10-Q 1 mar_2005q.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, 2005 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 X No --- --- Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes No X --- --- As of May 13, 2005, the Registrant had 10,965,568 shares of common stock, par value $0.01 per share, outstanding. FOR THE THREE MONTHS ENDED MARCH 31, 2005 PAGE ====================================================================== PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CADIZ INC. CONSOLIDATED FINANCIAL STATEMENTS Unaudited Statement of Operations for the three months ended March 31, 2005 and 2004. . . . . . . . . . . . . . . 1 Unaudited Balance Sheet as of March 31, 2005 and December 31, 2004. . . . . . . . . . . . . . . . . . . . . 2 Unaudited Statement of Cash Flows for the three months ended March 31, 2005 and 2004. . . . . . . . . . . . . . . 3 Unaudited Statement of Stockholders' Equity for the three months ended March 31, 2005. . . . . . . . . . . . . . . . 4 Unaudited Notes to the Consolidated Financial Statements. .5 SUN WORLD INTERNATIONAL, INC. CONSOLIDATED FINANCIAL STATEMENTS Unaudited Statement of Operations for the three months ended March 31, 2005 and 2004. . . . . . . . . . . . . . .10 Unaudited Balance Sheet as of March 31, 2005 and December 31, 2004. . . . . . . . . . . . . . . . . . . . .11 Unaudited Statement of Cash Flows for the three months ended March 31, 2005 and 2004. . . . . . . . . . . . . . .12 Unaudited Statement of Stockholder's Equity for the three months ended March 31, 2005. . . . . . . . . . . . . . . .13 Unaudited Notes to the Consolidated Financial Statements. 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. . . . . . . . . . . . . . . . .19 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. . . . . . . . . . . . . . . . . . . . . . . . . . . 24 ITEM 4. CONTROLS AND PROCEDURES. . . . . . . . . . . . . . . . . .24 PART II - OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . .25 Page i CADIZ INC. CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) ----------------------------------------------------------------------- FOR THE THREE MONTHS ENDED MARCH 31, --------------- (IN THOUSANDS EXCEPT PER SHARE DATA) 2005 2004 ----------------------------------------------------------------------- Revenues $ 15 $ 11 -------- -------- Costs and expenses: General and administrative 954 538 Depreciation and amortization 67 131 -------- -------- Total costs and expenses 1,021 669 -------- -------- Operating loss (1,006) (658) -------- -------- Interest Interest expense 512 2,166 Interest income (54) (9) -------- -------- Interest expense, net 458 2,157 -------- -------- Net loss before income taxes (1,464) (2,815) Income tax expense 105 - -------- -------- Net loss after income taxes $ (1,569) $ (2,815) ======== ======== Basic and diluted net loss per common share $ (0.15) $ (0.43) ======== ======== Basic and diluted weighted average shares outstanding 10,335 6,548 ======== ======== See accompanying notes to the consolidated financial statements. Page 1 CADIZ INC. CONSOLIDATED BALANCE SHEET (UNAUDITED) ----------------------------------------------------------------------- MARCH 31, DECEMBER 31, ($ IN THOUSANDS) 2005 2004 ----------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 8,292 $ 9,031 Prepaid interest expense 1,038 1,106 Prepaid expenses and other 195 116 -------- -------- Total current assets 9,525 10,253 Property, plant, equipment and water programs, net 35,485 35,552 Goodwill 3,813 3,813 Other assets 1,189 1,453 -------- -------- $ 50,012 $ 51,071 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 553 $ 470 Accrued liabilities 504 743 -------- -------- Total current liabilities 1,057 1,213 Long-term debt 25,339 25,000 Commitments and contingencies Stockholders' equity: Series F convertible preferred stock - $.01 par value: 100,000 shares authorized; shares issued and outstanding - 1,000 at March 31, 2005 and December 31, 2004 - - Common stock - $.01 par value; 70,000,000 shares authorized; shares issued and outstanding - 10,351,539 at March 31, 2005 and 10,324,339 at December 31, 2004 104 103 Additional paid-in capital 209,941 209,615 Accumulated deficit (186,429) (184,860) -------- -------- Total stockholders' equity 23,616 24,858 -------- -------- $ 50,012 $ 51,071 ======== ======== See accompanying notes to the consolidated financial statements. Page 2 CADIZ INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) ----------------------------------------------------------------------- FOR THE THREE MONTHS ENDED MARCH 31, --------------- ($ IN THOUSANDS) 2005 2004 ----------------------------------------------------------------------- Cash flows from operating activities: Net loss $ (1,569) $(2,815) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization 74 1,158 Interest expense added to loan principal 339 707 Changes in operating assets and liabilities: Increase in prepaid expenses and other (79) (146) Decrease in prepaid borrowing expense 407 - Increase (decrease) in accounts payable 82 (73) Increase (decrease) in accrued liabilities 88 (395) -------- -------- Net cash used for operating activities (658) (1,564) -------- -------- Cash flows from investing activities: Decrease in restricted cash - 709 Increase in other assets (81) - -------- -------- Net