CADIZ INC - Annual Report: 2006 (Form 10-K)
United
States
Securities
and Exchange Commission
Washington,
D. C. 20549
FORM
10-K
FOR
ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
(Mark
One)
[√]
Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
for
the
fiscal year ended December 31, 2006
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, CA 90017
(Address
of principal executive offices) (Zip Code)
(213)
271-1600
(Registrant’s
telephone number, including area code)
Securities
Registered Pursuant to Section 12(b) of the Act:
Title
of Each Class Name
of Each Exchange on Which Registered
Common
Stock, par value $0.01 per
share
The
NASDAQ Stock Market LLC
(Title
of
Class)
(Exchange)
Securities
Registered Pursuant to Section 12(g) of the Act:
Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined
in
rule 405 under the Securities Act of 1933.
Yes
__
No _√_
Indicate
by a check mark if the Registrant is not required to file reports pursuant
to
Section 13 or Section 15(d) of the Exchange Act.
Yes
__
No _√_
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 ___
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§220.405 of this chapter) is not contained herein, and will not
be contained to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment of this Form 10-K. □
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer (as defined in Exchange Act Rule
12b-2).
Large
accelerated filer ___ Accelerated filer _√_
Non-accelerated filer ___
Indicate
by check mark whether the Registrant is a shell company (as defined in Exchange
Act Rule 12b-2).
Yes___
No _√_
As
of
March 2, 2007, the Registrant had 11,887,762 shares of common stock outstanding.
The aggregate market value of the common stock held by nonaffiliates as of
June
30, 2006 was approximately $95,432,717 based on 5,610,389 shares of common
stock
outstanding held by nonaffiliates and the closing price on that date. Shares
of
common stock held by each executive officer and director and by each entity
that
owns more than 5% of the outstanding common stock have been excluded in that
such persons may be deemed to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other
purposes.
Documents
Incorporated by Reference
Portions
of the Registrant's definitive Proxy Statement to be filed for its 2007 Annual
Meeting of Stockholders are incorporated by reference into Part III of this
Report. The Registrant is not incorporating by reference any other documents
within this Annual Report on Form 10-K except those footnoted in Part IV under
the heading “Item 15. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K”.
i
TABLE
OF CONTENTS
Part
I
| Item 1. | Business |
1
|
| Item 1A. | Risk Factors |
8
|
| Item 1B. | Unresolved Staff Comments |
10
|
| Item 2. | Properties |
10
|
|
|
||
| Item 3. | Legal Proceedings |
12
|
| Item 4. | Submission of Matters to a Vote of Security Holders |
12
|
Part
II
Part
III
Part
IV
| Item 15. | Exhibits and Financial Statement Schedules |
30
|
ii
PART
I
This
Form
10-K presents forward-looking statements with regard to financial projections,
proposed transactions such as those concerning the further development of our
land and water assets, information or expectations about our business
strategies, results of operations, products or markets, or otherwise makes
statements about future events. Such 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, the cautionary
statements under the caption “Risk Factors”, as well as other cautionary
language contained in this Form 10-K. These cautionary statements identify
important factors that could cause actual results to differ materially from
those described in the forward-looking statements. When considering
forward-looking statements in this Form 10-K, you should keep in mind the
cautionary statements described above.
Overview
Our
primary assets are 45,000 acres of land in three areas of eastern San Bernardino
County, California. Virtually all of this land is underlain by high-quality
groundwater resources with demonstrated potential for recreational, residential,
and agricultural development. The properties are also located in proximity
to
the Colorado River and the Colorado River Aqueduct, the major source of imported
water for southern California. The aquifer systems underlying the properties
contain large amounts of water and are suitable for water storage and supply
programs.
The
value
of these assets derives from a combination of projected 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
companies that can provide high quality, reliable, and affordable water to
major
population centers.
Our
objective is to realize the highest and best use for these assets. In 1993
we
secured permits for up to 9,600 acres of agricultural development in the Cadiz
Valley and the withdrawal of more than 1 million acre-feet of groundwater from
the aquifer system underlying the property.
Given
the
location of the property, we then focused on the development of an aquifer
storage and supply program on our land in the Cadiz and Fenner Valleys. We
believe that the location and geology of these properties are uniquely suited
for such a development. To this end, in 1997 we entered into the first of a
series of agreements with the Metropolitan Water District of Southern California
(“Metropolitan”) to jointly design, permit and build such a project (the “Cadiz
Project” or the “Project”).
1
Between
1997
and 2002, Metropolitan and the Company received substantially all of the
various
state and federal approvals required for permits to construct and operate
the
project and received a federal Record
of Decision (“ROD”) from
the
U.S. Department of the Interior, which endorsed the Cadiz Project and offered
a
right of way for construction of project facilities. The federal government
also
approved a Final Environmental Impact Statement (“FEIS”) in compliance with the
National Environmental Policy Act (“NEPA”).
With
the
completion of the federal review and permitting process, Cadiz expected
Metropolitan to hold a CEQA hearing, take a vote to approve the Final
Environmental Impact Report (“FEIR”) and accept the right of way offered to the
Project by the U.S. Department of the Interior. Metropolitan’s staff brought the
matter before the Metropolitan Board of Directors in October 2002 and, in a
very
close vote, the Metropolitan Board voted not to accept the right of way grant
and refused to consider whether or not to certify the FEIR, which was a
necessary action to authorize implementation of the Cadiz Project in accordance
with the California Environmental Quality Act (“CEQA”).
It
is our
position that these actions breached various contractual and fiduciary
obligations to us and interfered with the economic advantage we would have
obtained from the Cadiz Project. In April 2003 we filed a claim against
Metropolitan seeking compensatory damages. When settlement negotiations failed
to produce a resolution, we filed a lawsuit against Metropolitan in Los Angeles
Superior Court on November 17, 2005. Our claims for breach
of
fiduciary duty, breach of express contract, promissory estoppel, breach of
implied contract and specific performance have been allowed and will all go
forward to trial later this year. See
Item
3 - “Legal Proceedings”.
Regardless
of the Metropolitan Board’s actions in October 2002, Southern California’s
population continues to grow, and the need for water storage and supply programs
has not abated. Moreover, the advantages of underground water storage facilities
are increasingly evident. These include minimal surface environmental impacts,
low capital investment, protection from airborne contaminants and minimal
evaporative water loss. Therefore we continue to pursue the completion of the
environmental review process for the Cadiz Project.
To
that
end, the County of San Bernardino has agreed to serve as the CEQA lead agency
for the completion of the environmental review of the Cadiz Project and issue
any permits required under California law once the review is completed. We
are
also working with the U.S. Department of the Interior to have the permits that
were approved during the federal environmental review process, including the
right of way granted in the ROD, issued directly to the Company for the benefit
of any participating public agency. Additionally,
we are in discussions with several other public agencies regarding their
interest in participating in the Cadiz Project. These agencies have access
to
sources of water that can be stored in the Cadiz Project. See “Water Resource
Development”, below.
In
addition to agriculture and water development, the rapid growth of nearby desert
communities in southern California, Nevada and Arizona indicates that the
Company’s land holdings may be suitable for other types of development. To this
end, we have conducted a detailed analysis of our land assets to assess the
opportunities for these properties. Based on this analysis, we believe that
our
properties have significant long-term potential for residential and commercial
development. We are continuing to explore alternative land uses to maximize
the
value of our properties.
2
We
remain
committed to our land and water assets and will continue to explore all
opportunities for development of these assets. We cannot predict with certainty
which of these various opportunities will ultimately be utilized.
(a) General
Development of Business
We
are a
Delaware corporation formed in 1992 to act as the surviving corporation in
a
Delaware reincorporation merger between us and our predecessor, Pacific
Agricultural Holdings, Inc., a California corporation formed in
1983.
As
part
of our historical business strategy, we have conducted our land acquisition,
water development activities, agricultural operations, search for international
water and agricultural opportunities and real estate development initiatives
to
maximize the long-term value of our properties and future prospects. See
“Narrative Description of Business” below.
Our
initial focus was on the acquisition of land, the assembly of contiguous land
holdings through property exchanges and to prove the quantity and quality of
water resources through well drilling programs. We subsequently established
agricultural operations on the properties in the Cadiz and Fenner Valleys and
sought to develop the water resources underlying that site.
The
focus
of our water development activities has been the Cadiz Project. The Metropolitan
Board’s decision in late 2002 delayed implementation of the Cadiz Project as we
sought a settlement with Metropolitan before proceeding with another state
agency. When it became clear that we would not be able to reach settlement
and
continue the Project with Metropolitan, we began to take steps to complete
the
environmental review process and implement the Project independently. To that
end, in 2006 we began work with San Bernardino County to complete the CEQA
environmental review for the Project. In the Fall of 2006, the County agreed
to
serve as the CEQA lead agency in the review of the Project’s existing and
updated environmental documents.
At
the
same time we have pursued a claim against Metropolitan, seeking compensatory
damages for what we believe is a breach of contractual and fiduciary obligations
to us and interference with the economic advantage we would have obtained from
the Cadiz Project. We filed a claim against Metropolitan in April 2003 and,
when
settlement negotiations failed to produce a resolution, filed a lawsuit in
Los
Angeles Superior Court in November 2005. Our claims for breach
of
fiduciary duty, breach of express contract, promissory estoppel, breach of
implied contract and specific performance will all go forward to trial, which
is
currently scheduled for later this year.
In
2006,
we refinanced our long term debt with a new $36.4 million zero coupon senior
secured convertible term loan that matures on June 29, 2011 and received $1.1
million when certain holders of warrants issued in 2004 exercised their right
to
purchase 70,000 common shares at $15.00 per share. In 2007, we exercised our
right to terminate the remaining warrants on March 2, 2007, subject to a 30
day
notice period. In response, the remaining warrant holders exercised their right
to purchase 335,440 shares of our common stock during the notice period, and
we
received an additional $5.0 million from the sale of these shares. Following
this exercise, no warrants remain outstanding. These transactions are described
in more detail in
3
The
Chapter 11 Reorganization Plan of our Sun World International Inc. subsidiary
became effective in 2005, and the Company has no further liabilities related
to
the business or operations of Sun World.
(b) Financial
Information about Industry Segments
The
primary business of the Company is to acquire and develop land and water
resources. Our agricultural operations are confined to limited farming
activities at the Cadiz Valley property. As a result, the Company’s financial
results are reported in a single segment. See Consolidated Financial Statements.
See also Item 7, “Management’s Discussion and Analysis of Financial Condition
and Results of Operations”.
(c) Narrative
Description of Business
Our
business strategy is the development of our land holdings for their highest
and
best uses. At present, our development activities are focused on water resource
and real estate development at our San Bernardino County
properties.
Water
Resource Development
Our
portfolio of water resources, located in proximity to the Colorado River and
the
Colorado River Aqueduct, the principal source of imported water for Southern
California, provides us with the opportunity to participate in a variety of
water storage and supply programs, exchanges and conservation programs with
public agencies and other partners.
The
Cadiz Valley Aquifer Storage Project
The
Company owns approximately 35,000 acres of land and related high-quality
groundwater resources in the Cadiz and Fenner valleys of eastern San Bernardino
County. The aquifer system underlying this property is naturally recharged
by
precipitation (both rain and snow) within a watershed of approximately 1,300
square miles. See Item 2, “Properties - The Cadiz/Fenner Property”.
In
1997
we commenced discussions with Metropolitan in order to develop principles and
terms for a long-term agreement for a joint venture groundwater storage and
supply program on this land (the “Cadiz Project”). The Cadiz Project would have
provided Southern California with a valuable increase in water supply during
periods of drought or other emergencies. During wet years, surplus water from
the Colorado River would be stored in the aquifer system that underlies the
Cadiz property. When needed, the stored water and indigenous groundwater would
have been returned to the Colorado River Aqueduct for distribution to water
agencies throughout six southern California counties. The Colorado River
Aqueduct provides supplemental water to approximately 18 million people.
Additionally, exchange agreements could be used to transfer this supplemental
water supply to California communities in the Central and Northern portions
of
the state.
4
Temporary
withdrawals of indigenous groundwater would also have been available from the
Cadiz Project during emergencies. Any temporary withdrawals would have been
strictly monitored according to the provisions of the Groundwater
Monitoring & Management Plan (“Management Plan”) approved
by the U.S. Department of the Interior in its 2002 ROD.
The
comprehensive Management
Plan
was
created during the Cadiz Project’s extensive environmental review process to
ensure long-term protection of the aquifer system and related environmental
resources in and surrounding the area in which the Cadiz Project is located.
Cadiz
Project facilities would include, among other things:
| · |
Spreading
basins, which are shallow ponds that percolate water from the ground
surface to the water table;
|
| · |
High
yield extraction wells designed to extract stored Colorado River
water and
indigenous groundwater from beneath the Cadiz Project
area;
|
| · |
A
35-mile conveyance pipeline to connect the spreading basins and wellfield
to the Colorado River Aqueduct near the Iron Mountain pumping plant;
and
|
| · |
A
pumping plant to pump water through the conveyance pipeline from
the
Colorado River Aqueduct near the Iron Mountain pumping plant to the
Cadiz
Project spreading basins.
|
The
cost
of these facilities was estimated to be approximately $150 million in 2002
and
is expected to be higher today due to steel price increases and higher well
drilling costs.
In
October 2001, the Final Environmental Impact Statement (“FEIS”) and Final
Environmental Impact Report (“FEIR”) were issued
by
Metropolitan and the U.S. Bureau of Land Management, in collaboration with
the
U.S. Geological Survey and the National Park Service. On August 29, 2002, the
U.S. Department of Interior approved the FEIS for the Cadiz Project and issued
its ROD,
the
final step in the federal environmental review process for the Cadiz Project.
The ROD
amended
the California Desert Conservation Area Plan for an exception to the utility
corridor element and offered to Metropolitan a right of way grant for the
pipeline from the Colorado River Aqueduct to the Cadiz Project.
With
all
federal approvals in place, on October 8, 2002, Metropolitan’s Board considered
acceptance of the terms and conditions of the right of way grant pursuant to
the
published
ROD.
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 by a very narrow margin. 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 Project. Subsequent to the Metropolitan Board’s action,
negotiations toward a final agreement for the Cadiz Project on the basis of
the
previously approved definitive economic terms ceased.
When
Metropolitan’s Board declined to proceed with the Cadiz Project, the FEIR was
complete and awaiting certification at a hearing scheduled for late October
2002. It is our position that Metropolitan’s actions on October 8, 2002,
breached various contractual and fiduciary obligations of Metropolitan to us,
and interfered with the economic advantage we would have obtained from the
Cadiz
Project. Therefore, in April 2003 we filed a claim against
5
In 2006, the County of San Bernardino agreed to serve as the new CEQA lead
agency for the Project and evaluate the changes to the Project as well as
the
Project’s existing and updated environmental documentation. Once the CEQA review
is complete, the County has the authority to issue any permits required under
California law for construction and implementation of the Project. In late
2006
and early 2007, we submitted a technical memorandum and numerous permit
applications to the County, which officially began the CEQA review process.
We
expect this process to be completed by the end of 2007.
We are also working directly with the U.S. Department of the Interior to have
the permits that were authorized during the federal environmental review
process, including the right of way grant included in the ROD, issued directly
to the Company. Additionally, we are in discussions with several other public
agencies regarding their interest in participating in the Cadiz Project. All
of
these agencies have access to sources of water that can be stored by the Cadiz
Project.
6
Other Eastern Mojave Properties
Our
second largest landholding is approximately 9,000 acres in the Piute Valley
of
eastern San Bernardino County. This landholding is located approximately 15
miles from the resort community of Laughlin, Nevada, and about 12 miles from
the
Colorado River town of Needles, California. Extensive hydrological studies,
including the drilling and testing of a full-scale production well, have
demonstrated that this landholding is underlain by high-quality groundwater.
The
aquifer system underlying this property is naturally recharged by precipitation
(both rain and snow) within a watershed of approximately 975 square miles.
Discussions with potential partners have commenced with the objective of
developing our Piute Valley assets.
Additionally,
we own additional acreage located near Danby Dry Lake, approximately 30 miles
southeast of our landholdings in Cadiz and Fenner valleys. Our Danby Lake
property is located approximately 10 miles north of the Colorado River Aqueduct.
Initial hydrological studies indicate that it has excellent potential for a
groundwater storage and supply project.
Agricultural
Operations
Our
agricultural operations are very limited. Historically, we leased our Cadiz
Valley farming property to Sun World and other third parties. Currently, we
lease approximately 160 acres of organic table grape vineyards at our Cadiz
Valley property to a third party. The lease is renewable on a year to year
basis
with annual revenues of approximately $12,000. In 2006, we farmed 500 acres
of
table grape vineyards, 240 acres of Lisbon lemons and 20 acres of Eureka lemons.
We subcontracted the irrigation labor, harvesting and marketing of the crop
to
third parties. In 2006, revenues from agricultural operations were
$602,000.
Seasonality
Our
water
resource development activities are not seasonal in nature.
With
the
2003 bankruptcy and 2005 sale of the assets of our Sun World International,
Inc.
subsidiary (“Sun World”), our farming operations are limited. These operations
will be subject to the general seasonal trends that are characteristic of the
agricultural industry.
Competition
We face competition for the acquisition, development and sale of our properties
from a number of competitors. We may also face competition in the development
of
water resources associated with our properties. Since California has scarce
water resources and an increasing demand for available water, we believe that
location, price and reliability of delivery are the principal competitive
factors affecting transfers of water in California.
