding - 7,500 at June 30, 2003 and December 31, 2002 6,752 6,406 Stockholders' equity: Common stock - $.01 par value; 70,000,000 shares authorized; shares issued and outstanding - 2,260,686 at June 30, 2003 and 1,458,659 at December 31, 2002 23 15 Additional paid-in capital 158,054 156,151 Accumulated deficit (163,354) (157,287) --------- --------- Total stockholders' deficit (5,277) (1,121) --------- --------- $ 45,634 $ 191,883 ========= ========= See accompanying notes to the consolidated financial statements. Page 3 CADIZ INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) ------------------------------------------------------------------ FOR THE SIX MONTHS ENDED JUNE 30, ($ IN THOUSANDS) 2003 2002 ------------------------------------------------------------------ Cash flows from operating activities: Net loss $ (6,067) $ (12,707) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization 1,062 5,216 Write off of investment in subsidiary 195 - Loss (gain) on disposal of assets 43 (41) Shares of KADCO stock earned for services - (625) Stock issued for services 72 - Compensation charge for deferred stock units 106 308 Accrued interest on loan to officer (29) - Changes in operating assets and liabilities: (Increase) decrease in accounts receivable 1,488 (18,835) Increase in inventories (3,043) (17,158) Increase (decrease) in prepaid expenses and other (557) 125 Increase (decrease) in accounts payable 1,567 12,370 Increase (decrease) in accrued liabilities 1,718 842 Increase in other liabilities - 244 --------- --------- Net cash used for operating activities (3,445) (30,261) --------- --------- Cash flows from investing activities: Disposal of subsidiary (1,019) - Additions to property, plant and equipment (140) (337) Additions to water programs - (593) Additions to developing crops (198) (1,906) Payment on loan to officer 38 - Proceeds from disposal of property, plant and equipment - 45 (Increase) decrease in other assets (103) (430) --------- --------- Net cash used for investing activities (1,422) (3,221) --------- --------- Cash flows from financing activities: Proceeds from issuance of long-term debt 135 - Net proceeds from short-term debt - 33,400 Net proceeds from issuance of stock 1,680 763 Proceeds from issuance of convertible note payable 200 - Decrease in bank overdraft - (410) Principal payments on long-term debt (7) (358) --------- --------- Net cash provided by financing activities 2,008 33,395 --------- --------- Net decrease in cash and cash equivalents (2,859) (87) Cash and cash equivalents, beginning of period 3,229 1,458 --------- --------- Cash and cash equivalents, end of period $ 370 $ 1,371 ========= ========= See accompanying notes to the consolidated financial statements. Page 4 CADIZ INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED) -------------------------------------------------------------------------------- FOR THE SIX MONTHS ENDED JUNE 30, 2003 ($ IN THOUSANDS) -------------------------------------------------------------------------------- COMMON STOCK PAID-IN ACCUMULATED STOCKHOLDERS' SHARES AMOUNT CAPITAL DEFICIT EQUITY ------ ------ ------- ------- ------ Balance as of December 31, 2002 1,458,659 $ 15 $ 156,151 $(157,287) $ (1,121) Shares issued in exchange for deferred stock units 26,027 - 1,054 - 1,054 Issuance of common stock for cash 672,000 7 1,673 1,680 Issuance of stock with notes payable 8,000 - 32 - 32 Issuance of common stock for services 96,000 1 199 200 Preferred stock dividend - - (563) - (563) Imputed dividend from warrants and deferred beneficial conversion feature - - (492) - (492) Net loss - - - (6,067) (6,067) --------- ------ --------- --------- -------- Balance as of June 30, 2003 2,260,686 $ 23 $ 158,054 $(163,354) $ (5,277) ========= ======= ========= ========== ======== See accompanying notes to the consolidated financial statements. Page 5 CADIZ INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ========================================== NOTE 1 - BASIS OF PRESENTATION ------------------------------ GENERAL The Consolidated Financial Statements have been prepared by Cadiz Inc., sometimes referred to as "Cadiz" or "the Company", without audit and should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company's Form 10-K for the year ended December 31, 2002. On January 30, 2003, Sun World filed voluntary petitions under Chapter 11 of the Bankruptcy Code. See "General Development of Business", in the Company's Form 10-K for the year ended December 31, 2002. Since the filing date, Sun World has operated its business and managed its affairs as debtor and debtor in possession. As of that date due to the Company's loss of control over the operations of Sun World, the financial statements of Sun World are no longer consolidated with those of Cadiz, but instead, Cadiz is accounting for its investment in Sun World on the cost basis of accounting. At January 31, 2003, Cadiz had a net investment in Sun World of approximately $195 thousand consisting of loans and other amounts due from Sun World of $13,500,000 less losses in excess of investment in Sun World of $13,305,000. The Company wrote off its net investment in Sun World of $195 thousand at the Chapter 11 filing date because it does not anticipate being able to recover its investment. The foregoing Consolidated Financial Statements include the accounts of the Company and, until January 30, 2003, those of its then wholly-owned subsidiary, Sun World International, Inc. and its subsidiaries collectively referred to as "Sun World", and contain all adjustments, consisting only of normal recurring adjustments, which the Company considers necessary for a fair presentation. Certain reclassifications have been made to the prior period to conform to the current period presentation. The unaudited consolidated financial information furnished herein has been prepared in accordance with generally accepted accounting principles and reflects all adjustments, consisting only of normal recurring adjustments, which in the opinion of management, are necessary to fairly state the Company's financial position, the results of its operations and its cash flows for the periods presented. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates and such differences may be material to the financial statements. This quarterly report on Form 10-Q should be read in conjunction with the Company's Form 10-K for the year ended December 31, 2002. The results of operations for the three and six months ended June 30, 2003 are not necessarily indicative of results for the entire fiscal year ending December 31, 2003. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the Company have been prepared using accounting principles applicable to a going concern, which assumes realization of assets and settlement of liabilities in the normal course of business. The Company incurred losses of $6.1 million for the six months ended June 30, 2003 and $22.2 million for the year ended December 31, 2002, The Company had a working capital deficit of $36.8 million and $34.0 million at June 30, 2003 and Page 6 December 31, 2002, and used cash in operations of $3.4 million for the six months ended June 30, 2003 and $10.1 million for the year ended December 31, 2002. In addition, Sun World filed for reorganization under Chapter 11 of the Bankruptcy Code. The financial statements of the Company do not purport to reflect or to provide for all of the consequences of an ongoing Chapter 11 reorganization. Specifically, but not all-inclusive, the financial statements of the Company do not present: (a) the realizable value of assets on a liquidation basis or the availability of such assets to satisfy liabilities, (b) the amount which will ultimately be paid to settle liabilities and contingencies which may be allowed in the Chapter 11 reorganization, or (c) the effect of changes which may be made resulting from a Plan of Reorganization. The appropriateness of using the going-concern basis is dependent upon, among other things, confirmation of a Plan of Reorganization, future profitable operations, the ability to comply with provisions of financing agreements and the ability to generate sufficient cash from operations to meet obligations. During the quarter ended June 30, 2003, the Company raised $1.7 million cash and during the quarter ended December 31, 2003, $8.6 million cash through private sales of common stock. Based on current forecasts, the Company believes it has sufficient resources to fund normal operations until May 2005. There is no assurance that additional financing (public or private) will be available on acceptable terms or at all. If the Company issues additional equity securities to raise funds, the ownership percentage of the Company's existing stockholders would be reduced. New investors may demand rights, preferences or privileges senior to those of existing holders of common stock. If the Company cannot raise needed funds, it might be forced to make further substantial reductions in its operating expenses, which could adversely affect its ability to implement its current business plan and ultimately its viability as a company. These financial statements do not include any adjustments that might result from these uncertainties. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and those of Sun World until January 30, 2003, at which date Sun World and certain of its subsidiaries (Sun Desert Inc., Coachella Growers, and Sun World/Rayo) filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. As of that date due to the Company's loss of control over the operations of Sun World, the financial statements of Sun World are no longer consolidated with those of Cadiz, but instead, Cadiz accounts for its investment in Sun World on the cost basis of accounting. As a result of changing to the cost basis of accounting on January 30, 2003, the Company had a net investment in Sun World of $195,000 consisting of loans and other amounts due from Sun World of $13,500,000 less losses in excess of investment in Sun World of $13,305,000. The Company wrote off its net investment in Sun World during the quarter ended March 31, 2003 because it does not anticipate being able to recover its investment. GOODWILL As a result of a merger in May 1988 between two companies, which eventually became known as Cadiz Inc., goodwill in the amount of $7,006,000 was recorded. This amount was being amortized on a straight-line basis over thirty years. Accumulated amortization was $3,193,000 at December 31, 2001. In June 2001, the Financial Accounting Standards Board Page 7 (FASB) issued Statement of Financial Accounting Standards No. 142, ("SFAS No. 142") "Goodwill and Other Intangible Assets". Under SFAS No. 142 goodwill and intangible assets deemed to have indefinite lives are no longer amortized but will be subject to annual impairment tests in accordance with the Statement. Upon adoption of SFAS No. 142, effective at the beginning of fiscal 2002, the Company performed a transitional fair value based impairment test and determined that its goodwill was not impaired. Goodwill will be tested for impairment annually in the first quarter, or earlier if events occur which require an impairment analysis be performed. As a result of the actions taken by Metropolitan in the fourth quarter of 2002 as described in Cadiz' Annual Report on Form 10-K for the year ended December 31, 2002, the Company, with the assistance of an independent valuation firm, performed an impairment test of its goodwill and determined that its goodwill was not impaired. In addition, in the first quarter of 2003, the Company, with the assistance of an independent appraisal firm, performed its annual impairment test of goodwill and determined its goodwill was not impaired. INTANGIBLE AND OTHER LONG-LIVED ASSETS Property, plant and equipment, intangible and certain other long-lived assets are amortized over their useful lives. Useful lives are based on management's estimates of the period that the assets will generate revenue. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. As a result of the actions taken by Metropolitan in the fourth quarter of 2002 as described in Note 1 in Cadiz' Annual Report on Form 10- K for the year ended December 31, 2002, the Company, with the assistance of an independent valuation firm, evaluated the carrying value of its water program and determined that the asset was not impaired and that the costs will be recovered through the ultimate sale or operation of the project. STOCK-BASED COMPENSATION As permitted under Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation", the Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" in accounting for its stock options and other stock- based employee awards. Pro forma information regarding net loss and loss per share, as calculated under the provisions of SFAS 123, are disclosed in the table below. The Company accounts for equity securities issued to non-employees in accordance with the provision of SFAS 123 and Emerging Issues Task Force 96-18. Had compensation cost for these plans been determined using fair value the Company's net loss and net loss per common share would have increased to the following pro forma amounts (dollars in thousands): THREE AND SIX MONTHS ENDED JUNE 30, 2003 2002 THREE MONTHS SIX MONTHS THREE MONTHS SIX MONTHS ------------ ---------- ------------ ---------- Net loss applicable to common stock: As reported $ (1,951) $ (7,122) $ (5,962) $ (13,762) Expense under SFAS 123 (24) (74) (127) (496) --------- --------- --------- ---------- Page 8 Pro forma $ (1,975) $ (7,196) $ (6,089) $ (14,258) ========= ========= ========= ========== Net loss per common share: As reported $ (0.92) $ (3.60) $ (4.11) $ (9.50) Expense under SFAS 123 (0.01) (0.03) (0.09) (0.35) --------- --------- --------- ---------- Pro forma $ (0.93) $ (3.63) $ (4.20) $ (9.85) ========= ========= ========= ========== See Note 2 to the Consolidated Financial Statements included in the Company's Form 10-K for a discussion of the Company's accounting policies. NOTE 2 - INVENTORIES --------------------- Inventories consist of the following (dollars in thousands): June 30, December 31, 2003 2002 ---- ---- Growing crops $ - $ 10,702 Materials and supplies - 2,525 Harvested product - 286 --------- --------- $ - $ 13,513 ========= ========= NOTE 3 - PROPERTY, PLANT EQUIPMENT AND WATER PROGRAM ---------------------------------------------------- Property, plant, equipment and water program consist of the following (in thousands): June 30, December 31, 2003 2002 ---- ---- Land $ 22,010 $ 66,372 Permanent crops 6,493 61,994 Developing crops 159 11,624 Water programs 14,274 16,859 Buildings 1,408 22,620 Machinery and equipment 3,593 20,818 --------- --------- 47,937 200,287 Less accumulated depreciation (8,192) (45,359) --------- --------- $ 39,745 $ 154,928 ========= ========= Page 9 NOTE 4 - DEBT ------------- On July 7 and 8, 2003, ING, the lender of the Company's senior $25 million revolving credit facility and $10 million term loan recorded a series of Notices of Default and Election to Sell under Deed of Trust in the office of the San Bernardino County Recorder evidencing a foreclosure action by ING against the property which was securing the Company's senior secured loans with ING. ING had declared these senior secured loans, which then had a maturity date of January 31, 2003, to be in default in February 2003. In December 2003, subsequent to the completion of the Company's comprehensive financial restructuring which included a three year extension of the Company's loans with ING (as further described below), ING recorded Notices of Rescission in San Bernardino County whereby ING rescinded, canceled and withdrew each such Notice of Default and Election to Sell. On December 15, 2003, the Company entered into an amendment of its senior term loan and revolving credit facility to extend the maturity date through March 31, 2005 and can obtain further extensions through September 30, 2006, by maintaining sufficient balances, among other conditions, in a cash collateral account with the lender. Interest under the amended credit facilities is payable semiannually at the Company's option in either cash at 8% per annum, or in cash and paid in kind ("PIK"), at 4% per annum for the cash portion and 8% per annum for the PIK portion. The PIK portion will be added to the outstanding principal balance. In April 1997, Sun World issued $115 million of Series A First Mortgage Notes through a private placement. The notes have subsequently been exchanged for Series B First Mortgage Notes, which are registered under the Securities Act of 1933 and are publicly traded. The First Mortgage Notes are secured by a first lien (subject to certain permitted liens) on substantially all of the assets of Sun World and its subsidiaries other than growing crops, crop inventories and accounts receivable and proceeds thereof, which secure the Revolving Credit Facility. With the entering into the DIP Facility as described in Note 9 to the Company's filing on Form 10-K for the year ended December 31, 2002, the note holders now have a second position on substantially all of the Company's assets for so long as the DIP Facility is outstanding. The First Mortgage Notes mature April 15, 2004, but are redeemable at the option of Sun World, in whole or in part, at any time prior to the maturity date. The First Mortgage Notes include covenants that do not allow for the payment of dividends by the Company other than out of cumulative net income. The First Mortgage Notes are also secured by the guarantees of Coachella Growers, Inc., Sun Desert, Inc., Sun World/Rayo, and Sun World International de Mexico S.A. de C.V. (collectively, the "Sun World Subsidiary Guarantors") and by Cadiz. Cadiz also pledged all of the stock of Sun World as collateral for its guarantee. The guarantees by the Sun World Subsidiary Guarantors are full, unconditional, and joint and several. Sun World and the Sun World Subsidiary Guarantors comprise all of the direct and indirect subsidiaries of the Company other than inconsequential subsidiaries. Page 10 CONDENSED CONSOLIDATING FINANCIAL INFORMATION Condensed consolidating financial information for the six months ended June 30, 2003 and 2002 and for the three months ended June 30, 2002, and consolidating balance sheet information as of December 31, 2002 for the Company is as follows. Consolidating balance sheet information at June 30, 2003 and consolidating financial information for the three months ended June 30, 2003 is not presented as Sun World was deconsolidated effective January 30, 2003 as described in Note 1 (in thousands): STATEMENT OF OPERATIONS INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 2003 ($ IN THOUSANDS) CADIZ SUN WORLD ELIMINATIONS CONSOLIDATED ----- --------- ------------ ------------ Revenues $ 284 $ 3,005 $ (146) $ 3,143 --------- --------- --------- --------- Costs and expenses: Cost of sales 97 2,653 (21) 2,729 General and administrative 1,798 707 (125) 2,380 Write off of investment in subsidiary 195 - - 195 Reorganization costs - 655 - 655 Depreciation and amortization 289 190 - 479 --------- --------- --------- --------- Total costs and expenses 2,379 4,205 (146) 6,438 --------- --------- --------- --------- Operating loss (2,095) (1,200) - (3,295) Income (loss) from subsidiary (2,469) - 2,469 - Interest expense, net 1,503 1,269 - 2,772 --------- --------- --------- --------- Net income (loss) (6,067) (2,469) 2,469 (6,067) Less: Preferred stock dividends 563 - - 563 Imputed dividend on preferred stock 492 - - 492 --------- --------- --------- --------- Net income loss applicable to common stock $ (7,122) $ (2,469) $ 2,469 $ (7,122) ========= ========= ========= ========= Page 11 CONSOLIDATING STATEMENT OF CASH FLOW INFORMATION SIX MONTHS ENDED JUNE 30, 2003 CADIZ SUN WORLD ELIMINATIONS CONSOLIDATED ----- --------- ------------ ------------ Net cash used for operating activities $ (1,742) $ (1,703) $ - $ (3,445) --------- --------- --------- --------- Cash flows from investing activities: Disposal of subsidiary - (1,019) - (1,019) Additions to property, plant and equipment - (140) - (140) Additions to developing crops (1) (197) - (198) Payment of loan to officer 38 - - 38 Decrease (increase) in other assets 6 (109) - (103) --------- --------- --------- --------- Net cash provided by (used for)investing activities 43 (1,465) - (1,422) --------- --------- --------- --------- Cash flows from financing activities: Net proceeds from issuance of stock 1,680 - - 1,680 Proceeds from issuance of long-term debt - 135 - 135 Proceeds from convertible note payable 200 - - 200 Principal payments on long-term debt - (7) - (7) --------- --------- --------- --------- Net cash provided by financing activities 1,880 128 - 2,008 --------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents 181 (3,040) - (2,859) Cash and cash equivalents, beginning of period 189 3,040 - 3,229 --------- --------- --------- --------- Cash and cash equivalents, end of period $ 370 $ - $ - $ 370 ========= ========= ========= ========= Page 12 CONSOLIDATING BALANCE SHEET INFORMATION DECEMBER 31, 2002 CADIZ SUN WORLD ELIMINATIONS CONSOLIDATED ----- --------- ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 189 $ 3,040 $ - $ 3,229 Accounts receivable, net - 6,732 - 6,732 Net investment in and advances and loans to subsidiary 1,739 - (1,739) - Note receivable from officer 1,022 - - 1,022 Inventories - 13,638 (125) 13,513 Prepaid expenses and other 323 843 - 1,166 --------- --------- --------- --------- Total current assets 3,273 24,253 (1,864) 25,662 Property, plant, equipment and water programs, net 40,076 114,852 - 154,928 Other assets 3,981 7,312 - 11,293 --------- --------- --------- --------- $ 47,330 $ 146,417 $ (1,864) $ 191,883 ========= ========= ========= ========= LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,142 $ 6,252 $ - $ 7,394 Accrued liabilities 987 5,829 - 6,816 Due to parent company - 13,546 (13,546) - Revolving credit facility - 4,400 - 4,400 Notes payable and long-term debt, current portion 34,769 6,250 - 41,019 --------- --------- --------- --------- Total current liabilities 36,898 36,277 (13,546) 59,629 Long-term debt - 115,447 - 115,447 Deferred income taxes - 5,447 - 5,447 Other liabilities 611 928 - 1,539 Series D redeemable preferred stock 4,536 - - 4,536 Series E-1 and E-2 redeemable preferred stock 6,406 - - 6,406 Stockholders' deficit: Common stock 15 - - 15 Additional paid-in capital 156,151 38,508 (38,508) 156,151 Accumulated deficit (157,287) (50,190) 50,190 (157,287) --------- --------- --------- --------- Total stockholders' deficit (1,121) (11,682) 11,682 (1,121) --------- --------- --------- --------- $ 47,330 $ 146,417 $ (1,864) $ 191,883 ========= ========= ========= ========= Page 13 CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION THREE MONTHS ENDED JUNE 30, 2002 CADIZ SUN WORLD ELIMINATIONS CONSOLIDATED ----- --------- ------------ ------------ Revenues $ 400 $ 23,063 $ (400) $ 23,063 --------- --------- --------- --------- Costs and expenses: Cost of sales 25 16,925 (102) 16,848 General and administrative 2,472 2,135 (375) 4,232 Depreciation and amortization 244 1,485 - 1,729 --------- --------- --------- --------- Total costs and expenses 2,741 20,545 (477) 22,809 --------- --------- --------- --------- Operating profit (loss) (2,341) 2,518 77 254 Income (loss) from subsidiary (1,497) - 1,497 - Interest expense, net 1,596 4,062 27 5,685 --------- --------- --------- --------- Net loss before income taxes (5,434) (1,544) 1,547 (5,431) Income tax expense - 3 - 3 --------- --------- --------- --------- Net loss (5,434) (1,547) 1,547 (5,434) Less: Preferred stock dividends 282 - - 282 Imputed dividend on preferred stock 246 - - 246 --------- --------- --------- --------- Net loss applicable to common stock $ (5,962) $ (1,547) $ 1,547 $ (5,962) ========= ========= ========= ========= Page 14 CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION SIX MONTHS ENDED JUNE 30, 2002 CADIZ SUN WORLD ELIMINATIONS CONSOLIDATED ----- --------- ------------ ------------ Revenues $ 882 $ 30,806 $ (875) $ 30,813 --------- --------- --------- --------- Costs and expenses: Cost of sales 57 23,246 (202) 23,101 General and administrative 3,877 4,343 (750) 7,470 Depreciation and amortization 471 1,984 - 2,455 --------- --------- --------- --------- Total costs and expenses 4,405 29,573 (952) 33,026 --------- --------- --------- --------- Operating profit (loss) (3,523) 1,233 77 (2,213) Income (loss) from subsidiary (6,792) - (6,792) - Interest expense, net 2,390 8,094 (16) 10,468 --------- --------- --------- --------- Net loss before income taxes (12,705) (6,861) 6,885 (12,681) Income tax expense 2 24 - 26 --------- --------- --------- --------- Net loss (12,707) (6,885) 6,885 (12,707) Less: Preferred stock dividends 563 - - 563 Imputed dividend on preferred stock 492 - - 492 --------- --------- --------- --------- Net loss applicable to common stock $ (13,762) $ (6,885) $ 6,885 $ (13,762) ========= ========= ========= ========= Page 15 CONSOLIDATING STATEMENT OF CASH FLOW INFORMATION SIX MONTHS ENDED JUNE 30, 2002 CADIZ SUN WORLD ELIMINATIONS CONSOLIDATED ----- --------- ------------ ------------ Net cash used for operating activities $ (12,943) $ (17,318) $ - $ (30,261) --------- --------- --------- --------- Cash flows from investing activities: Additions to property, plant and equipment (93) (244) - (337) Additions to water programs (593) - - (593) Additions to developing crops (66) (1,840) - (1,906) Proceeds from disposal of property, plant and equipment - 45 - 45 Decrease (increase) in other assets 300 (730) - (430) --------- --------- --------- --------- Net cash used for investing activities (452) (2,769) - (3,221) --------- --------- --------- --------- Cash flows from financing activities: Net proceeds from issuance of stock 763 - - 763 Principal payments on long-term debt - (358) - (358) Borrowings from intercompany revolver, net 3,142 (3,142) - - Net proceeds from short-term debt 10,000 23,400 - 33,400 Decrease in bank overdrafts (410) - - (410) --------- --------- --------- --------- Net cash provided by financing activities 13,495 19,900 - 33,395 --------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents 100 (187) - (87) Cash and cash equivalents, beginning of period 400 1,058 - 1,458 --------- --------- --------- --------- Cash and cash equivalents, end of period $ 500 $ 871 $ - $ 1,371 ========= ========= ========= ========= Page 16 NOTE 5 - NET LOSS PER COMMON SHARE ---------------------------------- Basic Earnings Per Share (EPS) is computed by dividing the net loss, after deduction for preferred dividends either accrued or imputed, if any by the weighted-average common shares outstanding. Options, deferred stock units, warrants, convertible debt, and preferred stock that are convertible into shares of the Company's common stock were not considered in the computation of diluted EPS because their inclusion would have been antidilutive. Had these instruments been included, the fully diluted weighted average shares outstanding would have increased by approximately 317,000 shares and 184,000 shares at June 30, 2003 and 2002, respectively NOTE 6 - COMMON STOCK --------------------- During the quarter ended June 30, 2003, we issued 752,000 shares of common stock at $2.50 per share in connection with a private placement offering in consideration for $1.68 million cash and $200,000 in services, and an additional 16,000 shares issued as part of the cost of the offering. We also issued 25,896 shares of common stock to holders of deferred stock units who exchanged their deferred stock units for shares of common stock upon their vesting expiration dates. NOTE 7 - SEGMENT INFORMATION ---------------------------- Financial information by reportable business segment is reported in the tables below. The changes in the agricultural segment for the period ended June 30, 2003 are due to the deconsolidation of Sun World in January 2003. THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 2003 2002 2003 2002 ---- ---- ---- ---- External sales Water resources $ 97 $ - $ 138 $ 7 Agricultural - 23,063 3,005 30,806 --------- --------- --------- --------- Consolidated $ 97 $ 23,063 $ 3,143 $ 30,813 ========= ========= ========= ========= Inter-segment sales Water resources $ - $ 400 $ 146 $ 875 Agricultural - (400) (146) (875) --------- --------- --------- --------- Consolidated $ - $ - $ - $ - ========= ========= ========= ========= Total sales Water resources $ 97 $ 400 $ 284 $ 882 Agricultural - 23,063 3,005 30,806 Other - (400) (146) (875) --------- --------- --------- --------- Page 17 Consolidated $ 97 $ 23,063 $ 3,143 $ 30,813 ========= ========= ========= ========= Loss before income taxes Water resources $ (838) $ (2,341) $ (1,900) $ (3,523) Agricultural - 2,518 (1,200) 1,233 Interest expense (585) (5,685) (2,772) (10,468) Other - 77 (195) 77 --------- --------- --------- --------- Consolidated $ (1,423) $ (5,431) $ (6,067) $ (12,681) ========= ========= ========= ========= June 30, December 31, 2003 2002 Assets Water resources $ 45,634 $ 47,330 Agricultural - 146,417 Other - (1,864) --------- --------- Consolidated $ 45,634 $ 191,883 ========= ========= Page 18 SUN WORLD INTERNATIONAL, INC. (DEBTOR-IN-POSSESSION) (A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.) CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) ------------------------------------------------------------------------ THREE MONTHS ENDED JUNE 30, ($ IN THOUSANDS) 2003 2002 ------------------------------------------------------------------------ Revenues $ 23,723 $ 23,063 --------- --------- Costs and expenses: Cost of sales 19,063 16,925 General and administrative 2,210 2,135 Removal of underperforming crops 86 - Depreciation and amortization 1,945 1,485 --------- --------- Total costs and expenses 23,304 20,545 --------- --------- Operating profit 419 2,518 