cash (used by) provided by investing activities (81) 709 -------- -------- Net decrease in cash and cash equivalents (739) (855) Cash and cash equivalents, beginning of period 9,031 3,422 -------- -------- Cash and cash equivalents, end of period $ 8,292 $ 2,567 ======== ======== 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, 2005 ($ IN THOUSANDS) -------------------------------------------------------------------------------- PREFERRED STOCK COMMON STOCK ADDITIONAL TOTAL --------------- ------------ PAID-IN ACCUMULATED STOCKHOLDERS' SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY ------ ------ ------ ------ ------- ------- ------ Balance as of December 31, 2004 1,000 $ - 10,324,339 $ 103 $ 209,615 $(184,860) $ 24,858 Issuance of common stock for services - - 27,200 1 326 - 327 Net loss - - - - - (1,569) (1,569) ------- ---- ---------- ------ --------- --------- --------- Balance as of March 31, 2005 1,000 $ - 10,351,539 $ 104 $ 209,941 $(186,429) $ 23,616 ======= ==== ========== ====== ========= ========= ========= 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, 2004. The foregoing Consolidated Financial Statements include the accounts of the Company and contain all adjustments, consisting only of normal recurring adjustments, which the Company considers necessary for a fair presentation of the Company's financial position, the results of its operations and its cash flows for the periods presented and have been prepared in accordance with generally accepted accounting principles. 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, 2004. The results of operations for the three months ended March 31, 2005 are not necessarily indicative of results for the entire fiscal year ending December 31, 2005. 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 $1.6 million for the three months ended March 31, 2005 and $16 million for the year ended December 31, 2004. The Company had working capital of $8.5 million at March 31, 2005 and used cash in operations of $0.7 million for the three months ended March 31, 2005 and $7.6 million for the year ended December 31, 2004. Currently, the Company's sole focus is the development of its water resources program. During the year ended December 31, 2004, the Company raised $21.3 million in cash through a private sale of common stock. Based on current forecasts, the Company believes it has sufficient resources to fund operations beyond March 2006. The Company's current resources do not provide the capital necessary to fund the water development project should the Company be required to do so. 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. Page 5 These financial statements do not include any adjustments that might result from these uncertainties. PRINCIPLES OF CONSOLIDATION In December 2003, the Company transferred substantially all of its assets (with the exception of our office sublease, certain office furniture and equipment and any Sun World related assets) to Cadiz Real Estate LLC, a Delaware limited liability company ("Cadiz Real Estate"). The Company holds 100% of the equity interests of Cadiz Real Estate, and therefore continues to hold 100% beneficial ownership of the properties that it transferred to Cadiz Real Estate. Because the transfer of the Company's properties to Cadiz Real Estate has no effect on its ultimate beneficial ownership of these properties, the properties owned of record either by Cadiz Real Estate or by the Company are treated as belonging to the Company. GOODWILL The Company has $3.8 million of goodwill which resulted from a merger in May 1988 between two companies, which eventually became known as Cadiz Inc. Goodwill is not amortized but is tested for impairment annually in the first quarter, or earlier if events occur which require an impairment analysis be performed. The Company performed an impairment test of its goodwill in the first quarter of 2005 and determined that its goodwill was not impaired as its market capitalization at March 31, 2005 of $159.4 million was in excess of the Company's net book value of $23.8 million at that date. 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. RECENT ACCOUNTING PRONOUNCEMENTS In December 2004, the Financial Accounting Standards Board issued SFAS no. 123(R) (revised 2004), "Share-Based Payment" which amends SFAS Statement 123 and will be effective for public companies for annual periods beginning after June 15, 2005. The new standard will require the Company to recognize compensation costs in its financial statements in an amount equal to the fair value of share-based payments granted to employees and directors. The Company is currently evaluating how it will adopt the standard and evaluating the effect that the adoption of SFAS 123(R) will have on its financial position and results of operations. 