Employees
As
of
December 31, 2006, we employed
9 full-time employees (i.e. those individuals working more than 1,000 hours
per
year). We believe that our employee relations are good.
7
Regulation
Our
operations are subject to varying degrees of federal, state and local laws
and
regulations. As we proceed with the development of our properties, including
the
Cadiz Project, we will be required to satisfy various regulatory authorities
that we are in compliance with the laws, regulations and policies enforced
by
such authorities. Groundwater development, and the export of surplus groundwater
for sale to single entities such as public water agencies, is not subject to
regulation by existing statutes other than general environmental statutes
applicable to all development projects. Additionally, we must obtain a variety
of approvals and permits from state and federal governments with respect to
issues that may include environmental issues, issues related to special status
species, issues related to the public trust, and others. Because of the
discretionary nature of these approvals and concerns which may be raised by
various governmental officials, public interest groups and other interested
parties during both the development and approval process, our ability to develop
properties and realize income from our projects, including the Cadiz Project,
could be delayed, reduced or eliminated.
Access
To Our Information
We
are
subject to the information and reporting requirements of the Securities Exchange
Act and file annual, quarterly and current reports, proxy statements and other
information with the SEC. You can request copies of these documents, for a
copying fee, by writing to the SEC. We furnish our stockholders with annual
reports containing financial statements audited by our independent
auditors.
We
also
make available on our website www.cadizinc.com copies of our annual, quarterly
and special reports, proxy and information statements and other
information.
Our
business is subject to a number of risks, including those described
below.
Our
Development Activities Have Not Generated Significant
Revenues
At
present, our development activities are focused on water resource and real
estate development at our San Bernardino County properties. We have not received
significant revenues from our development activities to date and we do not
know
when, if ever, we will receive operating revenues from our development
activities. As a result, we continue to incur a net loss from
operations.
We
May Never Generate Significant Revenues Or Become Profitable Unless We Are
Able
To Successfully Implement Programs To Develop Our Land Assets And Related Water
Resources
We
do not
know the terms, if any, upon which we may be able to proceed with our water
and
real estate development programs. Regardless of the form of our water
development programs, the circumstances under which transfers or storage of
water can be made and the profitability of any transfers or storage are subject
to significant uncertainties, including hydrologic risks of variable water
supplies, risks presented by allocations of water under existing
8
Our
Failure To Make Timely Payments Of Principal And Interest On Our Indebtedness
May Result In A Foreclosure On Our Assets
As
of
December 31, 2006, we had indebtedness outstanding to our senior secured lenders
of approximately $37.3 million. Our assets have been put up as collateral to
secure the payment of this debt. If we cannot generate sufficient cash flow
to
make principal and interest on this indebtedness when due, or if we otherwise
fail to comply with the terms of agreements governing our indebtedness, we
may
default on our obligations. If we default on our obligations, our lenders may
sell off the assets that we have put up as collateral. This, in turn, would
result in a cessation or sale of our operations.
The
Conversion Of Our Outstanding Senior Indebtedness Into Common Stock Would Dilute
The Percentage Of Our Common Stock Held By Current
Stockholders
Our
senior indebtedness is convertible into common stock at the election of our
lenders. As of December 31, 2006, our senior indebtedness was convertible into
1,736,518 shares of our common stock, an amount equal to approximately 15.1%
of
the number of shares of our common stock outstanding as of that date. An
election by our lenders to convert all or a portion of our senior secured
indebtedness into common stock will dilute the percentage of our common stock
held by current stockholders.
The
Issuance Of Equity Securities Under Management Equity Incentive Plans Will
Impact Earnings
Our
compensation programs for management emphasize long-term incentives, primarily
through the issuance of equity securities and options to purchase equity
securities. It is expected that plans involving the issuance of shares, options,
or both will be submitted from time to time to our stockholders for approval.
In
the event that any such plans are approved and implemented, the issuance of
shares and options under such plans may result in the dilution of the ownership
interest of other stockholders and will, under currently applicable accounting
rules, result in a charge to earnings based on the value of our common stock
at
the time of issue and the fair value of options at the time of their award.
The
expense would be recorded over the vesting period of each stock and option
grant.
We
May Not Be Able To Obtain the Financing We Need To Implement Our Asset
Development Programs
We
will
require additional capital to finance our operations until such time as our
asset development programs produce revenues. We cannot assure you that our
current lenders, or any other lenders, will give us additional credit should
we
seek it. If we are unable to obtain additional credit, we may engage in further
equity financings. Our ability to obtain equity
9
We
Are Restricted By Contract from Paying Dividends and We Do Not Intend To Pay
Dividends In The Foreseeable Future
Any
return on investment on our common stock will depend primarily upon appreciation
in the price of our common stock. To date, we have never paid a cash dividend
on
our common stock. The loan documents governing our credit facilities with our
senior secured lenders prohibit the payment of dividends while such facilities
are outstanding. As we have a history of operating losses, we have been unable
to pay dividends to date. Even if we post a profit in future years, we currently
intend to retain all future earnings for the operation of our business. As
a
result, we do not anticipate that we will declare any dividends in the
foreseeable future.
Not
applicable at this time.
Following
is a description of our significant properties.
The
Cadiz/Fenner Valley Property
In
1984,
we conducted investigations of the feasibility of agricultural development
of
land located in the Cadiz and Fenner valleys of eastern San Bernardino County,
California. These investigations confirmed the availability of high-quality
groundwater in commercial quantities appropriate for agricultural development.
Since 1985, we have acquired approximately 35,000 acres of largely contiguous
land in this area, which is located approximately 30 miles north of the Colorado
River Aqueduct.
Additional
independent geotechnical and engineering studies conducted since 1985 have
confirmed that the Cadiz/Fenner property overlies a natural groundwater aquifer
system that is ideally suited for the underground water storage and dry year
temporary withdrawals contemplated in the Cadiz Project. See Item 1, “Business -
Narrative Description of Business - Water Resource Development”.
In
November 1993, the San Bernardino County Board of Supervisors unanimously
approved a General Plan Amendment establishing an agricultural land use
designation for 9,600 acres in the Cadiz Valley, of which approximately 1,600
acres have been developed for agriculture. This action also allows for the
withdrawal of more than 1,000,000 acre-feet of groundwater from the aquifer
system underlying our property.
10
Other
Eastern Mojave Properties
We
also
own approximately 10,900 additional acres in the eastern Mojave Desert,
including the Piute and Danby Lake properties.
Our
second largest property consists of approximately 9,000 acres in the Piute
Valley of eastern San Bernardino County. This landholding is located
approximately 15 miles from the resort community of Laughlin, Nevada, and about
12 miles from the Colorado River town of Needles, California. Extensive
hydrological studies, including the drilling and testing of a full-scale
production well, have demonstrated that this landholding is underlain by
high-quality groundwater. The aquifer system underlying this property is
naturally recharged by precipitation (both rain and snow) within a watershed
of
approximately 975 square miles. Discussions with potential partners have
commenced with the objective of developing our Piute Valley assets.
Additionally,
we own or control additional acreage located near Danby Dry Lake, approximately
30 miles southeast of our landholdings in the Cadiz and Fenner valleys. Our
Danby Lake property is located approximately 10 miles north of the Colorado
River Aqueduct. Initial hydrological studies indicate that it has excellent
potential for a groundwater storage and supply project.
Farm Property
Approximately
1,600 acres of our Cadiz Valley property has been developed for agricultural
use. We are currently leasing to a third party approximately 160 acres of this
property, consisting of organic table grape vineyards. During 2005, we leased
an
additional 500 acres of juice grape vineyards to the same party. The lease
provides that the lessee be responsible for all costs associated with growing
crops on the leased property. The lease is renewable on a year to year basis
with 2006 revenues of approximately $12,000. In 2006, the Company farmed the
500
acres of juice grape vineyards and 260 acres of citrus orchards using
subcontractors to farm, harvest and market the crop. Annual revenues from these
agricultural activities were $602,000.
Executive
Offices
We
currently lease our executive offices in Los Angeles, California, which consist
of approximately 4,770 square feet, pursuant to a sublease that expires on
June
14, 2007. Current base rent under the lease is approximately $8,745 per
month.
Cadiz
Real Estate
In
December 2003, we transferred substantially all of our 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”). We hold 100% of the equity interests of Cadiz
Real Estate, and therefore we continue to hold 100% beneficial ownership of
the
properties that we transferred to Cadiz Real Estate. Cadiz Real Estate was
created at the behest of our then existing senior secured lender, ING. The
Board
of Managers of Cadiz Real Estate currently consists of two managers appointed
by
us. Our senior secured lender, Peloton, has the right to appoint one independent
manager.
11
Cadiz
Real Estate is a co-obligor under our senior secured convertible term loan,
for
which assets of Cadiz Real Estate have been pledged as security.
Because
the transfer of our properties to Cadiz Real Estate has no effect on our
ultimate beneficial ownership of these properties, we refer throughout this
Report to properties owned of record either by Cadiz Real Estate or by us as
“our” properties.
Debt
Secured by Properties
Our
outstanding debt at December 31, 2006 of $37.3 million represents loans secured
by our assets (including properties held of record by Cadiz Real Estate).
Information regarding interest rates and principal maturities is provided in
Note 6 to the consolidated financial statements.
Claim
Against Metropolitan
On
April
7, 2003, we filed an administrative claim against The Metropolitan Water
District of Southern California (“Metropolitan”), asserting the breach by
Metropolitan of various obligations specified in our 1998 Principles of
Agreement with Metropolitan and other related contracts. We believe that by
failing to complete the environmental review process for the Cadiz Project,
failing to accept the right of way grant offered by the U.S. Department of
the
Interior and for taking other actions inconsistent with their obligations,
Metropolitan violated the contracts between the parties, breached its fiduciary
duties to us and interfered with our prospective economic advantages. See Item
1, “Business - Narrative Description of Business - Water Resource Development”.
The filing was made with the Executive Secretary of Metropolitan.
When
settlement negotiations failed to produce a resolution, we filed a lawsuit
against Metropolitan in Los Angeles Superior Court on November 17, 2005 seeking
recovery of damages. Metropolitan counsel responded with a demurrer, seeking
to
have certain claims disallowed. On October 18, 2006 the Court ruled in favor
of
Cadiz and overruled the demurrer to the claims for breach of fiduciary duty,
promissory estoppel, breach of implied contract and specific performance. As
a
result, these claims will all go forward to trial, along with the breach of
express contract claim, which was not addressed by the demurrer. The trial
is
scheduled for October 2007.
Other
Proceedings
There
are
no other material pending legal proceedings to which we are a party or of which
any of our property is the subject.
Our
2006
annual meeting was held on November 10, 2006. The stockholders took the
following actions at the meeting:
12
1. Elected
Messrs. Keith Brackpool, Murray H. Hutchison, Timothy J. Shaheen, Stephen J.
Duffy and Winston H. Hickox to the Company's Board of Directors. Mr. Brackpool
was elected by the vote of 7,066,396 shares in favor and 2,518 withheld and
no
broker non-votes. Mr. Hutchison was elected by the vote of 7,021,133 shares
in
favor and 47,781 withheld and no broker non-votes. Mr. Shaheen was elected
by
the vote of 7,066,358 shares in favor and 2,556 withheld and no broker
non-votes. Mr. Duffy was elected by the vote of 7,021,253 shares in favor and
47,661 withheld and no broker non-votes. Mr. Hickox was elected by the vote
of
7,021,223 shares in favor and 47,691 withheld and no broker
non-votes.
Mr.
Raymond J. Pacini serves as a director of the Company by designation under
our
credit agreement with our senior secured lenders, and thus was not subject
to
election at the annual meeting.
2. Ratified
the selection by our Board of Directors of PricewaterhouseCoopers LLP to
continue as our independent certified public accountants for fiscal year 2006
by
a vote of 7,066,101 in favor and 1,868 against, with 945 abstaining and no
broker non-votes.
3. Approved
the Cadiz Outside Director Compensation Plan by a vote of 2,040,426 in favor
and
57,477 against, with 1,886 abstaining and 4,969,125 broker
non-votes.
4. Approved
the issuance of Cadiz common stock upon the conversion of the Company's loan
with Peloton Multi-Strategy Master Fund in an amount in excess of the 19.99%
"Exchange Cap" provided for in the credit agreement for this loan transaction
by
a vote of 2,078,734 in favor and 18,333 against, with 2,722 abstaining and
4,969,125 broker non-votes.
13
PART
II
The
Company's common stock is currently traded on The NASDAQ Global Market
("NASDAQ") under the symbol "CDZI." Prior to June 20, 2005, the Company’s common
stock was traded on the OTC Bulletin Board. The following table reflects actual
sales transactions for the dates that the Company was trading on NASDAQ, and
high and low bid information otherwise. The OTC Bulletin Board market quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission
and
may not necessarily represent actual transactions. The high and low ranges
of
the common stock for the dates indicated have been provided by Bloomberg
LP.
|
|
High
|
Low
|
|||||
|
Quarter
Ended
|
Sales
Price
|
Sales
Price
|
|||||
|
2005:
|
|||||||
|
March
31
|
$
|
15.40
|
$
|
11.50
|
|||
|
June
30
|
$
|
19.00
|
$
|
14.25
|
|||
|
September
30
|
$
|
19.50
|
$
|
16.00
|
|||
|
December
31
|
$
|
22.00
|
$
|
18.00
|
|||
|
2006:
|
|||||||
|
March
31
|
$
|
21.00
|
$
|
16.00
|
|||
|
June
30
|
$
|
18.01
|
$
|
15.75
|
|||
|
September
30
|
$
|
21.37
|
$
|
17.00
|
|||
|
December
31
|
$
|
22.95
|
$
|
18.30
|
On
March 2, 2007, the high, low and last sales prices for the shares, as reported
by Bloomberg, were $26.66, $26.30, and $26.59, respectively.
We
also
have an authorized class of 100,000 shares of preferred stock. There is one
series of preferred stock (Series F) authorized for issuance. All 100,000
authorized shares of Series F Preferred Stock were issued in December 2003.
Effective November 30, 2004, 99,000 shares of Series F Preferred Stock were
converted to 1,711,665 shares of our common stock leaving 1,000 shares of Series
F Preferred Stock issued and outstanding.
As
of
March 2, 2007, the number of stockholders of record of our common stock was
195. The estimated number of beneficial owners is approximately
1,401.
To
date,
we have not paid a cash dividend on our common stock and we do not anticipate
paying any cash dividends in the foreseeable future. Our senior secured
convertible term loan has covenants that prohibit the payment of
dividends.
All
securities sold by us during the three years ended December 31, 2006 which
were
not registered under the Securities Act have previously been reported in our
Annual, Quarterly, and Current Reports on Forms 10K, 10-Q and 8K.
14
The
following selected financial data insofar as it relates to the years ended
December 31, 2006, 2005, 2004, 2003 and 2002 has been derived from our audited
financial statements. The information that follows should be read in conjunction
with the audited consolidated financial statements and notes thereto for the
period ended December 31, 2006 included in Part IV of this Form 10-K. See also
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations".
|
($
in thousands, except for per share data)
|
||||||||||||||||
|
Year
Ended December 31,
|
||||||||||||||||
|
2006
|
2005
|
2004
|
2003
|
2002
|
||||||||||||
|
Statement
of Operations Data:
|
||||||||||||||||
|
Total
revenues
|
$
|
614
|
$
|
1,197
|
$
|
47
|
$
|
3,162
|
$
|
114,250
|
||||||
|
Net
loss
|
(13,825
|
)
|
(23,025
|
)
|
(16,037
|
)
|
(11,536
|
)
|
(25,225
|
)
|
||||||
|
Less:
Preferred stock dividends
|
-
|
-
|
-
|
918
|
1,125
|
|||||||||||
|
Imputed
dividend on preferred stock
|
-
|
-
|
-
|
1,600
|
984
|
|||||||||||
|
Net
loss applicable to
|
||||||||||||||||
|
common
stock
|
$
|
(13,825
|
)
|
$
|
(23,025
|
)
|
$
|
(16,037
|
)
|
$
|
(14,054
|
)
|
$
|
(24,334
|
)
|
|
|
Per
share:
|
||||||||||||||||
|
Net
loss (basic and diluted)
|
$
|
(1.21
|
)
|
$
|
(2.14
|
)
|
$
|
(2.32
|
)
|
$
|
(6.39
|
)
|
$
|
(16.76
|
)
|
|
|
Weighted-average
common
|
||||||||||||||||
|
shares
outstanding
|
11,381
|
10,756
|
6,911
|
2,200
|
1,452
|
|||||||||||
|
December
31,
|
||||||||||||||||
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
||||
|
Balance
Sheet Data:
|
||||||||||||||||
|
Total
assets
|
$
|
50,326
|
$
|
46,046
|
$
|
51,071
|
$
|
49,526
|
$
|
191,883
|
||||||
|
Long-term
debt
|
$
|
25,881
|
$
|
25,883
|
$
|
25,000
|
$
|
30,253
|
$
|
115,447
|
||||||
|
Redeemable
preferred stock
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
10,942
|
||||||
|
Preferred
stock, common stock and additional paid-in capital
|
$
|
245,322
|
$
|
226,852
|
$
|
209,718
|
$
|
185,040
|
$
|
156,166
|
||||||
|
Accumulated
deficit
|
$
|
(221,710
|
)
|
$
|
(207,885
|
)
|
$
|
(184,860
|
)
|
$
|
(168,823
|
)
|
$
|
(157,287
|
)
|
|
|
Stockholders'
equity (deficit)
|
$
|
23,612
|
$
|
18,967
|
$
|
24,858
|
$
|
16,217
|
$
|
(1,121
|
)
|
|||||
On
January 30, 2003, Sun World filed voluntary petitions under Chapter 11 of the
Bankruptcy Code. Since that date, the financial statements of Sun World are
no
longer consolidated with those of Cadiz due to the Company’s loss of control
over the operations of Sun World. As a result, revenues, long term debt and
total assets were significantly lower subsequent to 2002.