Loss on sale of property 258 - Interest expense, net (contractual interest for 2003 was $4,134) 534 4,062 --------- --------- Loss before reorganization items and income taxes (373) (1,544) Reorganization items: Debt issuance costs - - Professional fees 1,266 - --------- --------- Total reorganization items 1,266 - --------- --------- Net loss before income taxes (1,639) (1,544) Income tax expense - 3 --------- --------- Net loss $ (1,639) $ (1,547) ========= ========= See accompanying notes to the consolidated financial statements. Page 19 SUN WORLD INTERNATIONAL, INC. (DEBTOR-IN-POSSESSION) (A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.) CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) ------------------------------------------------------------------------ SIX MONTHS ENDED JUNE 30, ($ IN THOUSANDS) 2003 2002 ------------------------------------------------------------------------ Revenues $ 33,284 $ 30,806 --------- --------- Costs and expenses: Cost of sales 28,134 23,246 General and administrative 4,356 4,343 Removal of underperforming crops 86 - Depreciation and amortization 2,471 1,984 --------- --------- Total costs and expenses 35,047 29,573 --------- --------- Operating profit (loss) (1,763) 1,233 Loss on sale of property 258 - Interest expense, net (contractual interest for 2003 was $8,163) 2,137 8,094 --------- --------- Loss before reorganization items and income taxes (4,158) (6,861) Reorganization items: Debt issuance costs 912 - Professional fees 2,631 - --------- --------- Total reorganization items 3,543 - --------- --------- Net loss before income taxes (7,701) (6,861) Income tax expense 20 24 --------- --------- Net loss $ (7,721) $ (6,885) ========= ========= See accompanying notes to the consolidated financial statements. Page 20 SUN WORLD INTERNATIONAL, INC. (DEBTOR-IN-POSSESSION) (A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.) CONSOLIDATED BALANCE SHEET (UNAUDITED) ------------------------------------------------------------------------ JUNE 30, DECEMBER 31, ($ IN THOUSANDS) 2003 2002 ------------------------------------------------------------------------ ASSETS Current assets: Cash and cash equivalents $ 3,947 $ 3,040 Accounts receivable, net 19,803 6,732 Inventories 28,536 13,638 Prepaid expenses and other 1,865 843 --------- --------- Total current assets 54,151 24,253 Property, plant, and equipment, net 109,720 112,293 Intangible assets 1,922 1,934 Other assets 7,604 7,937 --------- --------- Total assets $ 173,397 $ 146,417 ========= ========= LIABILITIES AND STOCKHOLDER'S DEFICIT Current liabilities: Accounts payable $ 14,509 $ 6,252 Accrued liabilities 2,464 5,829 Due to parent - 13,546 Revolving credit facility 26,825 4,400 Long-term debt, current portion 125 6,250 --------- --------- Total current liabilities 43,923 36,277 Long-term debt 792 115,447 Deferred income taxes 5,447 5,447 Other liabilities 447 928 --------- --------- Total liabilities not subject to compromise 50,609 158,099 Liabilities subject to compromise under reorganization proceedings 141,576 - Commitments and contingencies Stockholder's deficit: Common stock, $.01 par value, 300,000 shares authorized; 42,000 shares issued and outstanding - - Additional paid-in capital 39,123 38,508 Accumulated deficit (57,911) (50,190) --------- --------- Total stockholder's deficit (18,788) (11,682) --------- --------- Total liabilities and stockholder's deficit $ 173,397 $ 146,417 ========= ========= See accompanying notes to the consolidated financial statements. Page 21 SUN WORLD INTERNATIONAL, INC. (DEBTOR-IN-POSSESSION) (A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.) CONSOLDIATED STATEMENT OF CASH FLOWS (UNAUDITED) ------------------------------------------------------------------------ SIX MONTHS ENDED JUNE 30, ($ IN THOUSANDS) 2003 2002 ------------------------------------------------------------------------ Cash flows from operating activities: Net loss $ (7,721) $ (6,885) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization 2,563 2,800 Write-off of debt issuance costs 912 - (Gain) loss on disposal of assets 258 (41) Removal of under performing crops 86 - Shares of KADCO stock earned for services (625) (625) Compensation charge for deferred stock units 144 160 Changes in operating assets and liabilities: Increase in accounts receivable (13,071) (18,835) Increase in inventories (13,975) (17,081) Decrease (increase) in prepaid expenses and other (1,022) 61 Increase in accounts payable 11,963 12,484 Increase (decrease) in accrued liabilities 430 743 Increase (decrease) in due to parent (47) 9,656 Increase (decrease) in other liabilities (10) 245 --------- --------- Net cash used for operating activities before reorganization items (20,115) (17,318) --------- --------- Increase in liabilities subject to compromise under reorganization proceedings 525 - --------- --------- Net cash used for operation activities (19,590) (17,318) --------- --------- Cash flows from investing activities: Additions to property, plant and equipment (556) (244) Additions to developing crops (1,298) (1,840) Proceeds from disposal of property, plant and equipment 844 45 (Increase) decrease in other assets (189) (730) --------- --------- Net cash used for investing activities (1,199) (2,769) --------- --------- Cash flows from financing activities: Proceeds from issuance of long-term debt 136 - Principal payments on long-term debt (916) (358) Borrowings from intercompany revolver, net 51 (3,142) Proceeds from short-term borrowings 22,425 23,400 --------- --------- Net cash provided by financing activities 21,696 19,900 --------- --------- Net increase (decrease) in cash and cash equivalents 907 (187) Cash and cash equivalents at beginning of period 3,040 1,058 --------- --------- Cash and cash equivalents at end of period $ 3,947 $ 871 ========= ========= See accompanying notes to the consolidated financial statements. Page 22 SUN WORLD INTERNATIONAL, INC. (DEBTOR-IN-POSSESSION) (A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.) CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2003 ($ IN THOUSANDS) -------------------------------------------------------------------------------- ADDITIONAL TOTAL COMMON STOCK PAID-IN ACCUMULATED STOCKHOLDERS' SHARES AMOUNT CAPITAL DEFICIT DEFICIT ------ ------ ------- ------- ------- Balance as of December 31, 2002 42,000 $ - $ 38,508 $ (50,190) $ (11,682) Exchange of deferred stock units for parent's common stock - - 615 - 615 Net loss - - - (7,721) (7,721) --------- ------ --------- --------- ---------- Balance as of June 30, 2003 42,000 $ - $ 39,123 $ (57,911) $ (18,788) ========= ====== ========= ========= ========== See accompanying notes to the consolidated financial statements. Page 23 SUN WORLD INTERNATIONAL, INC. (DEBTOR-IN-POSSESSION) (A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.) NOTES OF CONSOLIDATED FINANCIAL STATEMENTS ========================================== NOTE 1 - NATURE OF OPERATIONS AND REORGANIZATION UNDER CHAPTER 11 ----------------------------------------------------------------- Founded in 1975, Sun World International, Inc. ("SWII" or "Sun World") and its subsidiaries (collectively, the "Company") operate as the agricultural segment of Cadiz Inc. ("Cadiz"). The Company is an integrated agricultural operation that owns approximately 17,100 acres of land, primarily located in two major growing areas of California: the San Joaquin Valley and the Coachella Valley. Fresh produce, including table grapes, stonefruit, citrus, peppers and watermelons is marketed, packed and shipped to food wholesalers and retailers located throughout the United States and to more than 30 foreign countries. The Company owns and operates three cold storage and/or packing facilities located in California, of which two are operated and one is leased to a third party. On January 30, 2003 (the "Petition Date"), SWII and certain of its subsidiaries (Sun Desert Inc., Coachella Growers, and Sun World/Rayo) filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. The filing was made in the United States Bankruptcy Court, Central District of California, Riverside Division ("Bankruptcy Court"). Included in the Consolidated Financial Statements are subsidiaries operated outside the United States, which have not commenced Chapter 11 cases or other similar proceedings elsewhere, and are not debtors. The assets and liabilities of such no-filing subsidiaries are not considered material to the Consolidated Financial Statements. SWII sought bankruptcy protection in order to access a seasonal financing package of up to $40 million to provide working capital through the 2003-2004 growing seasons. As a debtor-in-possession, Sun World is authorized to continue to operate as an ongoing business, but may not engage in transactions outside the ordinary course of business without the approval of the Bankruptcy Court. Under the Bankruptcy Code, actions to collect pre-petition indebtedness, as well as most other pending litigation, are stayed and other contractual obligations against Sun World may not be enforced. In addition, under the Bankruptcy Code, Sun World may assume or reject executory contracts, including lease obligations. Parties affected by these rejections may file claims with the Court in accordance with the reorganization process. Absent an order of the Court, substantially all pre-petition liabilities are subject to settlement under a plan of reorganization to be voted upon by the creditors and equity holders and approved by the Bankruptcy Court. The financial statements of the Company have been prepared using accounting principles applicable to a going concern, which assumes realization of assets and settlement of liabilities in the normal course of business and in accordance with Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code". Accordingly, all pre-petition liabilities subject to compromise have been segregated in the Consolidated Balance Sheet and classified as "Liabilities subject to