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 Page 6 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, as amended by SFAS 148, 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 MONTHS ENDED MARCH 31, 2005 2004 ---- ---- Net loss applicable to common stock: As reported $ (1,569) $ (2,815) Included in Net loss - - Expense under SFAS 123 - - -------- -------- Pro forma $ (1,569) $ (2,815) ======== ======== Net loss per common share: As reported $ (0.15) $ (0.43) Expense under SFAS 123 - - -------- -------- Pro forma $ (0.15) $ (0.43) ======== ======== 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 - PROPERTY, PLANT EQUIPMENT AND WATER PROGRAMS ----------------------------------------------------- Property, plant, equipment and water programs consist of the following (in thousands): MARCH 31, DECEMBER 31, 2005 2004 ---- ---- Land and land improvements $ 22,010 $ 22,010 Water programs 14,274 14,274 Buildings 1,408 1,408 Machinery and equipment 3,599 3,599 -------- -------- 41,291 41,291 Less accumulated depreciation (5,806) (5,739) -------- -------- $ 35,485 $ 35,552 ======== ======== Depreciation expense totaled $67 thousand and $131 thousand during the three months ended March 31, 2005 and 2004. Page 7 NOTE 3 - LONG-TERM DEBT ----------------------- On November 30, 2004 the Company entered into an amendment of its senior term loan agreement with ING whereby it repaid in full the senior term loan portion of the facility with ING of $10 million and reduced to $25 million the outstanding principal balance under the existing revolving portion of the loan. The terms and conditions of the loan facility with ING were amended in order to extend the maturity date of the debt until March 31, 2010, conditioned upon a further principal reduction of $10 million on or before March 31, 2008, with an interest rate through March 31, 2008 of 4% cash plus 4% paid in kind ("PIK") increasing to 4% cash plus 6% PIK for interest periods commencing on and after April 1, 2008. Interest is payable semiannually on March 31 and September 30 each year. The PIK portion will be added to the outstanding principal balance. On March 31, 2005, the 4% cash interest from November 30, 2004 in the amount of $0.3 million was paid by applying it to a $2.4 million credit against loan obligations created by ING as consideration for units purchased by ING as part of a $24 million private placement completed by the Company in November 2004, leaving a credit balance of $2.1 million. On the same date, the accrued 4% PIK portion in the amount of $0.3 million was added to the principal balance of the loan. The terms of the loan facilities require certain mandatory prepayments from the cash proceeds of future equity issuances by the Company and prohibit the payment of dividends. The senior term loan is secured by substantially all of the assets of the Company. NOTE 4 - INCOME TAXES --------------------- In February 2005, our wholly owned subsidiary Sun World International Inc.("Sun World") completed the sale of substantially all of its assets. The sale will generate a total gain at Sun World of approximately $11.3 million and $45.2 million for federal and state income tax purposes, respectively. For regular income tax purposes this gain is not expected to generate a tax liability, in that Sun World and Cadiz file a consolidated tax return and the companies have sufficient tax attributes to offset the gain from Sun World. However, because of state apportionment factors and the Alternative Minimum Tax (AMT) rules, Cadiz is expected to have a tax liability of approximately $105 thousand, which amount has been accrued as of March 31, 2005. The actual tax liability will vary from this estimate based upon taxable income generated during 2005. 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 Page 8 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 421,000 and 1,751,000 shares (including Series F preferred stock convertible into 17,290 and 1,729,000 shares of common stock and warrants convertible into 400,000 and 0 shares of common stock) at March 31, 2005 and 2004, respectively. NOTE 6 - PREFERRED AND COMMON STOCK ----------------------------------- During the quarter ended March 31, 2005, we issued 27,200 shares of common stock in consideration for services valued at $326,400. The shares were issued at $12 per share, the price of the November 2004 private placement at which time the issue of the shares was authorized, the services rendered and the amounts accrued. Page 9 SUN WORLD INTERNATIONAL, INC. (DEBTOR-IN-POSSESSION) (A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.) CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) ------------------------------------------------------------------------ THREE MONTHS ENDED MARCH 31, ($ IN THOUSANDS) 2005 2004 ------------------------------------------------------------------------ Revenues $ 6,809 $ 12,277 -------- -------- Costs and expenses: Cost of sales 6,372 11,255 General and administrative 1,306 2,403 Depreciation and amortization 337 474 -------- -------- Total costs and expenses 8,015 14,132 -------- -------- Operating loss (1,206) (1,855) Loss (gain) on sale of assets 18 (152) Interest (income) expense, net (contractual interest for 2005 and 2004, respectively was $3,462 and $3,915) (60) 393 -------- -------- Loss before reorganization items and income taxes (1,164) (2,096) Reorganization items: Employee incentive payments 1,655 - Professional fees 628 418 Gain on sale of assets (594) - -------- -------- Total reorganization items 1,689 418 -------- -------- Loss before income taxes (2,853) (2,514) Income tax (benefit) expense (5,047) 62 -------- -------- Net income (loss) $ 2,194 $ (2,576) ======== ======== See accompanying notes to the consolidated financial statements. Page 10 SUN WORLD