On
October 20, 2003, the Company and holders of Series D and Series E Preferred
Stock entered into an agreement to exchange all outstanding shares of Series
D
and Series E Preferred Stock, plus accrued and unpaid dividends, for an
aggregate of 400,000 shares of common stock. Holders of the remaining Series
F
Preferred Stock, which is convertible into our common stock, are only entitled
to dividends if common stock dividends are paid.
15
Weighted
average common shares outstanding have increased from 1,452,000 in 2002 to
11,381,000 in 2006. The increase is primarily due to the issuance of 6,273,000
shares to investors in private placements, 2,281,000 shares to investors upon
the conversion of preferred stock and warrant exercises, and 1,539,000 shares
to
employees, vendors and lenders.
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 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 "Risk Factors” above.
Overview
Our
operations (and, accordingly, our working capital requirements) relate primarily
to our water and real estate development activities and primarily to the Cadiz
Project.
In
1997
we entered into the first of a series of agreements with the Metropolitan Water
District of Southern California (“Metropolitan”) to jointly design, permit and
build a groundwater storage and supply program on our land in the Cadiz and
Fenner valleys of eastern San Bernardino County (the “Cadiz Project”). Under the
Cadiz Project, surplus water from the Colorado River would be stored in the
aquifer system underlying our land during wet years. When needed, the stored
water and temporary withdrawals of indigenous groundwater, could be distributed
through the Colorado River Aqueduct to Metropolitan's member agencies throughout
six southern California counties.
Between
1997 and 2002, Metropolitan and the Company received substantially all of the
various state and federal approvals required for permits to construct and
operate the project and received a federal Record
of Decision (“ROD”) from
the
U.S. Department of the Interior, which endorsed the Cadiz Project and offered
a
right of way grant for construction of project facilities. The federal
government also approved a Final Environmental Impact Statement (“FEIS”) in
compliance with the National Environmental Policy Act (“NEPA”).
Despite
the significant progress made in the federal environmental review process,
in
October 2002 Metropolitan’s Board voted not to accept the right of way grant
offered by the U.S. Department of the Interior and refused to consider whether
or not to certify the Final Environmental Impact Report (“FEIR”), which was a
necessary action to authorize implementation of the Cadiz Project in accordance
with the California Environmental Quality Act (“CEQA”).
16
When
Metropolitan’s Board declined to proceed with the Cadiz Project, the FEIR was
complete and awaiting certification at a hearing scheduled for late October
2002. It is our position that these actions breached various contractual and
fiduciary obligations to us, and interfered with the economic advantage we
would
have obtained from the Cadiz Project. In April 2003 we filed a claim against
Metropolitan seeking compensatory damages. When settlement negotiations failed
to produce a resolution, we filed a lawsuit against Metropolitan in Los Angeles
Superior Court on November 17, 2005. Our claims for breach
of
fiduciary duty, breach of express contract, promissory estoppel, breach of
implied contract and specific performance have been allowed by the Court and
will all go forward to trial later this year. See
Item
3 - “Legal Proceedings”.
Regardless
of the Metropolitan Board’s actions in October 2002, Southern California’s
population continues to grow, and the need for water storage and supply programs
has not abated. Moreover, the advantages of underground water storage facilities
are increasingly evident. These include minimal surface environmental impacts,
low capital investment, protection from airborne contaminants and minimal
evaporative water loss. Therefore we continue to pursue the completion of the
environmental review process for the Cadiz Project.
To
that
end, the County of San Bernardino has agreed to serve as the CEQA lead agency
for the completion of the environmental review of the Cadiz Project and issue
any permits required under California law once the review is completed. We
are
also working with the U.S. Department of the Interior to have the permits that
were approved during the federal environmental review process, including the
right of way granted in the ROD, issued directly to the Company for the benefit
of any participating public agency. Additionally,
we are in discussions with several other public agencies regarding their
interest in participating in the Cadiz Project. These agencies have access
to
sources of water that can be stored in the Cadiz Project. See “Water Resource
Development”, above.
In
addition to agriculture and water development, the rapid growth of nearby desert
communities in southern California, Nevada and Arizona indicates that the
Company’s land holdings may be suitable for other types of development. To this
end, we have conducted a detailed analysis of our land assets to assess the
opportunities for these properties. Based on this analysis, we believe that
our
properties have significant long-term potential for residential and commercial
development. We are continuing to explore alternative land uses to maximize
the
value of our properties.
In
2006,
we refinanced our long-term debt with the proceeds of a new $36.4 million zero
coupon senior secured convertible term loan that matures on June 29, 2011.
Interest accrues on the principal balance of the loan at 5 percent per annum
for
the first 3 years and 6 percent thereafter. No interest and principal payments
are due prior to the final maturity date. Each of the two loan tranches is
convertible into the Company’s $0.01 par value common stock at a fixed
conversion price per share, subject to downward adjustment in the event a change
in control. See “Liquidity and Capital Resources” below.
In
2003
and 2004, we raised approximately $35 million of equity through private
placements, including a $24 million private placement completed on November
30,
2004. The November 30, 2004 private placement included the issuance of warrants
to purchase 405,440 shares of our common stock at an exercise price of $15.00
per share. During 2006, holders of 70,000 of the warrants exercised their
warrants, resulting in the issuance by us of 70,000 shares
17
We
remain committed to our land and water assets 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
(a) Year
Ended December 31, 2006 Compared to Year Ended December 31,
2005
We
have
not received significant revenues from our water resource and real estate
development activity to date. As a result, we continue to incur a net loss
from
operations. We had revenues of $0.6 million for the year ended December 31,
2006
and $1.2 million for the year ended December 31, 2005. The lower revenues were
due to a below average lemon harvest. Our net loss totaled $13.8 million for
the
year ended December 31, 2006, compared with a net loss of $23.0 million for
the
year ended December 31, 2005. The lower loss in 2006 period resulted primarily
from $14.4 million lower non-cash compensation expenses from stock and option
awards under our Management Equity Incentive Plan, partially offset by $1.4
million higher other general and administrative expenses relating to the Cadiz
Project and the Company’s lawsuit against the Metropolitan Water District of
Southern California. Other expenses were higher, primarily due to $0.5 million
of additional interest expense and a $2.9 million expense related to a change
in
the value of certain bifurcated derivative instruments imbedded in our senior
secured convertible term loan.
Our
primary expenses are our ongoing overhead costs (i.e. general and administrative
expense) and our interest expense. We expect to incur additional non-cash
expenses in connection with future management and director equity incentive
compensation plans.
Revenues.
Revenue
totaled $0.6 million during the year ended December 31, 2006 compared to $1.2
million during the year ended December 31, 2005. 2006 revenues included $0.6
million of revenues related to citrus crop sales, which were down $0.6 million
from the prior year. The lemon grove was pruned extensively in early 2006,
which
limited the growth of fruit during the early spring. The crop was also affected
by unusually hot summer weather and a winter freeze. Crop rental income also
declined to $12 thousand in 2006 from $35 thousand in 2005. We no longer
consider agriculture to be our core business. When possible, we prefer to lease
our vineyards and citrus groves to third parties so that we can focus our
resources on our water and real estate development programs.
Cost
of Sales.
Cost of
Sales totaled $721,000 during the year ended December 31, 2006, compared with
$994,000 during the year ended December 31, 2005. The lower cost of sales in
2006 reflected lower lemon harvesting, processing and marketing costs, due
to a
smaller lemon crop. This was partially offset by additional irrigation and
cultivation expenses
18
associated
with the juice grape crop. Cadiz leased the juice grape crop to Sun View
Vineyards of California in 2005.
General
and Administrative Expenses. General
and administrative expenses during the year ended December 31, 2006 totaled
$7.7
million compared with $20.7 million for the year ended December 31, 2005.
Non-cash compensation costs related to stock and option awards is included
in
General and Administrative Expenses.
Compensation
costs from stock and option awards for the year ended December 31, 2006 totaled
$2.3 million compared with $16.7 million for the year ended December 31, 2005.
The expenses primarily relate to stock and options issued under the Cadiz 2003
Management Equity Incentive Plan and the Outside Director Compensation
Plan. 12,339 options and 14,701 shares were granted under the
Management Equity Incentive Plan and the Outside Directors Compensation Plan,
respectively, in 2006, compared with 1,094,712 shares and 365,000 options
granted under the Management Equity Incentive Plan in 2005. Shares and options
issued under the Plans vest over varying periods from the date of issue to
December 2008. $877,000 of the 2006 expense is a result of the adoption and
application of Statement of Financial Accounting Standards No. 123(R),
“Share-Based Payments” effective January 1, 2006.
Other
General and Administrative Expenses, exclusive of stock based compensation
costs, totaled $5.5 million in the year ended December 31, 2006, compared with
$4.1 million for the year ended December 31, 2005. Higher 2006 expenses were
primarily due to additional legal and consulting fees related to water
development efforts, including the Company’s lawsuit against the Metropolitan
Water District of Southern California, and accounting expenses related to
Sarbanes Oxley compliance.
Depreciation
and Amortization.
Depreciation and amortization totaled $0.2 million for the year ended December
31, 2006 compared to $0.2 million for 2005.
Interest
Expense, net.
Net
interest expense totaled $2.4 million during the year ended December 31, 2006,
compared to $1.9 million during 2005. Higher interest expense was primarily
due
to the amortization of the debt discount related to certain derivatives imbedded
in the new senior secured convertible term loan. 2006 interest income increased
to $376 thousand from $159 thousand in the prior year due to higher cash
balances and higher short-term interest rates. The following table summarizes
the components of net interest expense for the two periods (in
thousands):
|
Year
Ended
|
|||||||
|
December
31,
|
|||||||
|
2006
|
2005
|
||||||
|
Interest
on outstanding debt
|
$
|
1,987
|
$
|
2,062
|
|||
|
Amortization
of debt discount
|
783
|
-
|
|||||
|
Amortization
of financing costs
|
40
|
28
|
|||||
|
Interest
income
|
(376
|
)
|
(159
|
)
|
|||
|
$
|
2,434
|
$
|
1,931
|
||||
19
Loss on Extinguishment of Debt and Debt
Refinancing.
Financing costs, which are primarily legal fees, are amortized over the life
of
each loan agreement. In June, 2006 we entered into a new loan agreement with
Peloton Partners LLP (“Peloton”), as administrative agent for the loan, and with
an affiliate of Peloton and another investor, as lenders. As a result, $408
thousand of legal fees were capitalized and will be amortized over the 5
year
life of the loan agreement. At the same time, $868 thousand of deferred
financing costs and prepaid interest associated with the prior loan agreement
with ING Capital LLC (“ING”) were fully expensed.
Change
in Fair Value of Derivative Liability.
The
Company prepaid its existing indebtedness with ING in June, 2006 with the
proceeds of a new senior secured convertible term loan. The new loan contained
certain “embedded derivatives” which were bifurcated from the host debt
instrument and were recorded at fair values on the Company’s consolidated
balance sheet under GAAP. These embedded derivatives were subject to periodic
revaluation based on changes in the fair market value of our common stock.
On
September 29, 2006, certain terms and conditions of the credit agreement and
embedded derivatives were amended. The fair value of the equity conversion
options were recalculated, and a $2.9 million expense was recognized due to
an
increase in fair value. The primary reason for the increase in fair value was
the increase in the trading price of our common stock from June 30, 2006 to
September 29, 2006. Following the September 29, 2006 amendment, bifurcation
of
the embedded equity conversion option is no longer required. As a result, the
fair value of the embedded derivatives has been transferred from the liability
accounts to stockholder’s equity, and no further fair value adjustments were
required after September 30, 2006. There was no comparable expense in the prior
year ending December 31, 2005.
Other
Income.
Other
Income during the year ended December 31, 2006 totaled $373 thousand, primarily
related to payments from a stockholder related to a short swing profit
liability. In March, 2006, one of our stockholders determined that it had,
at a
time when it was the beneficial holder of more than 10% of our outstanding
equity securities, inadvertently engaged in trades which resulted in automatic
short swing profit liability to the Company pursuant to Section 16(b) of the
Securities Exchange Act of 1934. After becoming aware of the situation, the
stockholder promptly made payments totaling $350,000 to the Company to settle
the entire short swing profit liability owed as a consequence of these
trades.
(b) Year
Ended December 31, 2005 Compared to Year Ended December 31,
2004
We
had
revenues of $1.2 million for the year ended December 31, 2005 and $47 thousand
for the year ended December 31, 2004. Our net loss totaled $23.0 million for
the
year ended December 31, 2005 compared with a net loss of $16.0 million for
the
year ended December 31, 2004. The higher loss for the 2005 period resulted
primarily from non-cash compensation expenses of $16.7 million from stock and
option awards under our Management Equity Incentive Plan. No such expense was
incurred in 2004. The 2004 period included the write-off of $3.4 million of
permanent and developing crops, $3.7 million higher amortization of deferred
borrowing costs and a $1.4 million write-off of deferred borrowing costs.
General and administrative costs increased $17.7 million in 2005.
Our
primary expenses are our ongoing overhead costs
(i.e. general and administrative expense) and our interest expense.
20
Revenues.
Revenues
totaled $1.2 million during the year ended December 31, 2005 compared to $47
thousand during the year ended December 31, 2004. 2005 revenues include $1.1
million of citrus crop sales, $35 thousand of crop rental income and $39
thousand of other rental income. The 2005 revenue increase is primarily due
to
citrus crops that Cadiz farmed in 2005. In 2004 Cadiz leased these crops to
Sun
World and did not include Sun World’s revenues from citrus crop sales in the
consolidated financial statements because Sun World was in
bankruptcy.
Cost
of Sales.
Cost of
Sales totaled $994,000 during the year ended December 31, 2005, reflecting
the
production and sale of citrus crops at the Cadiz Ranch property. Cadiz leased
these crops to Sun World in 2004 and did not include Sun World’s cost of sales
in the consolidated financial statements because Sun World was in
bankruptcy.
General
and Administrative Expenses.
General
and administrative expenses during the year ended December 31, 2005 totaled
$20.7 million compared with $3.1 million for the year ended December 31, 2004.
General and administrative expenses include non-cash compensation costs related
to stock and option awards.
Compensation
costs from stock and option awards for the year ended December 31, 2005 totaled
$16.7 million. The costs consist of non-cash compensation expenses relating
to
stock and option grants issued under the Management Equity Incentive Plan.
The
grants and related accounting are discussed further in the Notes to the
Consolidated Financial Statements. There were no comparable stock and option
grants during the year ended December 31, 2004.
Other
general and administrative expenses, exclusive of stock based compensation
costs, totaled $4.1 million during the year ended December 31, 2005, compared
with $3.1 million for the year ended December 31, 2004. Higher expenses were
primarily related to legal and consulting fees incurred related to water
development efforts, accounting expenses related to Sarbanes Oxley compliance
and initial listing costs for our listing on The NASDAQ National Market (now
the
NASDAQ Global Market).
Depreciation
and Amortization.
Depreciation and amortization totaled $0.2 million for the year ended December
31, 2005 compared to $0.5 million for 2004. The reduction in depreciation and
amortization is due to certain assets becoming fully depreciated during 2005
and
the write down of certain assets no longer used or useful in the restructured
Cadiz business.
Interest
Expense, net.
Net
interest expense totaled $1.9 million during the year ended December 31, 2005,
compared to $7.7 million during 2004. Lower interest expense was primarily
due
to the November 30, 2004 debt restructuring and the repayment of $10 million
of
debt from the proceeds of the private placement of common stock and warrants
completed on that date. The restructuring transaction resulted in the
amortization of lower financing costs than the prior debt structure. The
following table summarizes the components of net interest expense for the two
periods (in thousands):
21
|
Year
Ended
|
|||||||
|
December
31,
|
|||||||
|
2005
|
|
|
2004
|
||||
|
Interest
on outstanding debt
|
$
|
2,062
|
$
|
3,970
|
|||
|
Amortization
of financing costs
|
28
|
3,767
|
|||||
|
Interest
income
|
(159
|
)
|
(42
|
)
|
|||
|
$
|
1,931
|
$
|
7,695
|
||||
Loss
on Extinguishment of Debt and Debt Refinancing.
Financing costs, which include legal fees and warrant costs, are amortized
over
the expected life of each loan agreement. In November, 2004 we entered into
an
agreement with ING which restructured our loan and extended the maturity date
from March 31, 2005 to March 31, 2010. As a result, $1,369,000 of unamortized
deferred financing costs associated with the prior loan agreement were expensed
on the November 30, 2004 amendment date. Our restructured loan with ING was
repaid in full in June 2006 using the proceeds of our new senior secured
convertible term loan with Peloton.