compromise under reorganization proceedings", at the estimated amount of allowable claims. The financial statements of the Company do not purport to reflect or to provide for all of the consequences of an ongoing Chapter 11 reorganization. Specifically, but not all-inclusive, the financial statements of the Company do note present: (a) the realizable value of assets on a liquidation basis or the availability of such assets to satisfy liabilities, (b) the amount which will ultimately be paid to settle liabilities and contingencies which may be allowed in the Chapter 11 reorganization, or (c) the effect of Page 24 changes which may be made resulting from a Plan or Reorganization. The appropriateness of using the going-concern basis is dependent upon, among other things, confirmation of a Plan of Reorganization, future profitable operations, the ability to comply with debtor-in-possession financing agreements and the ability to generate sufficient cash from operations to meet obligations. Inherent in a successful Plan of Reorganization is a capital structure that permits the Company to generate cash flows after reorganization to meet its restructured obligations and fund the current operations of the Company. The Company's objective in the Chapter 11 proceeding is to achieve the highest possible recovery for all creditors and shareholders consistent with the Company's ability to pay and the continuation of its business. There can be no assurance that the Company will be able to attain these objectives or reorganize successfully. Because of the ongoing nature of the reorganization case, the financial statements contained herein are subject to material uncertainties. NOTE 2 - BASIS OF PRESENTATION ------------------------------ The Consolidated Financial Statements have been prepared by Sun World International, Inc. and its subsidiaries, collectively referred to as "Sun World" without audit and should be read in conjunction with the Sun World Consolidated Financial Statements and notes thereto included in the Cadiz Inc. Form 10-K for the year ended December 31, 2002. The foregoing Consolidated Financial Statements include all adjustments, consisting only of normal recurring adjustments, which Sun World considers necessary for a fair presentation. The results of operations for the three months and six months ended June 30, 2003 are not necessarily indicative of the results to be expected for the full fiscal year as Sun World's harvest seasons and revenues are seasonal in nature. Since the Chapter 11 bankruptcy filing, the Company has applied the provisions of SOP 90-7, which does not significantly change the application of accounting principles generally accepted in the United States of America; however, it does require that the financial statements for periods including and subsequent to filing the Chapter 11 petition distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. As disclosed in the Consolidated Statements of Operations, reorganization items consist of the write off of unamortized debt issuances costs as of the Petition Date of $912,000 and professional fees directly associated with the reorganization of $2,631,000. See Note 2 to the Sun World Consolidated Financial Statements included in the Cadiz Inc. latest Form 10-K for a discussion of Sun World's accounting policies. Page 25 NOTE 3 - INVENTORIES -------------------- Inventories consist of the following (dollars in thousands): JUNE 30, DECEMBER 31, 2003 2002 ---- ---- Growing crops $ 23,454 $ 10,702 Harvested product 396 411 Materials and supplies 4,686 2,525 --------- --------- $ 28,536 $ 13,638 ========= ========= NOTE 4 - LIABILITIES SUBJECT TO COMPROMISE UNDER REORGANIZATION PROCEEDINGS --------------------------------------------------------------- Under bankruptcy law, actions by creditors to collect indebtedness Sun World owed prior to the Petition Date are stayed and certain other pre-petition contractual obligations may not be enforced against the Company. We have received approval from the Bankruptcy Court to pay certain pre-petition liabilities including employee salaries and wages, benefits, other employee obligations, and certain grower liabilities entitled to trust protection under the Perishable Agricultural Commodities Act (PACA). Except for certain secured debt obligations, all pre- petition liabilities have been classified as "Liabilities subject to compromise under reorganization proceedings" in the Consolidated Balance Sheet. Adjustments to the claims may result from negotiations, payments authorized by Bankruptcy Court order, rejection of executory contracts including leases, or other events. Pursuant to an order of the Bankruptcy Court, Sun World mailed notices to all known creditors that the deadline for filing proofs of claim with the Court was August 29, 2003. An estimated 340 claims were filed as of August 29, 2003. Amounts that Sun World has recorded are in many instances different from amounts filed by our creditors. Differences between amounts scheduled by Sun World and claims by creditors are being investigated and resolved in connection with our claims resolution process. Until the process is complete, the ultimate number and amount of allowable claims cannot be ascertained. The ultimate resolution of these claims will be based upon the final plan of reorganization. Page 26 Liabilities subject to compromise under reorganization proceedings are summarized as follows (dollars in thousands): JUNE 30, 2003 ---- Accounts payable $ 4,252 Interest payable 3,795 Due to parent company 13,529 Long-term debt 120,000 --------- Total $ 141,576 ========= Page 27 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the following discussion contains trend analysis and other forward-looking statements. Forward-looking statements can be identified by the use of words such as "intends", "anticipates", "believes", "estimates", "projects", "forecasts", "expects", "plans" and "proposes". Although we believe that the expectations reflected in these forward- looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from these forward- looking statements. These include, among others, our ability to maximize value from our Cadiz, California land and water resources; the uncertainty of the outcome of Sun World's bankruptcy proceedings; our outstanding guarantee of Sun World's First Mortgage Notes; and our ability to obtain new financings as needed to meet our ongoing working capital needs. See additional discussion under the heading "Certain Trends and Uncertainties" in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2002. OVERVIEW As discussed in further detail below, as of January 30, 2003 the financial statements of our Sun World subsidiary are no longer being consolidated with ours. Presently, our operations (and, accordingly, our working capital requirements) relate primarily to our water development activities and, more specifically, to the Cadiz Groundwater Storage and Dry-Year Supply Program. Our results of operations for periods subsequent to January 2003 have been, and in future fiscal periods will be, largely reflective of the operations of our water development activities. CADIZ GROUNDWATER STORAGE AND DRY-YEAR SUPPLY PROGRAM. In 1997, we commenced discussions with the Metropolitan Water District of Southern California (Metropolitan) in order to develop principles and terms for a long-term agreement for a joint venture water storage and supply program on and under our Cadiz, California property. In July 1998, Cadiz and Metropolitan approved the Principles and Terms for Agreement for the Cadiz Groundwater Storage and Dry-Year Supply Program (the Cadiz Program). At the same time, Cadiz and Metropolitan authorized preparation of a final agreement based on these principles and initiated the environmental review process for the Cadiz Program. Following extensive negotiations with Cadiz to further refine and finalize these basic principles, Metropolitan's Board of Directors approved definitive economic terms and responsibilities at their April 2001 board meeting. The Cadiz Program definitive economic terms were to serve as the basis for a final agreement to be executed between Metropolitan and Cadiz, subject to the then-ongoing environmental review process. Under the Cadiz Program, during wet years or periods of excess supply, surplus water from the Colorado River Aqueduct would be stored in the groundwater basin underlying our property. During dry years or times of reduced allocations from the Colorado River, the previously imported water, together with additional existing groundwater, would be extracted and delivered, via a conveyance pipeline, back to the aqueduct. Page 28 On August 29, 2002, the U.S. Department of Interior approved the Final Environmental Impact Statement for the Cadiz Program and issued its Record of Decision, the final step in the federal environmental review process for the Cadiz Program. The Record of Decision amends the California Desert Conservation Area Plan for an exception to the utility corridor element and offered to Metropolitan a right- of-way grant necessary for the construction and operation of the Cadiz Program. On September 17, 2002, the Metropolitan Subcommittee on Rules and Ethics scheduled a series of meetings in October and November 2002 to consider (a) acceptance of the Record of Decision and the terms and conditions of the right- of-way grant, (b) certification of the environmental documentation for the Cadiz Program under state law, and (c) the final agreement between Cadiz and Metropolitan. On October 8, 2002, Metropolitan's Board considered acceptance of the Record of Decision and the terms and conditions of the right-of-way grant. The Board voted not to adopt Metropolitan staff's recommendation to approve the terms and conditions of the right-of-way grant issued by the Department of the Interior for the Cadiz Program by a vote of 47.11% in favor and 47.36% against the recommendation. Instead, the Board voted for an alternative motion