INTERNATIONAL, INC. (DEBTOR-IN-POSSESSION) (A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.) CONSOLIDATED BALANCE SHEET (Unaudited) ----------------------------------------------------------------------- MARCH 31, DECEMBER 31, ($ IN THOUSANDS) 2005 2004 ----------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 48,636 $ 5,311 Restricted cash 1,660 3,344 Accounts receivable, net - 6,243 Inventories - 12,078 Prepaid expenses and other 86 1,745 -------- -------- Total current assets 50,382 28,721 Property, plant, equipment, net - 104,647 Intangible assets - 1,909 Other assets - 6,424 -------- -------- Total assets $ 50,382 $141,701 ======== ======== LIABILITIES AND STOCKHOLDER'S DEFICIT Current liabilities: Accounts payable $ 239 $ 4,944 Accrued liabilities 1,386 2,993 Income tax payable 365 - Revolving credit facility - - Long-term debt, current portion - 722 -------- -------- Total current liabilities 1,990 8,659 Long-term debt - 9 Deferred income taxes - 5,447 Other liabilities - 17 -------- -------- Total liabilities not subject to compromise 1,990 14,132 -------- -------- Liabilities subject to compromise under reorganization proceedings 60,016 141,387 Contingencies Stockholder's deficit: Common stock, $0.01 par value, 300,000 shares authorized; 42,000 shares issued and outstanding - - Additional paid-in capital 39,479 39,479 Accumulated deficit (51,103) (53,297) -------- -------- Total stockholder's deficit (11,624) (13,818) -------- -------- Total liabilities and stockholder's deficit $ 50,382 $141,701 ======== ======== See accompanying notes to the consolidated financial statements. Page 11 SUN WORLD INTERNATIONAL, INC. (DEBTOR-IN-POSSESSION) (A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.) CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) ----------------------------------------------------------------------- THREE MONTHS ENDED MARCH 31, ($ IN THOUSANDS) 2005 2004 ----------------------------------------------------------------------- Cash flows from operating activities: Net income (loss) $ 2,194 $ (2,576) Adjustments to reconcile net income (loss) to net cash used for operating activities: Depreciation and amortization 337 481 Deferred income taxes (5,447) - Gain on disposal of assets (576) (152) Compensation charge for deferred stock units - 20 Changes in operating assets and liabilities: (Increase) decrease in accounts receivable (248) 702 Increase in inventories (3,655) (7,159) Decrease in prepaid expenses and other 167 101 (Decrease) increase in accounts payable (803) 894 Decrease in accrued liabilities (1,487) (524) Increase in income tax payable 365 - -------- -------- Net cash used before reorganization items (9,153) (8,213) -------- -------- Decrease in liabilities subject to compromise under reorganization proceedings (38,282) - -------- -------- Net cash used for operating activities (47,435) (8,213) -------- -------- Cash flows from investing activities: Additions to property, plant, and equipment (299) (663) Additions to developing crops (745) (1,257) Proceeds from sale of assets 90,854 157 Decrease in restricted cash 1,684 - Increase in other assets (55) (64) -------- -------- Net cash provided by (used for) investing activities 91,439 (1,827) -------- -------- Cash flows from financing activities: Principal payments on long-term debt (679) (30) Proceeds from short-term borrowings - 8,675 -------- -------- Net cash provided by (used for) financing activities (679) 8,645 -------- -------- Net increase (decrease) in cash and cash equivalents 43,325 (1,395) Cash and cash equivalents at beginning of period 5,311 1,548 -------- -------- Cash and cash equivalents at end of period $ 48,636 $ 153 ======== ======== Supplemental disclosure of cash flow information: Non-cash investing and financing activities Credit against purchase price on sale of assets in partial satisfaction of First Mortgage Notes $ 40,048 $ - ======== ======== See accompanying notes to the consolidated financial statements. Page 12 SUN WORLD INTERNATIONAL, INC. (DEBTOR-IN-POSSESSION) (A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.) CONSOLIDATED STATEMENT OF STOCKHOLDER'S DEFICIT (UNAUDITED) -------------------------------------------------------------------------------- FOR THE THREE MONTHS ENDED MARCH 31, 2005 ($ IN THOUSANDS) -------------------------------------------------------------------------------- ADDITIONAL TOTAL COMMON STOCK PAID-IN ACCUMULATED STOCKHOLDERS' SHARES AMOUNT CAPITAL DEFICIT DEFICIT ------ ------ ------- ------- ------- Balance as of December 31, 2004 42,000 $ - $ 39,479 $ (53,297) $ (13,818) Net income - - - 2,194 2,194 --------- ------ -------- --------- --------- Balance as of March 31, 2005 42,000 $ - $ 39,479 $ (51,103) $ (11,624) ========= ====== ======== ========= ========= See accompanying notes to the consolidated financial statements. Page 13 SUN WORLD INTERNATIONAL, INC. DEBTOR-IN-POSSESSION (A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.) NOTES TO 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") operated as the wholly-owned agricultural segment of Cadiz Inc. ("Cadiz"). Prior to the sale discussed below, the Company was an integrated agricultural operation that owned approximately 17,000 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 was marketed, packed and shipped to food wholesalers and retailers located throughout the United States and to more than 30 foreign countries. The Company owned and operated two cold storage and packing facilities located in California. 