Liquidity
and Capital Resources
(a) Current
Financing Arrangements
As
we
have not received significant revenues from our water resource and real estate
activity to date, we have been required to obtain financing to bridge the gap
between the time water resource and real estate development expenses are
incurred and the time that revenue will commence. Historically, we have
addressed these needs primarily through secured debt financing arrangements,
private equity placements and the exercise of outstanding stock options and
warrants.
Subsequent
to the vote of Metropolitan’s Board in October 2002 to not proceed with the
Cadiz Project and Sun World’s January 2003 bankruptcy filing, we have worked
with our primary secured lenders to structure our debt in a way which allows
us
to continue our development of the Cadiz Project and minimize the dilution
of
the ownership interests of common stockholders. We entered into a series of
agreements with ING Capital LLC and then refinanced the ING loan with a new
$36.4 million five year zero coupon senior secured convertible term loan with
Peloton Partners LLP (through an affiliate) and another lender (the “Peloton
Loan”) in June 2006. The Peloton loan provided for:
| · |
the
repayment in full of our senior secured term loan with ING;
|
| · |
a
final maturity date of June 29,
2011;
|
| · |
a
zero coupon structure, which requires no cash interest payments prior
to
the final maturity date; and
|
| · |
a
5% interest rate for the first 3 years, with a 6% interest rate
thereafter.
|
At
each
lender’s option, principal plus accrued interest on each of the two loan
tranches is convertible into the Company’s $0.01 par value common stock at a
fixed conversion price per
22
On
or
after June 29, 2007, principal and interest accrued on each of the two loan
tranches can be prepaid on 30 days notice either if the Company’s stock price
exceeds the tranche’s conversion price by 40% for 20 consecutive trading days in
a 30 trading day period or if the Company completes the Cadiz Water Program
entitlement process, secures a right-of-way for the project pipeline and
arranges sufficient financing to repay the loan and build the Cadiz Project.
The
conversion prices of the two loan tranches are $18.15 and $23.10, respectively,
so the $10 million Tranche A prepayment option would become available at a
share
price above $25.41 per share and the $26.4 million Tranche B prepayment option
would become available at a share price above $32.34 per share.
The
debt
covenants associated with the loan were negotiated by the parties with a view
towards our operating and financial condition as it existed at the time the
agreements were executed. At December 31, 2006, the Company was in compliance
with its debt covenants.
In
addition to allowing us to repay our former credit facility with ING, the
Peloton Loan provided us with $9.3 million of additional working capital and
deferred all interest payments until the June 29, 2011 final maturity date.
Furthermore, the Peloton Loan, unlike the ING facility, permits us to retain
any
proceeds received from the exercise of warrants issued by us in 2004 as part
of
a $24 million private equity placement.
A
private
placement completed by the Company in November 30, 2004 included the issuance
of
warrants to purchase 405,440 shares of our common stock at an exercise price
of
$15.00 per share. During 2006, holders of 70,000 of the warrants exercised
their
warrants, resulting in the issuance by us of 70,000 shares of common stock
with
net proceeds of $1,050,000.
In
February 2007, we exercised our right to terminate the remaining warrants upon
30 days notice, and holders of all the remaining 335,440 warrants exercised
their warrants. As a result, we issued 335,440 shares of our common stock and
received net proceeds of $5,031,600 during February 2007. Following these
exercises, no Warrants remain outstanding.
As
we
continue to actively pursue our business strategy, additional financing in
connection with our water programs will be required. See “Outlook”, below. The
covenants in the credit facility do not prohibit our use of additional equity
financing and allow us to retain 100% of the proceeds of any equity financing.
We do not expect the loan covenants to materially limit our ability to finance
our water development activities.
We
issued
100,000 shares of Series F preferred stock to ING as part of our agreements
in
December 2003 (the “ING Preferred Stock”), of which 1,000 shares remain
outstanding. The preferred shares are convertible into 17.28955 shares of common
stock for each share of Series F Preferred Stock converted.
At
December 31, 2006, we have no outstanding credit facilities or preferred stock
other than the Peloton Loan and ING Preferred Stock described
above.
23
Cash
Used for Operating Activities.
Cash
used for operating activities totaled $5.3 million for the year ended December
31, 2006, as compared to cash used for operating activities of $3.7 million
for
the year ended December 31, 2005. The $1.6 million increase was primarily due
to
lower crop sale revenues and higher general and administrative expenses related
to the Company’s water development efforts, including legal and regulatory costs
associated with the Cadiz Program CEQA application and the Company’s lawsuit
against the Metropolitan Water District of Southern California.
Cash
Provided By (Used for) Investing Activities.
No cash
was used by investing activities in the year ended December 31, 2006, compared
with $68 thousand used for investing activities during the same period in 2005.
2006 capital expenditures were financed with proceeds realized from the sale
of
a motor vehicle.
Cash
Provided by Financing Activities.
Cash
provided by financing activities totaled $10.4 million for the year ended
December 31, 2006, compared with $40 thousand for the year ended December 31,
2005. The 2006 results reflect $9.3 million of net proceeds from the placement
of a new $36.4 million senior secured convertible term loan and $1.1 million
of
proceeds from the issuance of 70,000 shares of $0.01 par value common stock
at
$15.00 per share when certain warrant holders chose to exercise their warrants.
In contrast, there was no material financing activity in 2005.
(b) Outlook
Short
Term Outlook.
The
proceeds of our new $36.4 million senior secured convertible term loan and
the
sale of common shares pursuant to the decision by holders to exercise certain
warrants issued in November 2004 provide us with sufficient funds to meet our
expected working capital needs for the next 12 months. The Company expects
to
continue its historical practice of structuring its financing arrangements
to
match the anticipated needs of its development activities.
See
"Long Term Outlook", below. No assurances can be given, however, as to the
availability or terms of any new financing.
Long
Term Outlook.
In
the
longer term, we will need to raise additional capital to finance working capital
needs and any payments due under our senior secured convertible term loan at
maturity. See “Current Financing Arrangements” above. Payments will be due under
the term loan only to the extent that lenders elect not to exercise equity
conversion rights prior to the loan’s final maturity date. Our future working
capital needs will depend upon the specific measures we pursue in the
entitlement and development of our real estate and 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 future cash requirements through
a
variety of means, including equity or debt placements, or through 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.
(c) Critical
Accounting Policies
As
discussed in Note 2 to the Consolidated Financial Statements of Cadiz, the
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect amounts reported in the accompanying consolidated
financial statements and related footnotes.
24
In
preparing these financial statements, management has made its best estimates
and
judgments of certain amounts included in the financial statements based on
all
relevant information available at the time and giving due consideration to
materiality. We do not believe there is a great likelihood that materially
different amounts would be reported related to the accounting policies described
below. However, application of these policies involves the exercise of judgment
and use of assumptions as to future uncertainties and, as a result, actual
results could differ from these estimates. Management has concluded that the
following critical accounting policies described below affect the most
significant judgments and estimates used in the preparation of the consolidated
financial statements.
(1)
Principles of Consolidation The
Consolidated Financial Statements have been prepared by Cadiz Inc., sometimes
referred to as “Cadiz” or “the Company”. On January 30, 2003, Sun World filed
voluntary petitions under Chapter 11 of the Bankruptcy Code. Since that date,
the financial statements of Sun World are no longer consolidated with those
of
Cadiz due to the Company’s loss of control over the operations of Sun World.
Instead, Cadiz is accounting for its investment in Sun World on the cost basis
of accounting and wrote off its net investment in Sun World of $195,000 because
it did not anticipate being able to recover its investment.
(2)
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 over which 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. The
Company reevaluates the carrying value of its water program annually during
the
first quarter of each year and has confirmed that the carrying value of the
water program is not impaired as of December 31, 2006.
(3)
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.
Approximately $3,193,000 of this amount was amortized until the adoption of
Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 142, (“SFAS No. 142”) “Goodwill and Other Intangible
Assets” on January 1, 2002. Goodwill is tested for impairment annually in the
first quarter, or if events occur which require an impairment analysis be
performed. The Company has confirmed that the carrying value of the goodwill
is
not impaired as of December 31, 2006.
(4)
Deferred Tax Assets and Valuation Allowances. To
date
we have not generated significant revenue from our water development programs,
and we have had a history of net operating losses. As such, we have generated
significant deferred tax assets, including large net operating loss carry
forwards for federal and state income taxes for which we have recorded a full
valuation allowance. Management is currently working on water and real estate
development projects, including the Cadiz Program, that are designed to generate
future taxable income, although there can be no guarantee that this will occur.
If taxable income is generated in future years, some portion or all of the
valuation allowance will be reversed, and an increase in net income would
consequently be reported.
25
(d) New
Accounting Pronouncements
In
June
2006, the FASB issued FSP FIN 48 which clarifies the
accounting for uncertainty in income taxes recognized in an enterprise’s
financial statements in accordance with FASB Statement No. 109,
“Accounting for Income Taxes.” This Interpretation prescribes a recognition
threshold and measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken on
a tax
return. This Interpretation also provides guidance on derecognition,
classification, interest, penalties, accounting in interim periods,
disclosure and transition. The evaluation of a tax position in accordance
with this Interpretation will be a two-step process. The first step
will
determine if it is more likely than not that a tax position will be
sustained upon examination and should therefore be recognized. The second
step will measure a tax position that meets the more likely than not recognition
threshold to determine the amount of benefit to recognize in the
financial statements. This Interpretation is effective for fiscal years
beginning after December 15, 2006. The Company is currently evaluating
the impact of this Statement.
On
September 13, 2006, the Securities and Exchange Commission issued Staff
Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements”, which provides interpretive guidance on the consideration of the
effects of prior year misstatements in quantifying current year misstatements
for the purpose of a materiality assessment. SAB No. 108 is effective for fiscal
years ending after November 14, 2006, or fiscal year 2006 for the Company.
The
adoption of SAB No. 108 did not have a material impact on the Company’s
beginning retained earnings.
(e) Off
Balance Sheet Arrangements
Cadiz
does not have any off balance sheet arrangements at this time.
(f) Certain
Known Contractual Obligations
|
Payments
Due by Period
|
||||||||||||||||
|
Contractual
Obligations
|
Total
|
|
|
Less
than 1 year
|
|
|
1-3
years
|
|
|
3-5
years
|
|
|
After
5 years
|
|||
|
Long
term debt obligations
|
$
|
37,347
|
$
|
9
|
$
|
19
|
$
|
37,319
|
$
|
-
|
||||||
|
Interest
payable
|
10,433
|
1
|
1
|
10,431
|
-
|
|||||||||||
|
Operating
leases
|
102
|
74
|
28
|
-
|
-
|
|||||||||||
|
$
|
47,882
|
$
|
84
|
$
|
48
|
$
|
47,750
|
$
|
-
|
|||||||
Cadiz long-term debt included in the table above reflects the Peloton Loan, which was executed in June 2006, and subsequently amended in September 2006, as described above in Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operation; Liquidity and Capital Resources.
26
We
are
exposed to market risk from changes in interest rates on long-term debt
obligations that affect the fair value of these obligations. Our policy is
to
manage interest rate exposure by year of scheduled maturities and to evaluate
expected cash flows and sensitivity to interest rate changes (in thousands
of
dollars). A 1% change in interest rate on the Company long term debt obligation
would have resulted in interest expense fluctuating by approximately $316,000
during the year ended December 31, 2006. Circumstances could arise which may
cause interest rates and the timing and amount of actual cash flows to differ
materially from the schedule below:
|
Long-Term
Debt
|
|||||||||||||
|
Fixed
Rate
|
|
|
Average
Interest
|
|
|
Variable
Rate
|
|
|
Average
Interest
|
||||
|
Expected
Maturity
|
Maturities
|
|
|
Rate
|
|
|
Maturities
|
|
|
Rate
|
|||
|
2011
|
$
|
37,347
|
5.4
|
%
|
$
|
-
|
$
|
-
|
|||||
Cadiz long-term debt included in the table above reflects the debt restructuring
which occurred in June 2006, as described above in Item 7. Managements
Discussion and Analysis of Financial Condition and Results of Operations;
Liquidity and Capital Resources; Cadiz Obligations.
With the confirmation of Sun World’s consensual plan of reorganization by the
U.S. Bankruptcy Court in August, 2005 and the effectiveness of the Plan in
September, 2005, Cadiz is released from all liabilities under the guarantees
of
First Mortgage Notes issued by Sun World.
The information required by this item is submitted in response to Part IV below.
See the Index to Consolidated Financial Statements.
Not
applicable.
Disclosure
Controls and Procedures
We
have
established disclosure controls and procedures to ensure that material
information related to the Company, including its consolidated entities, is
accumulated and communicated to senior management, including the Chairman and
Chief Executive Officer (the
27
Management’s
Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rule
13a-15(f). Under the supervision and with the participation of our management,
including our Principal Executive Officer and Principal Financial Officer,
we
evaluated the effectiveness of our internal control over financial reporting
based on the criteria in the Internal Control-Integrated Framework issued by
the
Committee of Sponsoring Organizations of the Treadway Commission. Based on
our
evaluation under that framework, our management concluded that our internal
control over financial reporting was effective as of December 31, 2006. Our
management’s assessment of the effectiveness of our internal control over
financial reporting as of December 31, 2006 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm,
as
stated in their report which is included herein.
Changes
in Internal Control Over Financial Reporting
In
connection with the evaluation required by paragraph (d) of Rule 13a-15 under
the Exchange Act, there was no change identified in the Company's internal
control over financial reporting that occurred during the last fiscal quarter
that has materially affected, or is reasonably likely to materially affect,
the
Company's internal control over financial reporting.
On
March 14,
2007
we filed with the Delaware Secretary of State a certificate of correction to
our
Second Amended and Restated Certificate of Designations of Series F Preferred
Stock ("Second Amended Series F Certificate"). The certificate of correction
was
filed in order to correct an error whereby references remained in the Second
Amended Series F Certificate to Series F Preferred Directors, although with
the
filing of the Second Amended Series F Certificate the position of Series F
Preferred Director was abolished. In order to correct this error, references
in
the Second Amended Series F Certificate to "at least one of the Series F
Preferred Directors" have been changed to "a majority of the Corporation's
independent directors", as originally intended.
28
PART
III
The
information called for by this item is incorporated herein by reference to
the
definitive proxy statement involving the election of directors which we intend
to file with the SEC pursuant to Regulation 14A under the Securities and
Exchange Act of 1934 not later than 120 days after December 31,
2006.
The
information called for by this item is incorporated herein by reference to
the
definitive proxy statement involving the election of directors which we intend
to file with the SEC pursuant to Regulation 14A under the Securities and
Exchange Act of 1934 not later than 120 days after December 31, 2006.
The
information called for by this item is incorporated herein by reference to
the
definitive proxy statement involving the election of directors which we intend
to file with the SEC pursuant to Regulation 14A under the Securities and
Exchange Act of 1934 not later than 120 days after December 31, 2006.
The
information called for by this item is incorporated herein by reference to
the
definitive proxy statement involving the election of directors which we intend
to file with the SEC pursuant to Regulation 14A under the Securities and
Exchange Act of 1934 not later than 120 days after December 31, 2006.
The
information called for by this item is incorporated herein by reference to
the
definitive proxy statement involving the election of directors which we intend
to file with the SEC pursuant to Regulation 14A under the Securities and
Exchange Act of 1934 not later than 120 days after December 31, 2006.
29
PART
IV
| 1. | Financial Statements. See Index Consolidated Financial Statements. |
|
2.
|
Financial
Statement Schedule. See Index to Consolidated Financial
Statements.
|
|
3.
|
Exhibits.
|
The
following exhibits are filed or incorporated by reference as part of this Form
10-K.
3.1 Cadiz
Certificate of Incorporation, as amended(1)
3.2
Amendment
to Cadiz Certificate of Incorporation dated November 8, 1996(2)
3.3
Amendment
to Cadiz Certificate of Incorporation dated September 1, 1998(3)
3.4
Amendment
to Cadiz Certificate of Incorporation dated December 15, 2003(4)
3.5
Certificate
of Elimination of Series D Preferred Stock, Series E-1 Preferred Stock and
Series E-2 Preferred Stock of Cadiz Inc. dated December 15, 2003(4)
3.6
Certificate
of Elimination of Series A Junior Participating Preferred Stock of Cadiz Inc.,
dated March 25, 2004(4)
3.7
Amended
and Restated Certificate of Designations of Series F Preferred Stock of Cadiz
Inc.(5)
3.8
Cadiz
Bylaws, as amended
(6)
3.9 Second
Amended and Restated Certificate of Designations of Series F Preferred Stock
of
Cadiz Inc. date June 30, 2006, as corrected by Certificate of Correction
dated March 14, 2007
10.1
Agreement
Regarding Employment Between Cadiz Inc. and Keith Brackpool dated July 5,
2003(7)
10.2
Limited
Liability Company Agreement of Cadiz Real Estate LLC dated December 11,
2003(4)
10.3
Amendment
No. 1, dated October 29, 2004, to Limited Liability Company Agreement of Cadiz
Real Estate LLC.(8)
30
10.4
The
Cadiz
Groundwater Storage and Dry-Year Supply Program Definitive Economic Terms and
Responsibilities between Metropolitan Water District of Southern California
and
Cadiz dated March 6, 2001(9)
10.5
Resolution
of the Directors of Cadiz Inc., authorizing the Management Equity Incentive
Plan.(4)
10.6
Supplemental
Resolutions of the Compensation Committee of the Board of Directors of Cadiz
Inc., regarding the Management Equity Incentive Plan.(8)
10.7
Form
of
Incentive Plan Stock Option Agreement(10)
10.8
2004
Management Bonus Plan.(8)
10.9
Consulting
Agreement dated August 1, 2002 by and between Richard Stoddard and Cadiz Inc.,
and Extension of Consulting Agreement dated January 1, 2004 by and between
Richard Stoddard and Cadiz Inc.(8)
10.10
Employment
Agreement dated September 12, 2005 between O'Donnell Iselin II and Cadiz
Inc.(11)
10.11
Settlement
Agreement dated as of August 11, 2005 by and between Cadiz Inc., on the one
hand, and Sun World International, Inc., Sun Desert, Inc., Coachella Growers
and
Sun World/Rayo, on the other hand(12)
10.12
$36,375,000
Credit Agreement among Cadiz Inc. and Cadiz Real Estate LLC, as Borrowers,
the
Several Lenders from time to time parties thereto, and Peloton Partners LLP,
as
Administrative Agent, dated as of June 26, 2006(13)
10.13
Amendment
No. 1 dated September 29, 2006 to the $36,375,000 Credit Agreement among Cadiz
Inc. and Cadiz Real Estate LLC, as Borrowers, the Several Lenders from time
to
time parties thereto and Peloton Partners LLP, as Administrative Agent, dated
as
of June 26, 2006 (14)
10.14
Outside
Director Compensation Plan(15)
10.15
Resolutions
adopted by the Cadiz Inc. Board of Directors on March 13, 2007, increasing
the
annual salary paid to Keith Brackpool and the monthly consulting fees paid
to
Richard E. Stoddard.