to reject the terms and conditions of the right-of-way grant and to not proceed with the Cadiz Program by a vote of 50.25% in favor and 44.22% against. Irrespective of Metropolitan's actions, Southern California's need for water storage and supply programs has not abated. We believe there are several different scenarios to maximize the value of this water resource, all of which are under current evaluation. Until October 2002 we had expected that the Cadiz Program would be implemented upon the previously negotiated terms, and we had structured our financing arrangements with a view to such implementation. Following Metropolitan's vote in October 2002 to not proceed with the Cadiz Program, these financing arrangements were no longer workable on their then existing terms. In January 2003, Sun World filed a voluntary petition for Chapter 11 bankruptcy protection in order to access seasonal financing. Historically, we, as the parent company of Sun World, had supplemented Sun World's annual working capital requirements. However, at the time of Sun World's filing we did not have the ability to do this. The only way Sun World could obtain the new financing needed to provide working capital for its 2003-2004 growing seasons was to seek court approval, pursuant to Chapter 11, to a new Debtor in Possession ("DIP") facility. Sun World's financial situation and bankruptcy filing, in turn, negated an agreement we had previously reached with our primary lender, ING Capital LLC ("ING") for a three year extension of approximately $35 million of senior secured loans with a maturity date of January 31, 2003. As we were unable to make payment of this debt when due, in February 2003 ING declared these loans to be in default, although we remained in negotiations with ING for an overall restructuring of this debt. Our financing activities during 2003 were directed primarily towards completion of an overall restructuring of our Page 29 capital structure which would preserve our ability to continue with our water resource development programs. This overall capital restructuring was successfully completed in December 2003, and featured the following components, in chronological order: * In June 2003 we completed a private equity offering of 800,000 shares of our common stock (after giving effect to our one for twenty-five reverse stock split effective December 15, 2003 (the "Reverse Split")). 672,000 shares were issued in consideration of $1.68 million in cash, 112,000 were issued in consideration for $280 thousand in services rendered to us, and 16,000 were issued as consideration for fees related to the equity offering. The proceeds raised in this offering provided sufficient working capital for us to continue operations pending completion of the larger $8.6 million private placement in December 2003 described below. * In August 2003 our stockholders approved implementation of a reverse split of our outstanding common stock, with the exact ratio for the split to be determined by our Board of Directors at the time of the split. The reverse split was intended to increase the likelihood of our being able to meet the minimum trading price required for listing our stock on The Nasdaq SmallCap Market or other national securities exchange, as well as to provide us with additional authorized but unissued shares of common stock to be used for capital raising and other purposes. * In October 2003 we entered into an agreement with the holders of all of our outstanding Series D, Series E-1 and Series E-2 preferred stock whereby we issued 400,000 shares of our common stock (after giving effect to the Reverse Split) in exchange of all of our then outstanding Series D, Series E-1 and Series E-2 preferred stock. In connection with this conversion, we recorded a charge against paid-in capital as an inducement to convert. * In December 2003, as described in further detail in our most recent Form 10-K, we simultaneously completed: * An extension of up to three years of our $35 million debt facility with ING, * A one for twenty-five reverse split of our outstanding common stock; * An additional equity infusion of $8.6 million through the issuance of 3,440,000 shares of common stock; * The transfer of our properties to Cadiz Real Estate LLC, a Delaware limited liability company wholly owned by us and created at the behest of ING; and * The completion of our global settlement agreement with the holders of a majority of Sun World's First Mortgage Notes (the "Bondholders") which provides for the pledge of our equity in Sun World together with an unsecured claim due to us from Sun World of $13.5 million to a trust controlled by the Bondholders. Page 30 As a consequence of all of these transactions, the number of outstanding shares of our common stock (after giving effect to our December 2003 one for twenty-five reverse stock split) has increased from 1,858,659 shares as of December 31, 2002 (including 400,000 common shares issuable upon the conversion of outstanding Series D and E preferred stock) to 8,200,340 shares as of December 31, 2003 (including 1,728,955 common shares issuable upon the conversion of outstanding Series F preferred stock). With the completion of these transactions, we have provided for our short-term working capital needs and are able to refocus our efforts on obtaining and utilizing the capital necessary to proceed with our water resource development programs. RESULTS OF OPERATIONS On January 30, 2003, Sun World filed a voluntary petition for Chapter 11 bankruptcy protection. As of that date due to the Company's loss of control over the operations of Sun World, the financial statements of Sun World will no longer be consolidated with ours, but instead, we will account for our investment in Sun World on the cost basis of accounting. As a result of changing to the cost basis of accounting on January 31, 2003, we had a net investment in Sun World of approximately $195 thousand consisting of loans and other amounts due from Sun World of $13,500,000 less losses in excess of investment in Sun World of $13,305,000. Cadiz wrote off the net investment in Sun World of $195 thousand at the Chapter 11 filing date because it does not anticipate being able to recover from its investment. Our consolidated financial statements for the six month period ended June 30, 2003 include the results of operations for Sun World only for the period January 1, 2003 through January 30, 2003. The results of operations of Sun World subsequent to January 30, 2003 are not consolidated in these consolidated financial statements. As a result of the foregoing, direct comparisons of our consolidated results of operations for the six months ended June 30, 2003 with results for the three and six months ended June 30, 2002 will not, in our view, prove meaningful. For this reason, we believe that material trends and developments with respect to our results of operations from period to period are more readily identifiable by comparing the unconsolidated results of Cadiz Inc., which do not include the January 2003 operations of Sun World, rather than our consolidated results of operations, which include the January 2003 operations of Sun World. Therefore, in the following discussion of results of operations, we are using only the unconsolidated results of Cadiz Inc. Tables which disclose the results of Cadiz Inc. separate from its consolidated subsidiary Sun World for the six month periods ending June 30, 2003 and 2002, and from which the numbers used in the following discussion are derived, can be found in Note 4 to the Consolidated Financial Statements in Item 1 above. THREE MONTHS ENDED JUNE 30, 2003 COMPARED TO THREE MONTHS ENDED JUNE 30, 2002 --------------------------------------------------------- We have not received significant revenues from our water resource activity to date. As a result, we have historically incurred a net loss from operations. We had revenues of $97 thousand for the three months ended June 30, 2003 and $0.4 million for the three months Page 31 ended June 30, 2002. Our net loss totaled $1.4 million for the three months ended June 30, 2003 compared to $5.4 million for the three months ended June 30, 2002. The loss for the three months ended June 30, 2002 included $1.5 million equity loss from Sun World, without which the Cadiz loss would be $3.9 million. Our primary expenses are our ongoing overhead costs (i.e. general and administrative expense) and our interest expense. REVENUES. Cadiz standalone revenue during the three months ended June 30, 2003 totaled $0.1 million compared to $0.4 million during the same period in the preceding year. The decrease is primarily due to discontinuation of the management fee payable by Sun World as of January 30, 2003 due to Sun World's Chapter 11 filing. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for Cadiz during the three months ended June 30, 2003 totaled $0.7 million compared to $2.5 million for the three months ended June 30, 2002. The decrease in general and administrative expenses is primarily due to $0.8 million of fees related to a financing that was not completed in the 2002 period, and $0.5 in reduced salaries along with other costs associated with a reduction in staffing. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense for the three months ended June 30, 2003 and 2002 totaled $142 thousand and $244 thousand respectively. The decrease in depreciation was primarily attributable to certain assets being removed in 2002 and certain assets becoming fully depreciated during the past year. INTEREST EXPENSE, NET. Net interest expense totaled $0.6 million during the three months ended June 30, 2003, compared to $1.6 million during the same period in 2002. The following table summarizes the components of net interest expense for the two periods (in thousands): THREE MONTHS ENDED JUNE 30, 2003 2002 ---- ---- Interest on outstanding debt $ 583 $ 448 Amortization of financing costs 15 1,313 Interest income (13) (165) --------- --------- $ 585 $ 1,596 ========= ========= Financing costs, which include legal fees and warrant costs, are amortized over the life of the debt agreement, most of which relate to the ING obligation which became due near the beginning of 2003 resulting in lower costs during 2003. The lower interest income in 2003 was the result of no interest accruing on the intercompany loans to Sun World following the Chapter 11 petition and interest expense was higher because of increased borrowings and a higher rate of interest on the ING loan. Page 32 SIX MONTHS ENDED JUNE 30, 2003 COMPARED TO SIX MONTHS ENDED JUNE 30, 2002 ----------------------------------------------------------- We have not received significant revenues from our water resource activity to date. As a result, we have historically incurred a net loss from operations. We had revenues of $284,000 for the six months ended June 30, 2003 and $882,000 for the six months ended June 30, 2002. Our net loss totaled $6.1 million for the six months ended June 30, 2003 compared to $12.7 million for the six months ended June 30, 2002. During the six months ended June 30, 2003, Cadiz recorded a $2.5 million loss from Sun World compared to a $6.8 million loss during the same period in 2002. Without the Sun World losses, Cadiz loss would be $3.6 million for the six months ended June 30, 2003 and $5.9 million for the same period in 2002. Our primary expenses are our ongoing overhead costs (i.e. general and administrative expense) and our interest expense. REVENUES. Cadiz standalone revenue totaled $0.3 million during the six months ended June 30, 2003 compared to $0.9 million during the same period in the preceding year. The decrease is primarily due to discontinuation of the management fee payable by Sun World as of January 30, 2003 due to Sun World's Chapter 11 filing. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for the six months ended June 30, 2003 totaled $1.8 million compared to $3.9 million for the same 2002 period. The decrease in general and administrative expenses is primarily due to $0.8 million of fees related to a financing that was not completed, $0.8 in reduced salaries and wages, and a general reduction in other expense levels associated with a reduction of staffing. WRITE OFF OF INVESTMENT IN SUBSIDIARY. On January 30, 2003 Sun World and certain of its subsidiaries filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. As of that date due to the Company's loss of control over the operations of Sun World, the financial statements are no longer consolidated with those of Cadiz, but instead Cadiz accounts for its investment in Sun World on the cost basis of accounting. As a result of changing to the cost basis of accounting and because the Company does not believe it will be able to recover its investment, the Company wrote off its net investment in Sun World of $195,000. DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense for the six months ended June 30, 2003 totaled $289 thousand compared to $471 thousand during the same period in 2002. The decrease in depreciation was primarily attributable to certain assets being removed in 2002 and certain assets becoming fully depreciated during the past year. Page 33 INTEREST EXPENSE, NET. Net interest expense totaled $1.5 million during the six months ended June 30, 2003 as compared to $2.4 million in 2002. The following table summarizes the components of net interest expense for the two periods (in thousands): SIX MONTHS ENDED JUNE 30, 2003 2002 ---- ---- Interest on outstanding debt - Cadiz 1,216 778 Amortization of financing costs 366 1,961 Interest income (79) (349) --------- --------- $ 1,503 $ 2,390 ========= ========= Financing costs, which include legal fees and warrant costs, are amortized over the life of the debt agreement, most of which relate to the ING obligation which became due near the beginning of 2003 resulting in lower costs during 2003. The lower interest income in 2003 was the result of no interest accruing on the intercompany loans to Sun World following the Chapter 11 petition and interest expense was higher because of increased borrowings and a higher rate of interest on the ING loan. LIQUIDITY AND CAPITAL RESOURCES (A) CURRENT FINANCING ARRANGEMENTS ----------------------------------- CADIZ OBLIGATIONS. As we have not received significant revenues from our water resource activity to date, we have been required to obtain financing to bridge the gap between the time water resource development expenses are incurred and the time that revenue will commence. Historically, we have addressed these needs primarily through secured debt financing arrangements with our lenders, private equity placements and the exercise of outstanding stock options. As of December 31, 2002, we were obligated for approximately $10,095,068 under a senior term loan facility and $25 million under a revolving credit facility with our primary secured lender, ING Capital LLC. Each facility had a maturity date of January 31, 2003. Sun World's bankruptcy filing negated an agreement we had previously reached with ING for a three year extension of these loans, and in February 2003 ING declared these loans to be in default. During 2003 we remained in continuing discussions with ING concerning an overall restructuring of this debt and in December 2003, as part of an overall restructuring of our capital structure, we entered into agreements with ING which provided for establishing the outstanding principal balance owed to ING at $35 million and extended the maturity date of the credit facilities until March 31, 2005, with three additional automatic 6 month extensions conditioned on our maintaining, as of the commencement date of each extension, cash in an amount equal to at least 4% of the outstanding principal balance of the credit facilities in a cash collateral account held by ING. Additional details concerning the terms of this December 2003 restructuring are included in our Form 10-K for the year ended December 31, 2003. Page 34 Additional details concerning the terms of this December 2003 restructuring are included in our Form 10-K for the year ended December 31, 2002. As we continue to actively pursue our business strategy, additional financing specifically in connection with our water programs will be required. See "Outlook", below. As the parties anticipated this need at the time of our credit restructuring, the restrictive covenants in our credit facility were crafted in a way that, in our view, should not materially limit our ability to undertake debt or equity financing in order to finance our water development activities. Subsequent to the conversion of Series D and E preferred stock discussed in Item 5 of our Form 10-K for the year ended December 31, 2002, we have no outstanding credit facilities or preferred stock other than the Series F preferred stock issued to ING as part of the restructuring described above. SUN WORLD OBLIGATIONS. Sun World has outstanding $115 million of First Mortgage Notes. The First Mortgage Notes were originally to mature on April 15, 2004. The First Mortgage Notes are currently in default as a consequence of the Sun World bankruptcy filing. Sun World's proposed plan of reorganization currently provides for settlement of claims held by the holders of these notes through the issuance of equity interests in Sun World to such holders. The Sun World notes are also secured by the guarantee of Cadiz. As we are not a party to the Sun World bankruptcy filing, the effectiveness of a plan of reorganization which discharges Sun World's obligation to holders of these notes will not, in and of itself, release us of any obligations which we may still have under this guarantee. The Plan, as currently proposed, includes a release in our favor with respect to any of our remaining obligations under this guarantee; however, we do not know whether this provision of the Plan will be approved by the Bankruptcy Court. We have limited any potential obligation we may have otherwise had under the guarantee by entering into release agreements with the majority of the holders of the Sun World notes. For example, in December 2003 we entered into a global settlement agreement with Sun World and with the holders of a majority of Sun World's First Mortgage Notes (the "Bondholders"). Pursuant to this global settlement agreement, the Bondholders waived their rights to seek recovery against us on account of our guarantee of Sun World's obligations under the First Mortgage Notes. This right will similarly be waived by any other note holder which elects to opt into this settlement. The identity and ownership interests of Sun World's bondholders is not a matter of public record, however, based on the results of investigations performed on behalf of Sun World, we believe that we have obtained waivers and/or releases to date from Bondholders which hold, together with their affiliates, approximately 88% in interest of outstanding Sun World notes. All of the remaining Sun World notes (other than a nominal interest of less than 1%) are held by persons who are also shareholders of ours. No non-releasing bondholder has sought to enforce our guarantee of Sun World's obligations against us, nor has any such bondholder given any indication to us that it plans to do so. As part of our December 2003 global settlement agreement, the Bondholders gave written direction to the indenture trustee irrevocably instructing the trustee to take no action against us on behalf of bondholders or on account of the guarantee. Further, we believe that if a Page 35 bondholder's claim against Sun World is ultimately satisfied in whole or in part through a Sun World plan of reorganization, then such bondholder will not be entitled to enforce the guarantee against us as to the amount of the claim so satisfied. In view of all of these factors, we do not anticipate that significant claims will be made against us under the guarantee and we are not setting aside existing working capital or seeking