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 non-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 four Sun World entities referred to above are the joint proponents of the Debtors' Joint Plan of Reorganization Dated November 24, 2003 (the "Plan"). The Plan provided for the restructuring of Sun World's balance sheet by providing for Sun World to issue equity interests in the Reorganized Company to the holders of its First Mortgage Notes in full satisfaction of their mortgage note claims; for the payment in full of convenience claims and trade claims; and for Sun World to issue equity interests in the Reorganized Company to entities holding certain other unsecured claims in full satisfaction of those claims. The holders of Sun World's secured First Mortgage Notes were unable to reach agreement on various Plan issues, and the Plan as presented was not confirmable. Thereafter, following an extensive marketing process, Sun World entered into, subject to Court approval, an asset purchase agreement ("APA") in December 2004 with BDCM Opportunity Fund, L.P. ("BDCM""), a major holder of the First Mortgage Notes, under which BDCM would acquire substantially all of the Company's assets subject to overbids at a Court authorized auction. Following the auction on January 13, 2005, Page 14 BDCM was declared the winning bidder and the Court approved on January 14, 2005, an amended APA under which BDCM agreed to acquire substantially all of the Company's assets in exchange for cash and credit consideration of $127.8 million, plus payment and assumption of certain liabilities totaling an estimated $14 million, including the trade claims, which resulted in a gain on sale of assets of approximately $0.6 million. Thereafter, BDCM assigned its rights under the APA to Sun World International LLC ("SW LLC"), a subsidiary of BDCM. The agreement with SW LLC closed on February 25, 2005. The Company has filed in May 2005 an amended Plan to distribute the remaining consideration left in the Company (approximately $50 million after interim distributions/credits to the holders of First Mortgage Notes of approximately $78 million upon closing as authorized by the 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 amount which will ultimately be paid to settle liabilities and contingencies which may be allowed in the Chapter 11 reorganization, or (b) the effect of changes which may be made resulting from a Plan of Reorganization. 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, 2004. The foregoing Consolidated Financial Statements include all adjustments, consisting only of normal recurring adjustments, which Sun World considers necessary for a fair presentation. 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 for the quarter ended March 31, 2005, consist of professional fees directly associated with the reorganization of $628,000, Court-approved bonuses paid to certain employees related to the successful sale of Sun World's assets of $1,655,000, and the gain on sale of Sun World's assets of $594,000. For the quarter ended March 31, 2004, reorganization items consist of professional fees directly associated with the reorganization of $418,000. Page 15 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. NOTE 3 - INVENTORIES -------------------- Inventories consist of the following (dollars in thousands): MARCH 31, DECEMBER 31, 2005 2004 ---- ---- Growing crops $ - $ 9,892 Harvested product - 194 Materials and supplies - 1,992 -------- -------- $ - $ 12,078 ======== ======== 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. Pursuant to the APA (see Note 1), holders of trade claims totaling an estimated $3.0 million entered into a trade vendor agreement with SW LLC and SW LLC assumed those claims upon closing of the asset purchase. In addition, as further described in Note 5 approximately $78 million in interim distributions/credits to the holders of First Mortgage Notes was made upon closing of the sale of Sun World's assets as authorized by the Court. Page 16 Liabilities subject to compromise under reorganization proceedings are summarized as follows (dollars in thousands): MARCH 31, DECEMBER 31, 2005 2004 ---- ---- Accounts payable $ 787 $ 4,092 Due to parent company 13,500 13,500 Long-term debt and accrued interest 45,729 123,795 -------- -------- Total $ 60,016 $141,387 ======== ======== NOTE 5 - SALE OF ASSETS ----------------------- On February 25, 2005, The Company completed the sale of substantially all of its assets to SW LLC (see Note 1). The sale resulted in a gain of $594,000 calculated as follows (in 000s): Cash proceeds to Sun World $ 49,684 Credit/interim distribution to First Mortgage Notes 78,066 -------- 127,750 Liabilities paid by buyer at closing 5,745 Liabilities assumed by buyer 8,572 -------- Total purchase price 142,067 Assets sold: Cash (833) Restricted cash (3,344) Accounts receivable, net (6,545) Inventory (16,345) Prepaid expenses and other (1,492) Property, plant, and equipment, net (104,631) Intangible assets (1,912) Other assets (6,371) -------- Gain on sale of assets $ 594 ======== As discussed in Note 4, in connection with the