21.1
Subsidiaries
of the Registrant
23.1
Consent
of Independent Registered Public Accounting Firm
31.1
Certification
of Keith Brackpool, Chairman and Chief Executive Officer of Cadiz Inc. pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
31
31.2
Certification
of O'Donnell Iselin II, Chief Financial Officer and Secretary of Cadiz Inc.
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
Certification
of Keith Brackpool, Chairman and Chief Executive 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
32.2
Certification
of O'Donnell Iselin II, Chief Financial Officer and Secretary of Cadiz Inc.
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
____________________________________________________________________________
|
(1)
|
Previously
filed as an Exhibit to our Registration Statement of Form S-1
(Registration No. 33-75642) declared effective May 16, 1994 filed
on
February 23, 1994
|
|
(2)
|
Previously
filed as an Exhibit to our Report on Form 10-Q for the quarter ended
September 30, 1996 filed on November 14, 1996
|
|
(3)
|
Previously
filed as an Exhibit to our Quarterly Report on Form 10-Q for the
quarter
ended September 30, 1998 filed on November 13,
1998
|
|
(4)
|
Previously
filed as an Exhibit to our Annual Report on Form 10-K for the year
ended
December 31, 2003 filed on November 2, 2004.
|
|
(5)
|
Previously
filed as an Exhibit to our Current Report on Form 8-K dated November
30,
2004 filed on December 2, 2004.
|
|
(6)
|
Previously
filed as an Exhibit to our Quarterly Report on Form 10-Q for the
quarter
ended June 30, 1999 filed on August 13,
1999
|
|
(7)
|
Previously
filed as an Exhibit to our Report on Form 10-Q for the quarter ended
September 30, 2003 filed on November 2, 2004
|
|
(8)
|
Previously
filed as an Exhibit to our Annual Report on Form 10-K for the fiscal
year
ended December 31, 2004 filed on March 31,
2005
|
|
(9)
|
Previously
filed as an exhibit to our Annual Report on Form 10-K for the fiscal
year
ended December 31, 2001 filed on March 28,
2002
|
|
(10)
|
Previously
filed as an Exhibit to our Form S-8 Registration Statement No. 333-124626
filed on May 4, 2005
|
|
(11)
|
Previously
filed as an Exhibit to our Current Report on Form 8-K dated October
3,
2005 filed on October 3, 2005
|
|
(12)
|
Previously
filed as an Exhibit to our Report on Form 10-Q for the quarter ended
September 30, 2005 filed on November 14,
2005
|
| (13) | Previously filed as an exhibit to our registration statement on Form S-3 (Registration No. 333-126117) filed on July 28, 2006 |
| (14) | Previously filed as an exhibit to our current report on Form 8-K dated October 4, 2006 and filed October 4, 2006 |
| (15) | Previously filed as appendix B to our definitive proxy dated October 10, 2006 and filed October 10, 2006 |
32
INDEX
TO FINANCIAL STATEMENTS
CADIZ
INC. CONSOLIDATED FINANCIAL STATEMENTS
(Schedules
other than those listed above have been omitted since they are either not
required, inapplicable, or the required information is included on the financial
statements or notes thereto.)
33
To
the
Board of Directors and Stockholders of Cadiz Inc.:
We
have
completed integrated audits of Cadiz Inc.’s 2006 and 2005 consolidated financial
statements and of its internal control over financial reporting as of December
31, 2006 and an audit of its 2004 consolidated financial statements in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Our opinions, based on our audits, are presented
below.
Consolidated
financial
statements and financial statement schedule
In
our
opinion, the consolidated financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of Cadiz Inc.
and its subsidiaries at December 31, 2006 and 2005, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2006 in conformity with accounting principles generally accepted
in
the United States of America. In addition, in our opinion, the financial
statement schedule listed in the accompanying index presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and financial statement schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits. We conducted
our audits of these statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that
we plan and perform the audit to obtain reasonable assurance about whether
the
financial statements are free of material misstatement. An audit of financial
statements includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As
discussed in Note 2 to the accompanying consolidated financial statements,
the
Company changed the manner in which it accounts for share-based compensation
in
2006.
Internal
control over financial reporting
Also,
in
our opinion, management’s assessment, included in Management's Report on
Internal Control Over Financial Reporting appearing under Item 9A, that the
Company maintained effective internal control over financial reporting as of
December 31, 2006 based on criteria established in Internal
Control - Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO),
is fairly stated, in all material respects, based on those criteria.
Furthermore, in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2006,
based on criteria established in Internal
Control - Integrated Framework
issued
by the COSO. The Company’s management is responsible for maintaining effective
internal control over financial
34
reporting
and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express opinions on management’s assessment
and on the effectiveness of the Company’s internal control over financial
reporting based on our audit. We conducted our audit of internal control over
financial reporting in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. An audit of internal control over financial reporting includes
obtaining an understanding of internal control over financial reporting,
evaluating management’s assessment, testing and evaluating the design and
operating effectiveness of internal control, and performing such other
procedures as we consider necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (i) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures
of
the company are being made only in accordance with authorizations of management
and directors of the company; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use,
or
disposition of the company’s assets that could have a material effect on the
financial statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
PricewaterhouseCoopers
LLP
Los
Angeles, California
March
16,
2007
35
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
Year
Ended December 31,
|
||||||||||
|
(In
thousands, except per share data)
|
2006
|
|
2005
|
|
2004
|
|||||
|
Total
revenues
|
$
|
614
|
$
|
1,197
|
$
|
47
|
||||
|
Costs
and expenses:
|
||||||||||
|
Cost
of sales (exclusive of depreciation shown below)
|
721
|
994
|
-
|
|||||||
|
General
and administrative
|
7,710
|
20,732
|
3,050
|
|||||||
|
Write-off
of permanent and developing crops (Note 2)
|
-
|
-
|
3,443
|
|||||||
|
Depreciation
and amortization
|
154
|
229
|
527
|
|||||||
|
Total costs and expenses
|
8,585
|
21,955
|
7,020
|
|||||||
|
Operating
loss
|
(7,971
|
)
|
(20,758
|
)
|
(6,973
|
)
|
||||
|
Interest
expense, net
|
(2,434
|
)
|
(1,931
|
)
|
(7,695
|
)
|
||||
|
Loss
on extinguishment of debt and debt refinancing
|
(868
|
)
|
-
|
(1,369
|
)
|
|||||
|
Change
in fair value of derivative liability
|
(2,919
|
)
|
-
|
-
|
||||||
|
Other
income
|
373
|
-
|
-
|
|||||||
|
Other
income (expense), net
|
(5,848
|
)
|
(1,931
|
)
|
(9,064
|
)
|
||||
|
Net
loss before income taxes
|
(13,819
|
)
|
(22,689
|
)
|
(16,037
|
)
|
||||
|
Income
tax expense
|
6
|
336
|
-
|
|||||||
|
Net
loss
|
(13,825
|
)
|
(23,025
|
)
|
(16,037
|
)
|
||||
|
Net
loss applicable to common stock
|
$
|
(13,825
|
)
|
$
|
(23,025
|
)
|
$
|
(16,037
|
)
|
|
|
Basic
and diluted net loss per share
|
$
|
(1.21
|
)
|
$
|
(2.14
|
)
|
$
|
(2.32
|
)
|
|
|
Weighted-average
shares outstanding
|
11,381
|
10,756
|
6,911
|
|||||||
See
accompanying notes to the consolidated financial statements.
36
CONSOLIDATED
BALANCE SHEET
|
December
31,
|
|||||||
|
($
in thousands)
|
2006
|
|
2005
|
||||
|
ASSETS
|
|||||||
|
Current
assets:
|
|||||||
|
Cash
and cash equivalents
|
$
|
10,397
|
$
|
5,302
|
|||
|
Accounts
Receivable
|
301
|
170
|
|||||
|
Prepaid
interest expense
|
-
|
740
|
|||||
|
Prepaid
expenses and other
|
243
|
34
|
|||||
|
Total
current assets
|
10,941
|
6,246
|
|||||
|
Property,
plant, equipment and water programs, net
|
35,190
|
35,323
|
|||||
|
Goodwill
|
3,813
|
3,813
|
|||||
|
Other
assets
|
382
|
664
|
|||||
|
Total
assets
|
$
|
50,326
|
$
|
46,046
|
|||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||||
|
Current
liabilities:
|
|||||||
|
Accounts
payable
|
$
|
444
|
$
|
369
|
|||
|
Accrued
liabilities
|
380
|
819
|
|||||
|
Current
portion of long term debt
|
9
|
8
|
|||||
|
Total
current liabilities
|
833
|
1,196
|
|||||
|
Long-term
debt
|
25,881
|
25,883
|
|||||
|
Total
liabilities
|
26,714
|
27,079
|
|||||
|
Contingencies
(Note 12)
|
|||||||
|
Stockholders'
equity:
|
|||||||
|
Series F convertible preferred stock - $.01 par value:
|
|||||||
|
100,000 shares authorized, shares issued and outstanding -
|
|||||||
|
1,000 at December 31, 2006 and 1,000 at December 31, 2005
|
-
|
-
|
|||||
|
Common stock - $0.01 par value; 70,000,000 shares
|
|||||||
|
authorized; shares issued and outstanding: 11,536,597 at
|
|||||||
|
December 31, 2006 and 11,330,463 at December 31, 2005
|
116
|
114
|
|||||
|
Additional
paid-in capital
|
245,206
|
226,738
|
|||||
|
Accumulated
deficit
|
(221,710
|
)
|
(207,885
|
)
|
|||
|
Total
stockholders' equity
|
23,612
|
18,967
|
|||||
|
Total
liabilities and stockholders' equity
|
$
|
50,326
|
$
|
46,046
|
|||
See
accompanying notes to the consolidated financial statements.
37
CONSOLIDATED
STATEMENT OF CASH FLOWS
|
Year
Ended December 31,
|
||||||||||
|
($
in thousands)
|
2006
|
|
|
2005
|
|
|
2004
|
|||
|
Cash
flows from operating activities:
|
||||||||||
|
Net
loss
|
$
|
(13,825
|
)
|
$
|
(23,025
|
)
|
$
|
(16,037
|
)
|
|
|
Adjustments
to reconcile net loss to net cash used for operating
activities:
|
||||||||||
|
Depreciation
and amortization
|
154
|
229
|
527
|
|||||||
|
Amortization
of debt issuance costs
|
40
|
28
|
286
|
|||||||
|
Amortization
of debt discount
|
783
|
-
|
3,481
|
|||||||
|
Loss
on extinguishment of debt and debt refinancing
|
868
|
-
|
1,369
|
|||||||
|
Interest
added to loan principal
Net
(gain)/loss on disposal of assets
|
1,463
(21
|
)
|
851
42
|
-
-
|
||||||
|
Write-off
of permanent and developing crops
|
-
|
-
|
3,443
|
|||||||
|
Change
in value of derivative liability
|
2,919
|
-
|
-
|
|||||||
|
Compensation
charge for stock awards and share options
|
2,260
|
16,687
|
-
|
|||||||
|
Changes
in operating assets and liabilities:
|
||||||||||
|
Decrease
(increase) in accounts receivable
|
(131
|
)
|
(170
|
)
|
-
|
|||||
|
Decrease
(increase) in prepaid borrowing expense
|
523
|
-
|
-
|
|||||||
|
Decrease
(increase) in prepaid expenses and other
|
(209
|
)
|
1,236
|
122
|
||||||
|
(Decrease)
increase in accounts payable
|
75
|
(101
|
)
|
(386
|
)
|
|||||
|
(Decrease)
increase in accrued liabilities
|
(175
|
)
|
522
|
(454
|
)
|
|||||
|
Net
cash used for operating activities
|
(5,276
|
)
|
(3,701
|
)
|
(7,649
|
)
|
||||
|
Cash
flows from investing activities:
|
||||||||||
|
Deconsolidation
of subsidiary
|
-
|
-
|
-
|
|||||||
|
Additions
to property, plant and equipment
|
(22
|
)
|
(68
|
)
|
(8
|
)
|
||||
|
Proceeds
from asset disposition
|
22
|
-
|
-
|
|||||||
|
Decrease
(increase) in restricted cash
|
-
|
-
|
2,142
|
|||||||
|
Net
cash provided by (used for) investing activities
|
-
|
(68
|
)
|
2,134
|
||||||
|
Cash
flows from financing activities:
|
||||||||||
|
Net
proceeds from issuance of common stock
|
1,050
|
-
|
21,274
|
|||||||
|
Proceeds
from issuance of long-term debt
|
36,375
|
44
|
-
|
|||||||
|
Debt
issuance costs
|
(408
|
)
|
-
|
(150
|
)
|
|||||
|
Principal
payments on long-term debt
|
(26,646
|
)
|
(4
|
)
|
(10,000
|
)
|
||||
|
Net
cash provided by financing activities
|
10,371
|
40
|
11,124
|
|||||||
|
Net
increase in cash and cash equivalents
|
5,095
|
(3,729
|
)
|
5,609
|
||||||
|
Cash
and cash equivalents, beginning of period
|
5,302
|
9,031
|
3,422
|
|||||||
|
Cash
and cash equivalents, end of period
|
$
|
10,397
|
$
|
5,302
|
$
|
9,031
|
||||
|
Non-cash
financing and investing activities
|
||||||||||
|
Settlement
of note receivable from officer
|
$
|
-
|
$
|
-
|
$
|
1
|
||||
|
Issuance
of common stock to prepay interest on term loan
obligations
|
||||||||||
|
Issuance
of common stock for services accrued in prior year
|
-
|
447
|
350
|
|||||||
|
Exchange
of deferred stock units for common stock
|
-
|
-
|
654
|
|||||||
See
accompanying notes to the consolidated financial statements.
38
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY
See accompanying notes to the consolidated financial statements.
|
For
the Years Ended December 31, 2006, 2005 and
2004
|
||||||||||||||||||||||
|
($
in thousands)
|
||||||||||||||||||||||
|
|
Additional
|
|
|
|
|
|
Total
|
|
||||||||||||||
|
|
|
Preferred
Stock
|
Common
Stock
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Stockholders’
|
|
||||||||||
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
|
|
|
Balance
as of December 31, 2003
|
100,000
|
$
|
1
|
6,471,385
|
$
|
65
|
$
|
184,974
|
(168,823
|
)
|
$
|
16,217
|
||||||||||
|
Exchange
of deferred stock units for common stock
|
-
|
-
|
1,289
|
-
|
654
|
-
|
654
|
|||||||||||||||
|
Issuance
of common stock for cash
|
-
|
-
|
2,000,000
|
20
|
23,654
|
-
|
23,674
|
|||||||||||||||
|
Issuance
of common stock for services
|
-
|
-
|
140,000
|
1
|
349
|
-
|
350
|
|||||||||||||||
|
Conversion
of Series F convertible preferred stock
|
(99,000
|
)
|
(1
|
)
|
1,711,665
|
17
|
(16
|
)
|
-
|
-
|
||||||||||||
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
(16,037
|
)
|
(16,037
|
)
|
|||||||||||||
|
Balance
as of December 31, 2004
|
1,000
|
-
|
10,324,339
|
103
|
209,615
|
(184,860
|
)
|
24,858
|
||||||||||||||
|
Issuance
of common stock for services
|
-
|
-
|
37,200
|
1
|
446
|
-
|
447
|
|||||||||||||||
|
Issuance
of management incentive shares and options
|
-
|
-
|
968,933
|
10
|
16,677
|
-
|
16,687
|
|||||||||||||||
|
Fractional
shares retired
|
-
|
-
|
(9
|
)
|
-
|
-
|
-
|
-
|
||||||||||||||
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
(23,025
|
)
|
(23,025
|
)
|
|||||||||||||
|
Balance
as of December 31, 2005
|
1,000
|
$
|
-
|
11,330,463
|
$
|
114
|
$
|
226,738
|
$
|
(207,885
|
)
|
$
|
18,967
|
|||||||||
|
Convertible
term loan conversion option
|
-
|
-
|
-
|
-
|
15,160
|
-
|
15,160
|
|||||||||||||||
|
Stock
compensation expense and issuance of management
incentive
and outside director shares
|
-
|
-
|
136,195
|
1
|
2,259
|
-
|
2,260
|
|||||||||||||||
|
Common
stock issued due to warrant exercise
|
-
|
-
|
70,000
|
1
|
1,049
|
-
|
1,050
|
|||||||||||||||
|
Fractional
shares retired
|
-
|
-
|
(61
|
)
|
-
|
-
|
-
|
-
|
||||||||||||||
|
Net
Loss
|
-
|
-
|
-
|
-
|
-
|
(13,825
|
)
|
(13,825
|
)
|
|||||||||||||
|
Balance
as of December 31, 2006
|
1,000
|
$
|
-
|
11,536,597
|
$
|
116
|
$
|
245,206
|
$
|
(221,710
|
)
|
$
|
23,612
|
|||||||||
See accompanying notes to the consolidated financial statements.