to raise additional working capital in order to pay claims under the guarantee. We have no other obligations or working capital needs with respect to Sun World. As part of our December 2003 global settlement, we have settled all of our claims and obligations with Sun World. Although we continue to be the record owner of Sun World's stock, Sun World will not be receiving working capital contributions from us while it is in bankruptcy proceedings. Sun World's currently proposed plan of reorganization provides for our ownership interests in Sun World to be canceled. CASH USED FOR OPERATING ACTIVITIES. Cash used for operating activities totaled $3.4 million for the six months ended June 30, 2003, as compared to $30.3 million for the six months ended June 30, 2002. These amounts are not comparable because of the deconsolidation of Sun World in January. Cash used by Cadiz for operating activities totaled $1.7 million for the six months ended June 30, 2003 compared to $12.9 million for the same period in 2002. The reduced cash usage is primarily due to $2.4 million reduced losses in the 2003 period and a $10.0 million reduction from reduced advances to Sun World from the 2002 period. CASH USED FOR INVESTING ACTIVITIES. Cash used for investing activities was $1.4 million for the six months ended June 30, 2003, as compared to $3.2 million for the same period in 2002. The decrease was primarily attributable to reduced capital expenditures offset by a decline in cash resulting from the deconsolidation of Sun World in January 2003. Net cash provided by Cadiz investing activities was negligible for the six months ended June 30, 2003 compared to cash used for investing activities for the six months ended June 30, 2002 of $0.5 million primarily for capital expenditures for water projects. CASH PROVIDED BY FINANCING ACTIVITIES. Cash provided by financing activities totaled $2.0 million for the six months ended June 30, 2003, consisting of $1.7 million net proceeds from the issuance of Cadiz stock, $0.1 million from issuance of long-term debt by Sun World and $0.2 of borrowings from a convertible note payable by Cadiz. Net cash provided by financing activities totaled $33.4 million for the six months ended June 30, 2002 consisting primarily of $0.8 million net proceeds from the issuance of stock by Cadiz, $10.0 million in short-term borrowings by Cadiz and $23.4 million in borrowings under the Sun World revolver, offset by $0.4 million in repayment of bank overdraft at Cadiz and $0.4 million in principal repayments on long-term debt. OUTLOOK SHORT TERM OUTLOOK. The proceeds of our 2003 private placements have provided us with sufficient cash to meet our expected working capital needs through approximately May 2005. $2.0 million of the proceeds of our December 2003 private placement were used to bring current our outstanding interest payments owed to ING under our ING credit facilities. $2.1 million of the proceeds of our December 2003 private placement were placed in a cash Page 36 collateral account with ING in order to extend the maturity date of the credit facility through March 31, 2005. These funds can be applied, if necessary, to the payment of accrued interest due under our credit facilities with ING. The remainder of the proceeds will be used to meet our ongoing working capital needs. LONG TERM OUTLOOK. In the longer term, our working capital needs will be determined based upon the specific measures we pursue in the development of our water resources. Whichever measure or measures are chosen, we expect that we will need to raise additional cash from time to time until we are able to generate cash through our development activities. We will evaluate the amount of cash needed, and the manner in which such cash will be raised, on an ongoing basis. We may meet any such future cash requirements through a variety of means to be determined at the appropriate time. Such means may include equity or debt placements, or the sale or other disposition of assets. Equity placements would be undertaken only to the extent necessary so as to minimize the dilutive effect of any such placements upon our existing stockholders. PRINCIPLES OF CONSOLIDATION The Consolidated Financial Statements have been prepared by Cadiz Inc., sometimes referred to as "Cadiz" or "the Company", without audit and should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company's Form 10-K for the year ended December 31, 2002. On January 30, 2003, Sun World filed voluntary petitions under Chapter 11 of the Bankruptcy Code. See "General Development of Business", in the Company's Form 10-K for the year ended December 31, 2002. Since the filing date, Sun World has operated its business and managed its affairs as debtor and debtor in possession. As of that date due to the Company's loss of control over the operations of Sun World, the financial statements of Sun World are no longer consolidated with those of Cadiz, but instead, Cadiz is accounting for its investment in Sun World on the cost basis of accounting. The foregoing Consolidated Financial Statements include the accounts of the Company and, until January 30, 2003, those of its then wholly-owned subsidiary, Sun World International, Inc. and its subsidiaries collectively referred to as "Sun World", and contain all adjustments, consisting only of normal recurring adjustments, which the Company considers necessary for a fair presentation. Certain reclassifications have been made to the prior period to conform to the current period presentation. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information about market risks for the three months ended June 30, 2003 does not differ materially from that discussed under Item 7A of Cadiz' Annual Report on Form 10-K for the year ended December 31, 2002. Page 37 ITEM 4. CONTROLS AND PROCEDURES We carried out an evaluation, under the supervision and with the participation of our management, including our Chairman, Chief Executive Officer and Chief Financial Officer (Principal Executive and Financial Officer), of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2003. As of the date of that evaluation, our Chairman, Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures are effective in timely alerting him to material information relating to Cadiz (including our consolidated subsidiaries) required to be included in our periodic Securities and Exchange Commission filings. There was no significant change in our internal control over financial reporting that occurred during the most recent fiscal quarter that materially affected, or is reasonably likely to affect, our internal control over financial reporting, and no corrective actions with regard to significant deficiencies or weaknesses. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On April 7, 2003 we filed an administrative claim against The Metropolitan Water District of California ("Metropolitan"), asserting the breach by Metropolitan of various obligations specified in our Principles of Agreement with Metropolitan. We believe that by failing to complete the environmental review process for the Cadiz Program, as specified in the Principles of Agreement, Metropolitan violated this contract, breached its fiduciary duties to us and interfered with our prospective economic advantages. The filing was made with the Executive Secretary of Metropolitan. We are seeking recovery of compensatory and punitive damages. In discussions following presentation of this claim, we and Metropolitan have agreed to evaluate alternative approaches to implementation of the Cadiz Program. Metropolitan has not to date responded to the claim and we have until October 2005 to file a lawsuit against the agency. Also, see Item 1 "Legal Proceedings" located in Part II - "Other Information" included in Cadiz' Quarterly Report on Form 10-Q for the quarter ended March 31, 2003. ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES During the quarter ended June 30, 2003, we completed a private placement offering of 800,000 shares of common stock at $2.50 per share in consideration for $1.68 million cash, $280,000 in services, and an additional 16,000 shares which were issued as part of the cost of the offering. 80,000 of the shares for services were not issued until subsequent periods. We also issued 25,896 shares of common stock to holders of deferred stock units who exchanged their deferred stock units for shares of common stock upon their vesting expiration dates. We believe that the transactions described are exempt from the registration requirements of the Securities Act by virtue of Section 4(2) of the Securities Act as the transactions did not involve public offerings, the number of investors was limited, the investors were provided with information about us, and we placed restrictions on resale of the securities. Page 38 ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS Not applicable. ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A. EXHIBITS The following exhibits are filed or incorporated by reference as part of this Quarterly Report on Form 10-Q. 31.1 Certification of Keith Brackpool, Chairman, Chief Executive Officer and Chief Financial Officer of Cadiz Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Keith Brackpool, Chairman, Chief Executive Officer and Chief Financial Officer of Cadiz Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 B. REPORTS ON FORM 8-K We filed a report on Form 8-K dated June 26, 2003 reporting the private placement of 800 thousand registered shares of its common stock at a price of $2.50 per share for a total consideration of $2 million. 672,000 of the shares were sold for cash and 128,000 shares were issued as consideration for services previously rendered. Page 39 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CADIZ INC. By: /s/ Keith Brackpool November 1, 2004 ------------------------------------------ ---------------- Keith Brackpool, Chairman of the Board and Date Chief Executive and Financial Officer Page 40