sale of assets, the Court authorized an interim distribution of a portion of the sales proceeds to the First Mortgage Note holders. The interim distribution was made in the form of (i) a credit to the buyer of $40,048,000 in partial satisfaction of the Notes held by the buyer and (ii) a prorata distribution of $38,018,000 at closing to the remaining Note holders As a result, the outstanding principal balance and accrued interest of the First Mortgage Notes, as included in Liabilities Subject to Compromise, consist of the following (dollars in thousands): Page 17 MARCH 31, DECEMBER 31, 2005 2004 ---- ---- Balance outstanding $ 40,707 $ 118,773 NOTE 6 - INCOME TAXES --------------------- The income tax benefit at March 31, 2005 relates principally to the tax gain on the sale of assets and consists of estimated federal and state alternative minimum taxes of $375,000 and a deferred tax benefit of $5,447,000 due to the reduction in the deferred tax valuation allowance for the utilization of net operating loss carryforwards. Page 18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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; 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, 2004. OVERVIEW Our primary asset consists of three separate properties, each of which consists of largely contiguous land in eastern San Bernardino County, California. This land position totals approximately 45,000 acres. Virtually all of this land is underlain by high-quality groundwater resources with demonstrated potential for various applications, including water storage and supply programs and agricultural, municipal, recreational, and industrial development. Two of the three properties are located in proximity to the Colorado River Aqueduct, the major source of imported water for southern California. The third property is located near the Colorado River. The value of these assets derives from a combination of population increases and limited water supplies throughout southern California. In addition, most of the major population centers in southern California are not located where significant precipitation occurs, requiring the importation of water from other parts of the state. We therefore believe that a competitive advantage exists for those companies that possess or can provide high quality, reliable, and affordable water to major population centers. To this end in 1997 we commenced discussions with the Metropolitan Water District of Southern California ("Metropolitan") in order to develop a long-term agreement for a joint venture groundwater storage and supply program on our land in the Cadiz and Fenner valleys of eastern San Bernardino County (the "Cadiz Program"). Under the Cadiz Program, surplus water from the Colorado River would be stored in the aquifer system underlying our land during wet years. When needed, the stored water, together with indigenous groundwater, would be returned to the Colorado River Aqueduct for distribution to Metropolitan's member agencies throughout six southern California counties. During the next several years, we engaged in extensive negotiations with Metropolitan concerning the Cadiz Program and actively pursued and received substantially all of the various permits required to construct and operate the project. However, in October 2002, Metropolitan's Board voted to not proceed with the Cadiz Program. Page 19 Notwithstanding Metropolitan's actions in 2002, we expect to be able to use our land assets and related water resources to participate in a broad variety of water storage and supply, exchange, and conservation programs with public agencies and other parties. Southern California's need for water storage and supply programs has not abated. We believe there are many different scenarios to maximize the value of this water resource, all of which are under current evaluation. We expect that these alternative scenarios will have different capital requirements and implementation periods than those previously established for the Cadiz Program. Therefore, following Metropolitan's actions in 2002, we have entered into a series of agreements with our senior secured lender, ING Capital LLC ("ING") pursuant to which we reduced our debt to ING to $25 million and extended the maturity date of the ING debt until March 31, 2010, conditioned upon a further principal reduction of $10 million on or before March 31, 2008. In addition, we have raised approximately $35 million in equity through private placements completed in 2003 and 2004. Further, in February 2005, our wholly owned subsidiary Sun World International, Inc. ("Sun World") completed the sale of substantially all of its assets. Sun World had entered bankruptcy proceedings in January 30, 2003, following which the financial statements of Sun World are no longer consolidated with ours. With the implementation of these steps, we have been able to retain ownership of all of our assets relating to our water programs and to obtain working capital needed to continue our efforts to develop our water programs, albeit with the divestiture of our interests in Sun World's assets. Because many of our pre-existing common stockholders have participated in the 2003 and 2004 private placements, our base of common stockholders remains largely the same as before these placements. We remain committed to our water programs and we continue to explore all opportunities for development of these assets. We cannot predict with certainty which of these various opportunities will ultimately be utilized. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2005 COMPARED TO THREE MONTHS ENDED MARCH 31, 2004 ----------------------------------------------------------------- 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 $15 thousand for the three months ended March 31, 2005 and $11 thousand for the three months ended March 31, 2004. Our net loss totaled $1.6 million for the three months ended March 31, 2005 compared to $2.8 million for the three months ended March 31, 2004. Our primary expenses are our ongoing overhead costs (i.e. general and administrative expense) and our interest expense. Page 20 REVENUES We had revenues of $15 thousand for the three months ended March 31, 2005 and $11 thousand for the three months ended March 31, 2004 with the increase attributable to the lease of additional Cadiz Ranch farming acreage to a third party. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses during the three months ended March 31, 2005 totaled $1.0 million compared to $0.5 million for the three months ended March 31, 2004. The increase in general and administrative expenses is primarily due to higher legal, audit and consulting expenses in the three months ended March 31, 2005. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense for the three months ended March 31, 2005 and 2004 totaled $67 thousand and $131 thousand, respectively.. We incurred depreciation expense for permanent and developing crops in the 2004 period. These permanent and developing crops were written off in the last quarter of 2004 and were not subject to further depreciation in 2005, thereby resulting in a decrease in depreciation and amortization expense for the 2005 period. INTEREST EXPENSE, NET. Net interest expense totaled $0.5 million during the three months ended March 31, 2005, compared to $2.2 million during the same period in 2004. The following table summarizes the components of net interest expense for the two periods (in thousands): THREE MONTHS ENDED MARCH 31, 2005 2004 ---- ---- Interest on outstanding debt $ 505 $ 1,139 Amortization of financing costs 7 1,027 Interest income (54) (9) -------- -------- $ 458 $ 2,157 ======== ======== The decrease in net interest expense is due to a combination of a reduction in the outstanding balance of the ING loan and lower interest rates on that loan. In addition, during 2005 there was reduced amortization of financing costs, that included both debt discount and borrowing fees, as the prior balance was written off at the time of the November 30, 2004 amendment to the terms and conditions of the ING loan. The financing costs of the November 30, 2004 amended terms and conditions of the ING loan are lower and are being amortized over a longer period. The financing costs for the November 30, 2004 amended terms and conditions of the ING loan were $150 thousand. INCOME TAXES. In February 2005, our wholly owned subsidiary Sun World International Inc.("Sun World") completed the sale of substantially all of its assets. Page 21 The sale will generate a total gain at Sun World of approximately $11.3 million and $45.2 million for federal and state income tax purposes, respectively. For regular income tax purposes this gain is not expected to generate a tax liability, in that Sun World and Cadiz file a consolidated tax return and the companies have sufficient tax attributes to offset the gain from Sun World. However, because of state apportionment factors and the Alternative Minimum Tax (AMT) rules, Cadiz is expected to have a tax liability of approximately $105 thousand that has been accrued as of March 31, 2005. The actual tax liability will vary from this estimate based upon taxable income generated during 2005. LIQUIDITY AND CAPITAL RESOURCES (A) CURRENT FINANCING ARRANGEMENTS ------------------------------ 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. Subsequent to the vote of Metropolitan's Board in October 2002 to not proceed with the Cadiz Program and Sun World's January 2003 bankruptcy filing, we have worked with our primary secured lender, ING Capital LLC, to structure our debt in a way which would allow us to continue our development of the Cadiz Program. We believe that we have accomplished this goal with a series of agreements with ING, the most recent of which concluded in November 2004. In November 2004 we entered into our most recent series of agreements with ING which provided for the repayment in full of our senior term loan facility with ING, the reduction to $25 million of the outstanding principal balance under our existing revolving credit facility; and amendments to the terms and conditions of our revolving credit facility with ING in order to extend the maturity date of the debt until March 31, 2010, conditioned upon a further principal reduction of $10 million on or before March 31, 2008, and reduce the interest rate through March 31, 2008 on the new outstanding balance to 4% cash plus 4% PIK (increasing to 4% cash plus 6% PIK for interest periods commencing on and after April 1, 2008). Additional details concerning the terms of this November 2004 restructuring are included in our Form 10-K for the year ended December 31, 2004. As we continue to actively pursue our business strategy, additional financing specifically in connection with our water programs will be required. 