39
NOTES
TO THE CONSOLIDATED FINANCIAL
STATEMENTS
NOTE
1 - DESCRIPTION OF BUSINESS
The
Company’s primary assets are 45,000 acres of land in three areas of eastern San
Bernardino County, California. Virtually all of this land is underlain by
high-quality groundwater resources with demonstrated potential for recreational,
residential, and agricultural development. The properties are also located
in
proximity to the Colorado River and the Colorado River Aqueduct, the major
source of imported water for southern California. The aquifer systems underlying
the properties contain large amounts of water and are suitable for water storage
and supply programs.
The
value
of these assets derives from a combination of projected 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. The Company therefore believes that a competitive advantage
exists for companies that can provide high quality, reliable, and affordable
water to major population centers.
In
1993
the Company secured permits for up to 9,600 acres of agricultural development
in
the Cadiz Valley and the withdrawal of more than 1 million acre-feet of ground
water from the aquifer system underlying the property. In 1997, the Company
entered into the first of a series of agreements with the Metropolitan Water
District of Southern California (“Metropolitan”) to jointly design, permit and
build an aquifer storage and supply program on the Company’s land in the Cadiz
and Fenner Valleys (the “Cadiz Project” or the “Project”).
Between
1997 and 2002, Metropolitan and the Company received substantially all of the
various state and federal approvals required for permits to construct and
operate the project and received a federal Record
of Decision (“ROD”) from
the
U.S. Department of the Interior, which endorsed the Cadiz Project and offered
a
right of way grant for the construction of project facilities. The federal
government also approved a Final Environmental Impact Statement (“FEIS”) in
compliance with the National Environmental Policy Act (“NEPA”).
Despite
the significant progress made in the federal environmental review process,
in
October 2002 Metropolitan’s Board voted not to accept the right of way grant
offered by the U.S. Department of the Interior and refused to consider whether
or not to certify the Final Environmental Impact Report (“FEIR”), which was a
necessary action to authorize implementation of the Cadiz Project in accordance
with the California Environmental Quality Act (“CEQA”).
When
Metropolitan’s Board declined to proceed with the Cadiz Project, the FEIR was
complete and awaiting certification at a hearing scheduled for late October
2002. It is the Company’s position that these actions by Metropolitan breached
various contractual and fiduciary obligations to the Company, and interfered
with the economic advantage it would have obtained from the Cadiz Project.
In
April 2003 the Company filed a claim against Metropolitan seeking compensatory
damages. When settlement negotiations failed to produce a resolution, the
Company filed a lawsuit against Metropolitan in Los Angeles Superior Court
on
November 17, 2005. The claims for breach
of
fiduciary duty, breach of express contract, promissory estoppel, breach of
implied contract and specific performance have all been allowed by the Court
and
are scheduled for trial in late 2007.
40
Meanwhile,
the need for water storage and supply programs has not abated. Moreover, the
advantages of underground water storage facilities are increasingly evident.
These include minimal surface environmental impacts, lower capital investment,
protection from airborne contaminants and minimal evaporative water loss.
Therefore the Company continues to pursue the completion of the environmental
review process for the Cadiz Project.
To
that
end, the County of San Bernardino has agreed to serve as the CEQA lead agency
for the completion of the environmental review of the Cadiz Project and issue
any permits required under California law once the review is completed. The
Company is also working with the U.S. Department of the Interior to have the
permits that were approved during the federal environmental review process,
including the right of way granted in the ROD, issued directly to the Company
for the benefit of any participating public agency. Additionally,
the Company is in discussions with several other public agencies regarding
their
interest in participating in the Cadiz Project. These agencies have access
to
sources of water that can be stored in the Cadiz Project.
In
addition to agriculture and water development, the rapid growth of nearby desert
communities in southern California, Nevada and Arizona indicates that the
Company’s land holdings may be suitable for other types of development. To this
end, the Company has conducted a detailed analysis of the Company’s land assets
to assess the opportunities for these properties. Based on this analysis, the
Company believes that its properties have significant long-term potential for
residential and commercial development. The Company is continuing to explore
alternative land uses to maximize the value of its properties.
In
2006,
the Company refinanced its long term debt with a new $36.4 million zero coupon
senior secured convertible term loan that matures on June 29, 2011 and received
$1.1 million when certain holders of warrants issued in 2004 exercised their
right to purchase 70,000 common shares at $15.00 per share. In 2007, the Company
exercised its right to terminate the remaining warrants on March 2, 2007,
subject to a 30 day notice period. In response, the remaining warrant holders
exercised their right to purchase 335,440 shares of the Company’s common stock
during the notice period, and the Company received an additional $5.0 million
from the sale of these shares. Following this exercise, no Warrants remain
outstanding.
The
Chapter 11 Reorganization Plan of the Company’s Sun World International Inc.
subsidiary became effective in 2005, and the Company has no further liabilities
related to the business or operations of Sun World.
The
Company remains committed to its land and water assets and we continue to
explore all opportunities for development of these assets. The Company cannot
predict with certainty which of these various opportunities will ultimately
be
utilized.
41
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
As
discussed in Note 1, on October 8, 2002, Metropolitan’s Board voted not to
proceed with the Cadiz Project and thereby did not consider acceptance of the
terms and conditions of the federal right-of-way grant. The Company believes
that, by failing to complete the environmental review process for the Cadiz
Project, Metropolitan breached various contractual and fiduciary obligations
to
the Company and interfered with the economic advantage it would have obtained
from the Cadiz Project. In April 2003 the Company filed a claim against
Metropolitan seeking compensatory and damages. When settlement negotiations
failed to produce a resolution, the Company filed a lawsuit against Metropolitan
in Los Angeles Superior Court on November 17, 2005.
The
Company remains committed to its water programs and it continues to explore
all
opportunities for development of these assets. As further discussed in Note
1,
the County of San Bernardino has agreed to serve as the CEQA lead agency for
the
completion of the environmental review of the Cadiz Project and issue any
permits required under California law once the review is completed. The Company
is also in discussions with several other public agencies regarding their
interest in participating in the Cadiz Project. However, at the present time,
the Company does not have a commitment from any of these parties for the
implementation of the Cadiz Project.
In
June
2006, the Company raised $36.4 million through the private placement of a five
year zero coupon convertible term loan with Peloton Partners LLP (“Peloton”), as
administrative agent, and an affiliate of Peloton and another investor, as
lenders. The proceeds of the new term loan were partially used to repay the
Company’s prior term loan facility with ING Capital LLC (“ING”). In September
2006, and additional $1.1 million was raised when certain holders of warrants
to
purchase the Company’s common stock at $15.00 per share chose to exercise the
warrants and purchase 70,000 shares of common stock. Based on current forecasts,
the Company believes that it sufficient resources to fund operations beyond
December 2007.
The
Company’s current resources do not provide the capital necessary to fund a water
or real estate 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
or equity linked 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.
Subsequent
to the effective date of the Chapter 11 reorganization plan of Sun World, the
Company’s primary activities are limited to the development of its water
resources and related assets. From the effective date of the plan through
December 31, 2006, the Company has incurred losses of approximately $19.1
million and used cash in operations of $6.5 million.
42
The
Company reclassified stock based compensation in the 2005 financial statements
to conform to the current presentation. This reclassification had no effect
on
the Consolidated Balance Sheets, Consolidated Statements of Cash Flows and
Consolidated Statements of Stockholder’s Equity.
Principles
of Consolidation
On
January 30, 2003 the Company’s wholly-owned subsidiary, Sun World International,
Inc. 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, the financial statements of Sun World were
no
longer consolidated with those of Cadiz due to the Company’s loss of control
over the operations of Sun World. Cadiz accounts for its investment in Sun
World
using the cost basis of accounting and ascribes no value to its investment
in
Sun World.
In
December 2003, the Company transferred substantially all of its assets (with
the
exception of an 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.
Use
of Estimates in Preparation of Financial Statements
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
In
preparing these financial statements, management has made estimates with regard
to revenue recognition, goodwill and other long-lived assets, and deferred
tax
assets. Actual results could differ from those estimates.
Revenue
Recognition
The
Company recognizes crop sale revenue upon shipment and transfer of title to
customers.
Stock-Based
Compensation
General
and administrative expenses include $2,260,000 and $16,687,000 of stock based
compensation expenses in the fiscal years ending December 31, 2006 and 2005,
respectively.
43
Prior
to
the January 2006 adoption of SFAS 123R, the Company accounted for grants of
options to employees to purchase its common stock using the intrinsic value
method in accordance with APB Opinion No. 25 and FIN No. 44, “Accounting for
Certain Transactions Involving Stock Compensation”. As permitted by SFAS 123 and
as amended by SFAS No. 148, the Company chose to continue to account for such
option grants under APB Opinion No. 25 and provide the expanded disclosures
specified in SFAS 123, as amended by SFAS No. 148.
Had
compensation cost for the Company’s option grants been determined based on their
fair value at the grant date for awards consistent with the provisions of SFAS
123R, the Company’s net loss per share for the twelve months ended December 31,
2005 and 2004 would have been the adjusted pro forma amounts indicated below
(dollars in thousands):
|
|
Year
Ended December 31,
|
|||||||
|
2005
|
|
|
2004
|
|
||||
|
|
|
|
|
|
|
|||
| Net loss applicable to common stock: |
As
reported
|
$
|
(23,025
|
)
|
$
|
(16,037
|
)
|
|
|
Additional
expense under SFAS 123
|
$
|
(3,096
|
)
|
-
|
||||
|
Pro
forma
|
$
|
(26,121
|
)
|
$
|
(16,037
|
)
|
||
| Net loss per common share: |
As
reported
|
$
|
(2.14
|
)
|
$
|
(2.32
|
)
|
|
|
Additional
expense under SFAS123
|
$
|
(0.29
|
)
|
$
|
-
|
|||
|
Pro
forma
|
$
|
(2.43
|
)
|
$
|
(2.32
|
)
|
||
For purposes of computing the pro forma disclosures required by SFAS 123,
the
fair value of each option granted to employees and directors is estimated
using
the Black-Scholes option pricing model.
In
December 2004, the FASB issued SFAS No. 123R (revised 2004),
“Share-Based Payment”, which requires all share-based payments to employees,
including grants of employee stock options, be recognized in the financial
statements based on their grant date fair values. SFAS No. 123R replaces SFAS
No. 123, “Accounting for Stock-based Compensation,” (“SFAS 123”) and supercedes
APB Opinion No. 25, “Accounting for Stock Issued to Employees.” The Company
adopted the new requirements using the modified prospective transition method
during the first quarter of 2006, and as a result, will not retroactively adjust
results from prior periods. Under this transition method, compensation expense
associated with stock options recognized in fiscal 2006 included: 1) expenses
related to the remaining unvested portion of all stock option awards granted
prior to January 1, 2006, based on the grant date fair value estimated in
accordance with the original provisions of SFAS No. 123; and 2) expenses related
to all stock option awards granted or modified subsequent to January 1, 2006,
based on the grant date fair value estimated in accordance with the provisions
of SFAS No. 123R. The Company will apply the Black-Scholes valuation model
in
determining the fair value of share-based payments to employees, which will
then
be amortized on a straight-line basis over the requisite service period. 365,000
options were granted under the Company’s 2003 Management Equity Incentive Plan
in 2005, and 12,339 options were granted in 2006. The Options have a 10 year
term with vesting periods ranging from the issuance date to three years. The
2006 options had a strike price equal to the fair market value of the Company’s
common stock on the grant date.
44
As
a
result of the adoption of SFAS 123R, the Company recorded expense in the amount
of $877,000 in 2006 related to the fair value of options. $831,000 of this
amount was related to options granted in 2005. SFAS 123R also requires the
Company to estimate forfeitures in calculating the expense related to
stock-based compensation as opposed to only recognizing these forfeitures and
the corresponding reduction in expense as they occur. The remaining vesting
periods are relatively short, and the potential impact of forfeitures is not
material. The Company is in a tax loss carryforward position and is not expected
to realize a benefit from any additional compensation expense recognized under
SFAS 123R. See Note 4 - Income Taxes.
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, participating and redeemable preferred stock and the zero coupon
term
loan convertible into or exercisable for certain 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 1,583,000 shares, 725,000 shares and 68,000 shares for the years
ended December 31, 2006, 2005 and 2004, respectively.
Cash
and Cash Equivalents
The
Company considers all short-term deposits with an original maturity of three
months or less to be cash equivalents. The Company invests its excess cash
in
deposits with major international banks, government agency notes and short-term
commercial paper and, therefore, bears minimal risk. Such investments are stated
at cost, which approximates fair value, and are considered cash equivalents
for
purposes of reporting cash flows.
Prepaid
Interest Expense
As
part
of the private sale of common shares on November 30, 2004, the Company issued
to
its lender, ING, $2.4 million of units as prepaid interest under the Company’s
$25 million secured term loan from ING. On December 31, 2005, the current
portion of this interest was included in Prepaid Interest Expense and the
non-current portion was included in Other Assets in the Consolidated Balance
Sheet. The total amount of prepaid interest was $1,284,000 on December 31,
2005.
The ING loan was repaid in full on June 29, 2006, and there was no Prepaid
Interest Expense balance on December 31, 2006.
Property,
Plant, Equipment and Water Programs
Property,
plant, equipment and water programs are stated at cost.
The
Company capitalized direct and certain indirect costs of planting and developing
orchards and vineyards during the development period, which varied by crop
and
generally ranged from three to seven years. Depreciation commenced in the year
commercial production was achieved.
45
Permanent
land development costs, such as acquisition costs, clearing, initial leveling
and other costs required to bring the land into a suitable condition for general
agricultural use, were capitalized and not depreciated, since these costs were
determined to have an indefinite useful life.
Depreciation
is provided using the straight-line method over the estimated useful lives
of
the assets, generally ten to forty-five years for land improvements and
buildings, three to twenty-five years for machinery and equipment, and five
to
thirty years for permanent crops.
Water
rights and water storage and supply programs are stated at cost. Certain costs
directly attributable to the development of such programs have been capitalized
by the Company. These costs, which are expected to be recovered through future
revenues, consist of direct labor, drilling costs, consulting fees for various
engineering, hydrological, environmental and feasibility studies, and other
professional and legal fees.
Impairment
of Long-Lived Assets
The
Company evaluates its long-lived assets, including intangibles, for potential
impairment when circumstances indicate that the carrying amount of the asset
may
not be recoverable. This evaluation is based upon estimated future cash flows.
In the event that the undiscounted cash flows are less than the net book value
of the assets, the carrying value of the assets will be written down to their
estimated fair value. As a result of the actions taken by Metropolitan in the
fourth quarter of 2002 as described in Note 1, the Company, with the assistance
of a valuation firm, evaluated the carrying value of its water program and
determined that the asset was not impaired and that the costs were estimated
to
be recovered through implementation of the Cadiz Project with other government
organizations, water agencies and private water users. In 2006, 2005 and 2004
the Company reviewed the valuation of the water program and concluded that
the
carrying amount of the program was not impaired. The Company’s estimate could be
impacted by changes in plans related to the Cadiz Project.
Permanent
crops and developing crops shown as Cadiz assets consist of lemon groves and
grape vineyards located on the Cadiz Valley property. These crops have
previously been leased to Sun World and an unaffiliated third party. During
the
fourth quarter of the year ended December 31, 2004, the long-standing lease
to
Sun World was terminated. Due to the uncertainty of recovering the carrying
value of the permanent and developing crops, the Company recorded a charge
of
$3.4 million in 2004 to write off the capitalized cost of these crops, which
is
shown under the heading “Write-off of permanent and developing crops” on the
Consolidated Statement of Operations.
Goodwill
and Other Assets
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.
Approximately $3,193,000 of this amount was amortized prior to the adoption
of
Statement of Financial Accounting Standards No. 142, (“SFAS No. 142”) “Goodwill
and Other Intangible Assets” on January 1, 2002. Goodwill is tested for
impairment annually in the first quarter of each year, or 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 Note 1, the Company,
with
46
Capitalized
loan fees represent costs incurred to obtain debt financing. Such costs are
amortized over the life of the related loan. The capitalized loan fees relate
to
the zero coupon secured convertible term loan with Peloton Partners LLP and
the
prior term loan with ING Capital LLC, as described in Note 6.
Income
Taxes
Income
taxes are provided for using an asset and liability approach which requires
the
recognition of deferred tax assets and liabilities for the expected future
tax
consequences of temporary differences between the financial statement and tax
bases of assets and liabilities at the applicable enacted tax rates. A valuation
allowance is provided when it is more likely than not that some portion or
all
of the deferred tax assets will not be realized.
Fair
Value of Financial Instruments
Financial
assets with carrying values approximating fair value include cash and cash
equivalents and accounts receivable. Financial liabilities with carrying values
approximating fair value include accounts payable and accrued liabilities due
to
their short-term nature. The carrying value of the Company's debt, before
discount, approximates fair value, based on interest rates currently available
to the Company for debt with similar terms.
Supplemental
Cash Flow Information
As
described in Note 2, cash interest payments due on the ING loan were credited
against a $2.4 million prepaid interest account that had been established for
this purpose. No cash payments are due on the new Peloton Loan prior to the
June
29, 2011 final maturity date.
Cash
payments for income taxes were $128,200 in the year ended December 31, 2006.
No
cash was paid for income taxes during the years ended December 31, 2005 and
2004, respectively.
Recent
Accounting Pronouncements
In
June
2006, the FASB issued FSP FIN 48 which clarifies the
accounting for uncertainty in income taxes recognized in an enterprise’s
financial statements in accordance with FASB Statement No. 109,
“Accounting for Income Taxes.” This Interpretation prescribes a recognition
threshold and measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken on
a tax
return. This Interpretation also provides guidance on derecognition,
classification, interest, penalties, accounting in interim periods,
disclosure and transition. The evaluation of a tax position in accordance
with this Interpretation will be a two-step process. The first step
will
determine if it is more likely than not that a tax position will be
sustained upon examination and should therefore be recognized. The second
step will measure a tax position that meets the more likely than not recognition
threshold to
47
On
September 13, 2006, the Securities and Exchange Commission issued Staff
Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements”, which provides interpretive guidance on the consideration of the
effects of prior year misstatements in quantifying current year misstatements
for the purpose of a materiality assessment. SAB No. 108 is effective for fiscal
years ending after November 14, 2006, or fiscal year 2006 for the Company.
The
adoption of SAB No. 108 did not have a material impact on the Company’s
beginning retained earnings.
NOTE
3 - PROPERTY, PLANT, EQUIPMENT AND WATER PROGRAMS
Property,
plant, equipment and water programs consist of the following (dollars in
thousands):
|
December
31,
|
|||||||
|
2006
|
|
|
2005
|
||||
|
Land
and land improvements
|
$
|
21,986
|
$
|
21,986
|
|||
|
Water
programs
|
14,274
|
14,274
|
|||||
|
Buildings
|
1,191
|
1,191
|
|||||
|
Machinery
and equipment
|
726
|
2,103
|
|||||
|
38,177
|
39,554
|
||||||
|
Less
accumulated depreciation
|
(2,987
|
)
|
(4,231
|
)
|
|||
|
$
|
35,190
|
$
|
35,323
|
||||
Depreciation
expense during the years ended December 31, 2006, 2005 and 2004 was $154,000,
$229,000 and $527,000 respectively.
NOTE
4 - OTHER ASSETS
Other
assets consist of the following (dollars in thousands):
|
|
December
31,
|
||||||
|
2006
|
|
|
2005
|
||||
|
Deferred
loan costs, net
|
$
|
382
|
$
|
120
|
|||
|
Prepaid
interest
|
-
|
544
|
|||||
|
$
|
382
|
$
|
664
|
||||
Amortization
of deferred loan costs was $40,000, $28,000 and $286,000 in 2006, 2005, and
2004, respectively, and is included in interest expense in the statement
of
operations.
48
NOTE
5 - ACCRUED LIABILITIES
|
|
December
31,
|
||||||
|
2006
|
|
|
2005
|
||||
|
Interest
|
$
|
-
|
$
|
264
|
|||
|
Payroll,
bonus, and benefits
|
10
|
4
|
|||||
|
Consulting
and Legal expenses
|
72
|
65
|
|||||
|
Income
& other taxes
|
238
|
336
|
|||||
|
Other
expenses
|
60
|
150
|
|||||
|
$
|
380
|
$
|
819
|
||||
NOTE
6 - LONG-TERM DEBT
At
December 31, 2006 and 2005, the carrying amount of the Company’s outstanding
debt is summarized as follows (dollars in thousands):
|
|
|
December
31,
|
|||||
|
2006
|
|
|
2005
|
||||
|
Zero
coupon secured convertible term loan due June 29, 2011.
Interest accruing at 5% per annum until June 29, 2009 and at
6%
thereafter
|
$
|
37,316
|
$
|
-
|
|||
|
Senior
term loan due March 31, 2010, interest payable semi-annually,
at 4% in cash plus 4% paid in kind until March 31, 2008 and 4%
in cash plus 6% paid in kind thereafter
|
-
|
25,851
|
|||||
|
Other
loans
|
31
|
40
|
|||||
|
Debt
Discount
|
(11,457
|
)
|
-
|
||||
|
25,890
|
25,891
|
||||||
|
Less
current portion
|
9
|
8
|
|||||
|
$
|
25,881
|
$
|
25,883
|
||||
Pursuant
to the Company’s loan agreements, annual maturities of long-term debt
outstanding on December 31, 2006 are as follows:
|
Year
|
$000’s
|
|||
|
2007
|
$
9
|
|||
|
2008
|
9
|
|||
|
2009
|
9
|
|||
|
2010
|
4
|
|||
|
2011
|
37,316
|
|||
|
|
$ 37,347
|
49
In
June, the Company entered into a $36.4 million five year zero coupon convertible
term loan with Peloton Partners LLP, as administrative agent for the loan,
and
with an affiliate of Peloton and another investor, as lenders (the “Peloton
Loan”). Certain terms of the loan were subsequently amended pursuant to
Amendment #1 to the Credit Agreement, which was effective September 29, 2006.
Under the terms of the loan, interest accrues at a 5% annual rate for the first
3 years and 6% thereafter, calculated on the basis of a 360 day year and actual
days elapsed. The entire amount of accrued interest is due at the final maturity
of the loan in June, 2011. Substantially all the assets of the Company have
been
pledged as collateral for the term loan, which contains representations,
warranties and covenants that are typical for agreements of this type, including
restrictions that would limit the Company’s ability to incur additional
indebtedness, incur liens, pay dividends or make restricted payments, dispose
of
assets, make investments and merge or consolidate with another person. However,
there are no financial maintenance covenants and no restrictions on the
Company’s ability to issue additional common stock to fund future working
capital needs.
At
the
lender’s option, principal plus accrued interest is convertible into the
Company’s $0.01 par value common stock. The loan is divided into two tranches:
the $10 million Tranche A is convertible at $18.15 per share, and the $26.4
million Tranche B is convertible at $23.10 per share. A maximum of 2,221,909
shares are issuable pursuant to these conversion rights, with this maximum
number applicable if the loan is converted on the final maturity date. The
Company has more than sufficient authorized common shares available for this
purpose.
In
the
event of a change in control, the conversion prices are adjusted downward by
a
discount that declines over time such that, under a change in control scenario,
both the Tranche A and Tranche B conversion prices are initially $16.50 per
share and increase in a linear manner over time to the full $18.15 Tranche
A
conversion price and $23.10 Tranche B conversion price on the final maturity
date. In no event does the maximum number of shares issuable to lenders pursuant
to these revised conversion formulas exceed the 2,221,909 shares that would
be
issued to lenders pursuant to a conversion in full on the final maturity date
in
the absence of a change in control.
Each
of
the loan tranches can be prepaid if the price of the Company’s stock on the
NASDAQ Global Market exceeds the conversion price of the tranche by 40% or
if
the Company obtains a certified environmental impact report for the Cadiz
groundwater storage and dry year supply program, a pipeline right-of-way and
permits for pipeline construction and financing commitments sufficient to
construct the project. The Company has filed a registration statement on Form
S-3 covering the resale of all the securities issuable upon conversion of the
loan.
The
Company has analyzed all of the above provisions of the convertible loan and
related agreements for embedded derivatives under FASB Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities and related
Emerging Issues Task Force (EITF) interpretations and SEC rules. The Company
concluded that certain provisions of the convertible loan agreement, which
were
in effect prior to the first amendment date, may be deemed to be derivatives
for
purposes of the application of FASB Statement No. 133 and EITF 00-19: Accounting
for Derivative Financial Instruments to, and Potentially Settled in, a Company’s
Own Stock. Therefore, in accordance with FASB Statement No. 133, these embedded
instruments were bifurcated from the host debt instrument and classified as
a
liability in the Company’s financial statements. The Company prepared valuations
for each of the
50
On
June
30, 2006, the derivative liability was classified and recorded as part of long
term debt in the balance sheet. The debt discount will be amortized to interest
expense over the life of the loan using the effective interest amortization
method. The principal valuation assumptions are as follows:
|
Loan
balance available for conversion:
|
$36.4
million
|
|
|
Expected
term:
|
5
years
|
|
|
Cadiz
common share price:
|
$17.01
|
|
|
Volatility:
|
46%
|
|
|
Risk-free
Interest Rate:
|
5.18%
|
|
|
Change
in control probability:
|
10%
|
On September 29, 2006 the terms of the loan were amended, and it was determined that bifurcation of the embedded equity conversion option is no longer required. The derivative liability was adjusted to fair value on the amendment date, and the $2,919,000 increase in fair value was recorded as an “Other Expense” item in the Consolidated Statement of Operations. The $15.2 million fair value of the derivative liability was then transferred to the Additional Paid-in Capital component of Stockholder’s Equity in accordance with the tentative conclusion reached by the Emerging Issues Task Force at the task force’s September 7, 2006 meeting.
The
Company incurred $408,000 of outside legal expenses related to the negotiation
and documentation of the loan, which will be amortized over the life of the
loan
using the interest amortization method
The
proceeds of the Peloton Loan were applied to repay in full the Company’s term
loan facility with ING described below. As a result, ING retained the $762,000
remaining balance of the prepaid interest credit account described below, and
the write-off of this asset was reflected in the “Other Expense” caption of the
Statement of Operations. The write-off of $106,000 of unamortized debt issuance
costs related to the ING loan was also reflected under “Other
Expense”.
On
November 30, 2004 the Company entered into an amendment of its senior term
loan
agreement with ING Capital LLC (the “ING Loan”). The amendment of the credit
facility did not constitute a troubled debt restructuring and was accounted
for
as a debt extinguishment under EITF 96-19. Pursuant to this amendment, the
Company;
-
repaid in full the senior term loan portion of the facility with ING of $10 million and reduced to $25 million the oustanding principal balance under the existing revolving portion of the loan;
-
amended the terms and conditions of the loan facility with ING in order to:
|
(i)
|
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
|
51
|
(ii)
|
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).
|
-
wrote off of the remaining $1.4 million in unamortized financing costs associated with the loan under the terms applicable as of the previous, December 2003, amendment.
The
terms
of the ING Loan also required certain mandatory prepayments from the cash
proceeds of future equity issuances by the Company and prohibited the payment
of
dividends. The ING Loan was secured by substantially all of the assets of the
Company. It was repaid in full on June 29, 2006.
At
December 31, 2006 the Company was in compliance with its debt covenants under
the Peloton Loan.
NOTE
7 - INCOME TAXES
Deferred
taxes are recorded based upon differences between the financial statement and
tax bases of assets and liabilities and available carryforwards. Temporary
differences and carryforwards which gave rise to a significant portion of
deferred tax assets and liabilities as of December 31, 2006 and 2005 are as
follows (in thousands):
|
|
December
31,
|
||||||
|
2006
|
|
|
2005
|
||||
|
Deferred
tax assets:
|
|||||||
|
Net
operating losses
|
$
|
25,501
|
$
|
22,763
|
|||
|
Fixed
asset basis difference
|
7,645
|
8,037
|
|||||
|
Contributions
carryover
|
6
|
-
|
|||||
|
Accrued
liabilities and other
|
1,049
|
814
|
|||||
|
Total
deferred tax assets
|
34,201
|
31,614
|
|||||
|
Valuation
allowance for deferred tax assets
|
(34,201
|
)
|
(31,614
|
)
|
|||
|
Net
deferred tax asset
|
$
|
-
|
$
|
-
|
|||
The
valuation allowance increased $2,587,000 in 2006, primarily due to an increase
in the net operating loss category of deferred tax.
As
of
December 31, 2006, the Company had net operating loss (NOL) carryforwards of
approximately $69.7 million for federal income tax purposes and $20.3 million
for California state income tax purposes. Such carryforwards expire in
varying amounts through the year 2026. These amounts reflect the effective
reduction of the NOL carryforwards as a result of ownership change annual
limitation amounts.
On
August
26, 2005, a Settlement Agreement between Cadiz, on the one hand, and Sun World
and three of Sun World’s subsidiaries, on the other hand, was approved by the
U.S.
52
Because
it is more likely than not that the Company will not realize its net deferred
tax assets, it has recorded a full valuation allowance against these assets.
Accordingly, no deferred tax asset has been recorded in the accompanying balance
sheet.
Section
382 of the Internal Revenue Code imposes an annual limitation on the utilization
of net operating loss carryforwards based on a statutory rate of return (usually
the “applicable federal funds rate”, as defined in the Internal Revenue Code)
and the value of the corporation at the time of a “change of ownership” as
defined by Section 382. Due to past equity issuances and equity issuances in
2005, and due to the Chapter 11 filing by Sun World, the Company’s ability to
utilize net operating loss carryforwards is limited to approximately $6.6
million annually, potentially adjusted by built-in gain items.
A
reconciliation of the income tax benefit to the statutory federal income tax
rate is as follows (dollars in thousands):
|
|
|
Year
Ended December 31,
|
||||||||
|
2006
|
|
|
2005
|
|
|
2004
|
||||
|
Expected
federal income tax benefit at 34%
|
$
|
(4,700
|
)
|
$
|
(7,714
|
)
|
$
|
(5,453
|
)
|
|
|
Loss
with no tax benefit provided
|
3,426
|
1,672
|
1,993
|
|||||||
|
State
income tax
|
6
|
336
|
2
|
|||||||
|
Stock
Options
|
(21
|
)
|
4,020
|
-
|
||||||
|
Losses
utilized against unconsolidated
|
||||||||||
|
subsidiary
taxable income
|
-
|
2,012
|
1,837
|
|||||||
|
Non-deductible
expenses and other
|
1,295
|
10
|
1,621
|
|||||||
|
Income
tax expense (benefit)
|
$
|
6
|
$
|
336
|
$
|
-
|
||||
NOTE
8 - EMPLOYEE BENEFIT PLANS
The
Company has a 401(k) Plan for its salaried employees. The Company matches 100%
of the first three percent of annual base salary and 50% of the next two percent
of annual base salary contributed an employee to the plan. The Company
contributed $20,000, $22,000 and $3,000
to the
plans for fiscal years 2006, 2005 and 2004, respectively.
53
NOTE
9 - PREFERRED AND COMMON STOCK
Series
F Convertible Preferred Stock
The
Company has an authorized class of 100,000 shares of $0.01 par value Series
F
Convertible preferred stock (“Series F Preferred Stock”). On December 15, 2003,
the Company issued 100,000 shares of Series F Convertible Preferred Stock in
conjunction with the extension of the Company’s senior term loan maturity date.
The 100,000 preferred shares were initially convertible into 1,728,955 shares
of
common stock of the Company. If dividends are paid on the Company’s common
stock, holders of Series F Preferred Stock are entitled to receive dividends
as
if the preferred shares had been converted to common stock. The Series F
Preferred Stock may not be redeemed by the Company. The estimated value of
the
Series F Preferred Stock was recorded as a debt discount and was being amortized
over the initial term of the senior term loans through March 31, 2005. On
November 30, 2004, the senior term loans were amended. 99,000 shares of the
Series F Preferred Stock were converted into 1,711,665 shares of common stock
of
the Company, leaving 1,000 shares of the Series F Preferred Stock outstanding,
and the remaining debt discount of $1.4 million was written off.
Common
Stock and Warrants
On
November 30, 2004, the Company completed a private placement of 400,000 Units
at
the price of $60.00 per Unit. Each Unit consisted of five (5) shares of the
Company’s common stock and one (1) common stock purchase warrant. Each Warrant
will entitle the holder to purchase, commencing 180 days from the date of
issuance, one (1) share of common stock at an exercise price of $15.00 per
share. Each Warrant has a term of three (3) years, but may be terminated early
by the Company on 30 days notice during the period commencing twelve months
after completion of the placement, if the common shares have been registered
and
the closing market price of the Company’s common stock exceeds $18.75 for 10
consecutive trading days. The requirements of this call provision had been
satisfied on December 31, 2006.
An
individual who assisted the company in identifying participants in the November
30, 2004 private placement elected to receive a commission for the services
in
stock rather than cash. The commission amount was $326,400, and 27,200 common
shares and 5,440 warrants were issued in payment of the obligation in February,
2005.
The
2004
Management Bonus Plan provided for the granting of 10,000 shares of common
stock
valued at $12.00 per share. The cost of the grant was recognized in December
2004, and 10,000 shares were issued in May, 2005.
As
discussed in Note 6, principal and accrued interest on the Peloton Loan is
convertible into common shares of the company at the Lender’s option. The terms
of the loan include optional prepayment provisions that could result in an
early
conversion of the loan under certain circumstances, and a preferred conversion
formula is provided upon a change in control of the Company.