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. We have no outstanding credit facilities or preferred stock other than the Series F preferred stock held by ING as described in our 10-K for the year ended December 31, 2004. Page 22 CASH USED FOR OPERATING ACTIVITIES. Cash used for operating activities was $0.7 million for the three months ended March 31, 2005, as compared to $1.6 million for the three months ended March 31, 2004. The decreased cash usage is primarily due to a smaller net loss and the reduction in prepaid borrowing expense for the payment of interest in the 2005 period. The $1.4 million reduction in net loss from $2.8 million in the 2004 period to $1.4 million in the 2005 was partly offset by a $1.1 million reduction in non-cash depreciation and amortization. The non-cash depreciation and amortization was $0.1 million in the 2005 period and $1.2 million in the 2004 period which included $1.0 million of amortization of financing costs, as explained above. CASH USED FOR INVESTING ACTIVITIES. During the three months ended March 31, 2005, $0.1 million was invested in assets. During the three months ended March 31, 2004, $0.7 million was paid from the restricted cash account for the cash portion of interest due on the ING loan at March 31, 2004. OUTLOOK SHORT TERM OUTLOOK. The proceeds of our 2003 and 2004 private placements in which we raised approximately $35 million have provided us with sufficient cash to meet our expected working capital needs for current operations until the Company will need to raise additional capital in order to fund the $10 million repayment of its borrowing from ING required to be made by March 2008 in order to obtain a further two year extension of the maturity date of the ING loan. See "Long Term Outlook", below. Approximately $12.7 million of the proceeds of our November 2004 private placement were used to reduce the principal balance, which included approximately $2.7 million in interest payable in kind ("PIK"), owed to ING under our ING credit facilities to $25 million. 40 Units in the 2004 private placement were issued to ING in consideration of a $2.4 million credit to be applied against obligations under the Company's $25 million borrowing from the lender. The remainder of the proceeds from the placements will be used to meet our ongoing working capital needs. LONG TERM OUTLOOK. In the longer term, the current maturity date of our loan with ING is March 2008, although we may obtain a further extension of this loan by making a $10 million repayment. Otherwise, our working capital needs will be determined based upon the specific measures we pursue in the development of our water resources. 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. RECENT ACCOUNTING PRONOUNCEMENTS In December 2004, the Financial Accounting Standards Board issued SFAS no. 123(R) (revised 2004), "Share-Based Payment" which amends SFAS Statement 123 and will be effective for public companies for annual periods beginning after June 15, 2005. The new standard will require the Company to recognize compensation costs in its financial statements in an amount equal to the fair value of share-based payments granted to employees and directors. Page 23 The Company is currently evaluating how it will adopt the standard and evaluating the effect that the adoption of SFAS 123(R) will have on its financial position and results of operations. CERTAIN KNOWN CONTRACTUAL OBLIGATIONS PAYMENTS DUE BY PERIOD CONTRACTUAL LESS THAN OBLIGATIONS TOTAL 1 YEAR 1-3 YEARS 4-5 YEARS AFTER 5 YEARS ----------- ----- --------- --------- --------- ------------- Long term debt obligations $ 25,339 $ - $ 10,000 $ 15,339 $ - Operating leases 119 119 - - - -------- -------- -------- -------- -------- $ 25,458 $ 119 $ 10,000 $ 15,339 $ - ======== ======== ======== ======== ======== ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information about market risks for the three months ended March 31, 2005 does not differ materially from that discussed under Item 7A of Cadiz' Annual Report on Form 10-K for the year ended December 31, 2004. 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, 2005. Based upon, and 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. Page 24 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS See "Legal Proceedings" included in the Company's latest Form 10-K for a complete discussion. 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, 2005, the Company issued 27,200 shares of the Company's common stock in consideration for services valued at $326,400, or $12.00 per share. The issuances were not registered under the Securities Act of 1933, as amended (the "Securities Act"), but were 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 the resale of the securities. 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 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 Page 25 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 Page 26 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 May 16, 2005 --------------------------------- ---------------- Keith Brackpool, Chairman of Date the Board and Chief Executive Officer Page 27