54
NOTE
10 - STOCK-BASED COMPENSATION PLANS AND WARRANTS
The
Company has issued options pursuant to its 1996 Stock Option Plan (the "1996
Plan"), the 1998 Non-Qualified Stock Option Plan (the “1998 Plan”) and the 2003
Management Equity Incentive Plan. The Company also has granted stock awards
pursuant to its 2003 Management Equity Incentive Plan, 2004 Management Bonus
Plan and Outside Director Compensation Plans described below.
1996,
1998 and 2000 Stock Option Plans
All
options under the 1996 Plan, the 1998 Plan and the 2000 Plan were granted at
a
price approximating fair market value at the date of grant, had vesting periods
ranging from issuance date to five years, had maximum terms ranging from five
to
seven years and were issued to directors, officers, consultants and employees
of
the Company.
With
one
exception, all options issued under the 1996 Plan, the 1998 Plan and the 2000
plan expired in 2005. All the options issued under these plans had strike prices
significantly above market prices. In 2005, an agreement was reached with the
sole holder of unexpired options issued under these plans to cancel those
options. The 1996 Plan, the 1998 Plan and the 2000 Plan were then terminated.
As
a result, all options outstanding at December 31, 2005 and December 31, 2006
were issued under the 2003 Management Equity Incentive Plan.
2003
Management Equity Incentive Plan
In
December 2003, concurrently with the completion of the Company’s then current
financing arrangements with ING, the Company’s board of directors authorized the
adoption of a Management Equity Incentive Plan (the “Incentive Plan”). Under the
Incentive Plan, a total of 1,472,051 shares of common stock and common stock
options may be granted to key personnel. The Board formed allocation committees
to direct the initial allocation of 717,373 of these shares and a subsequent
allocation of 377,339 shares of common stock and 377,339 options to purchase
common stock.
All
grants are subject to vesting conditions. The initial allocation shares vested
2/3 immediately on the date of the grant and the remaining 1/3 vested on
December 11, 2005. The subsequent allocation shares of common stock and options
to purchase common stock vest 1/3 upon grant, 1/3 on December 7, 2005 and 1/3
on
December 7, 2006, or such later vesting dates as may be determined by the
subsequent allocation committee. All grants are subject to continued employment
and immediate vesting upon termination without cause.
2004
Management Bonus Plan
In
December 2004, the Company, with board approval, adopted the Cadiz Inc. 2004
Management Bonus Plan (the "Bonus Plan") pursuant to which a total of 10,000
shares of Cadiz common stock, valued at $12 per share, were authorized for
issuance to Mr. Brackpool as a performance bonus. The liability and compensation
expense related to this award was reflected in the 2004 financial statements,
and the shares were issued under the Bonus Plan in May 2005.
55
The
Cadiz
Inc. Outside Director Compensation Plan was approved by Cadiz shareholders
in
November 2006. Under the plan, each outside director receives $30,000 of cash
compensation and receives a deferred stock award consisting of shares of the
Company’s common stock with a value equal to $20,000 on June 30th of
each year. The award accrues on a quarterly basis, with $7,500 of cash
compensation and $5,000 of stock earned for each fiscal quarter in which a
director serves. The deferred stock award vests automatically on the January
31st
which
first follows the award date.
Stock
Options Issued under the 2003 Management Equity Incentive
Plan
The
2003
Management Equity Incentive Plan provides for the granting of 377,339 options
for the purchase of one share of common stock. Options issued under the
Management Equity Incentive Plan were granted during 2005 and 2006. The options
have a ten year term with vesting periods ranging from issuance date to three
years. Certain of these options had strike prices that were below the fair
market value of the Company’s common stock on the date of grant. All options
have been issued to officers, employees and consultants of the Company. 365,000
options were granted under the plan during 2005, and the remaining 12,339
options were granted in 2006. All the options were unexercised and outstanding
on December 31, 2006.
In
December 2004, the FASB issued SFAS No. 123R (revised 2004),
“Share-Based Payment”, which requires all share-based payments to employees,
including grants of employee stock options, be recognized in the financial
statements based on their grant date fair values. SFAS No. 123R replaces SFAS
No. 123, “Accounting for Stock-based Compensation,” (“SFAS 123”) and supercedes
APB Opinion No. 25, “Accounting for Stock Issued to Employees.”
The
Company adopted the new requirements using the modified prospective transition
method during the first quarter of 2006, and as a result, will not retroactively
adjust results from prior periods. Under this transition method, compensation
expense associated with stock options in fiscal 2006 included: 1) expenses
related to the remaining unvested portion of all stock option awards granted
prior to January 1, 2006, based on the grant date fair value estimated in
accordance with the original provisions of SFAS No. 123; and 2) expenses related
to all stock option awards granted and/or modified subsequent to January 1,
2006, based on the grant date fair value estimated in accordance with the
provisions of SFAS No. 123R.
The fair value of each option granted in 2005 and 2006 was estimated on the
date
of grant using the Black Scholes option pricing model based on the following
weighted average assumptions:
|
Risk
free interest rate
|
4.21%
|
|
|
Expected
life
|
9.5
years
|
|
|
Expected
volatility
|
46%
|
|
|
Expected
dividend yield
|
0.0%
|
|
|
Weighted
average vesting period
|
0.8
years
|
The
risk
free interest rate was assumed to be equal to the yield of a U.S. Treasury
bond
of comparable maturity, as published in the Federal Reserve Statistical Release
for the relevant
56
The
Company recognized stock option related compensation costs of $877,000 in fiscal
2006 relating to these options. $848,000 of stock option related compensation
costs were recognized in fiscal 2005 under APB-25. On December 31, 2006, the
unamortized compensation expense related to these options amounted to $143,000
and is expected to be recognized in 2007 and 2008. No stock options were
exercised during fiscal 2005 and 2006.
A
summary
of option activity under the plan as of December 31, 2006 and changes during
the
current fiscal year is presented below:
|
|
|
|
|
Weighted
|
|
Average
|
Aggregate
|
||||||
|
|
Average
|
Remaining
|
Intrinsic
|
||||||||||
|
|
Exercise
|
Contractual
|
Value
|
||||||||||
|
Options
|
Shares
|
Price
|
Term
|
($000’s)
|
|
||||||||
|
Outstanding
January 1, 2006
|
365,000
|
$
|
12.71
|
9.4
|
|
|
|||||||
|
Granted
|
12,339
|
$
|
20.00
|
10.0
|
|
||||||||
|
Exercised
|
-
|
-
|
-
|
|
|||||||||
|
Forfeited
or expired
|
-
|
-
|
-
|
|
|||||||||
|
Outstanding
at December 31, 2006
|
377,339
|
$
|
12.95
|
8.4
|
$
|
3,966
|
|||||||
|
Exercisable
at December 31, 2006
|
351,667
|
$
|
12.62
|
8.4
|
$
|
3,667
|
57
The
weighted-average grant-date
fair value of options granted during the years ending December 31, 2006 and
December 31, 2005 were $10.08 and $10.80, respectively. The following table
summarizes stock option activity for the periods noted.
|
|
|
|
|
Weighted-
|
|||
|
|
Average
|
||||||
|
|
|
|
Amount
|
Exercise
Price
|
|||
|
Outstanding
at December 31, 2003
|
53,950
|
$
|
207.43
|
||||
|
Granted
|
-
|
-
|
|||||
|
Expired
or canceled
|
(39,270
|
)
|
$
|
198.54
|
|||
|
Exercised
|
-
|
-
|
|||||
|
Outstanding
at December 31, 2004
|
14,680
|
$
|
231.22
|
||||
|
Granted
|
365,000
|
$
|
12.71
|
||||
|
Expired
or canceled
|
(14,680
|
)
|
$
|
231.22
|
|||
|
Exercised
|
-
|
-
|
|||||
|
Outstanding
at December 31, 2005
|
365,000
|
$
|
12.71
|
||||
|
Granted
|
12,339
|
$
|
20.00
|
||||
|
Expired
or canceled
|
-
|
|
-
|
||||
|
Exercised
|
-
|
-
|
|||||
|
Outstanding
at December 31, 2006
|
377,339
|
(a)
|
$
|
12.95
|
|||
|
Options
exercisable at December 31, 2006
|
355,780
|
$
|
12.62
|
||||
|
Weighted-average
years of remaining contractual life of options outstanding at
December 31,
2006
|
8.4
|
| (a) |
Exercise
prices vary from $12.00 to $20.00, and expiration dates vary from
May 2015
to December 2016.
|
Stock
Awards to Directors, Officer, Consultants and Employees
The
Company has also granted stock awards pursuant to its Management Equity
Incentive Plan, 2004 Management Bonus Plan and Outside Director Compensation
Plan.
The
Management Equity Incentive Plan provided for the granting of 1,094,712 shares
of common stock in May 2005, the 2004 Management Bonus Plan provided for the
granting of 10,000 shares of common stock valued at $12.00 per share in December
2004, and the Outside Director Compensation Plan provides for the granting
of up
to 50,000 shares, 14,701 of which were granted in November 2006. Compensation
cost for stock granted to employees and directors is measured at the quoted
market price of the Company's stock at the date of the grant.
All
of
the shares issuable under the 2003 Management Equity Incentive Plan were awarded
in May 2005. At that time, 717,373 initial allocation shares, 377,339 subsequent
allocation shares and 325,000 options were awarded. 604,026 shares were issued
on the award date, 364,904 shares were issued in December 2005, and the
remaining 125,779 shares were issued in December 2006. On December 31, 2006,
there were no additional shares were issuable under the 2003 Management Equity
Incentive Plan.
58
The
initial Outside Director Compensation Plan award was made on November 14, 2006
and included 10,416 shares for service rendered during the 12 month service
period ending June 30, 2004 and 2005 and 4,285 shares for services rendered
during the 12 month service period ending June 30, 2006. The 10,416 shares
for
services rendered were issued immediately upon shareholder approval in
November 2006. The remaining 4,285 shares vested in January
2007.
The
accompanying consolidated statements include approximately $1,383,000 of stock
based compensation expense related to these stock awards in the fiscal year
ended December 31, 2006. In the fiscal year ended December 31, 2005 $15,839,000
was recognized under APB-15. On December 31, 2006, the unamortized compensation
expense relating to these stock awards was $27,000, which will be recognized
in
January 2007.
A
summary
of stock awards activity under the plans during the fiscal year ended December
31, 2006 is presented below:
|
|
Weighted-
|
||||||
|
|
Average
|
||||||
|
|
Grant-date
|
||||||
|
|
Shares
|
Fair
Value
|
|||||
|
|
|
|
|
|
|
($000's)
|
|
|
Nonvested
at December 31, 2005
|
125,779
|
$
|
1,950
|
||||
|
Granted
|
14,701
|
282
|
|||||
|
Forfeited
or canceled
|
-
|
-
|
|||||
|
Vested
|
(136,195
|
)
|
(2,150
|
)
|
|||
|
Nonvested
at December 31, 2006
|
4,285
|
$
|
82
|
Issuance
of Common Stock for Services
An
individual who assisted the company in identifying participants in the November
2004 private placement elected to receive the commission for these services
in
stock rather than cash. The commission amount was $326,400, and 27,200 common
shares were issued in payment of the obligation in February, 2005. The 2004
Management Bonus Plan provided for the granting of 10,000 shares of common
stock
valued at $12.00 per share. The cost of the grant was recognized in December
2004, and 10,000 shares were issued in May, 2005. In 2003, certain vendors
and
employees agreed to receive 140,000 shares with an aggregate value of $350,000
in lieu of cash for service rendered during the year.
Stock
Purchase Warrants Issued to Non-Employees
The
Company accounts for equity securities issued to non-employees in accordance
with the provisions of SFAS 123 and Emerging Issues Task Force 96-18. On
November 30, 2004 the Company completed a private placement of 400,000 units,
each Unit consisting of five (5) shares of the Company’s common stock and one
(1) common stock purchase warrant. Each of the 400,000 warrants entitle the
holder to purchase one (1) share of common stock at an exercise price of $15.00
per share. An additional 5,440 warrants were issued to an individual
59
In
2007,
the Company exercised a right to terminate the remaining warrants on March
2,
2007, subject to a 30 day notice period. In response, the remaining warrant
holders exercised their rights to purchase 335,440 shares of the Company’s
common stock during the notice period, and the Company received $5.0 million
from the sale of these shares. Following this exercise, no Warrants remain
outstanding.
NOTE
11 - SEGMENT INFORMATION
With
Sun
World’s 2003 filing of voluntary petitions for relief under Chapter 11 of the
bankruptcy code in as further described in Note 1, the primary business of
the
Company is to acquire and develop land and water resources. As a result, the
Company’s financial results are reported in a single segment.
NOTE
12 - CONTINGENCIES
In
the
normal course of its agricultural operations, the Company handles, stores,
transports and dispenses products identified as hazardous materials. Regulatory
agencies periodically conduct inspections and, currently, there are no pending
claims with respect to hazardous materials.
The
Company is involved in other legal and administrative proceedings and claims.
In
the opinion of management, the ultimate outcome of each proceeding or all such
proceedings combined will not have a material adverse impact on the Company's
financial statements.
NOTE
13 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
|
(In
thousands except per share data)
|
|||||||||||||
|
|
Quarter
Ended
|
||||||||||||
|
|
|
|
March
31,
|
|
|
June
30,
|
|
|
September
30,
|
|
|
December
31,
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
||||
|
Revenues
|
$
|
252
|
$
|
157
|
$
|
37
|
$
|
168
|
|||||
|
Operating
loss
|
(2,095
|
)
|
(1,786
|
)
|
(2,086
|
)
|
(2,004
|
)
|
|||||
|
Net
loss applicable to common stock
|
(2,226
|
)
|
(3,150
|
)
|
(5,684
|
)
|
(2,765
|
)
|
|||||
|
Net
loss per common share
|
$
|
(0.19
|
)
|
$
|
(0.28
|
)
|
$
|
(0.50
|
)
|
$
|
(0.24
|
)
|
|
|
|
Quarter
Ended
|
||||||||||||
|
|
|
|
March
31,
|
June
30,
|
|
|
September
30,
|
|
|
December
31,
|
|||
|
2005
|
|
|
2005
|
|
|
2005
|
|
|
2005
|
||||
|
Revenues
|
$
|
15
|
$
|
15
|
$
|
15
|
$
|
1,152
|
|||||
|
Operating
loss
|
(1,006
|
)
|
(12,178
|
)
|
(3,411
|
)
|
(4,163
|
)
|
|||||
|
Net
loss applicable to common stock
|
(1,569
|
)
|
(12,625
|
)
|
(3,863
|
)
|
(4,968
|
)
|
|||||
|
Net
loss per common share
|
$
|
(0.15
|
)
|
$
|
(1.18
|
)
|
$
|
(0.35
|
)
|
$
|
(0.46
|
)
|
|
60
NOTE
14 - SUBSEQUENT EVENTS
As
previously reported, on November 30, 2004, the Company completed a private
placement in which the Company issued 405,440 Units at the price of $60.00
per
Unit. Each Unit consisted of five (5) shares of common stock and one (1) common
stock purchase warrant ("Warrant"). Each Warrant entitles the holder to purchase
one (1) share of common stock at an exercise price of $15 per share. Each
Warrant has a term of three years, subject to cancellation at the Company's
option if the closing market price of the common stock exceeds $18.75 for 10
consecutive trading days.
In
June
2006, holders of 70,000 warrants chose to exercise their warrants, leaving
335,440 warrants outstanding on December 31, 2006. On January 31, 2007, the
Company exercised the cancellation option and notified warrant holders that
the
Warrants would expire on March 2, 2007 (the "Termination Date"), unless
exercised by the warrant holder prior to that date. In response, all the
remaining warrant holders exercised their Warrants prior to the Termination
Date, and the Company issued 335,440 shares of its common stock to these holders
with proceeds of $5,031,600. As of March 2, 2007, there were no warrants for
the
purchase of the Company’s common stock outstanding.
61
SCHEDULE
1 - VALUATION AND QUALIFYING ACCOUNT
|
For
the years ended December 31, 2006, 2005 and 2004 ($ in
thousands)
|
|||||||||||||||||||
|
|
Balance
at
|
Additions
Charged to
|
Balance
|
||||||||||||||||
|
Year
ended
|
Beginning
|
Costs
and
|
Other
|
at
End
|
|||||||||||||||
|
December
31, 2006
|
of
Period
|
Expenses
|
Accounts
|
Deductions
|
of
Period
|
||||||||||||||
|
Tax
valuation allowance
|
$
|
31,614
|
$
|
2,587
|
$
|
-
|
$
|
-
|
$
|
34,201
|
|||||||||
|
Year
ended
|
|||||||||||||||||||
|
December
31, 2005
|
|||||||||||||||||||
|
Tax
valuation allowance
|
$
|
44,383
|
$
|
-
|
$
|
-
|
$
|
12,769
|
$
|
31,614
|
|||||||||
|
Year
ended
|
|||||||||||||||||||
|
December
31, 2004
|
|||||||||||||||||||
|
Tax
valuation allowance
|
$
|
43,760
|
$
|
-
|
$
|
623
|
$
|
-
|
$
|
44,383
|
|||||||||
62
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by
the undersigned, thereto duly authorized.
CADIZ
INC.
By:
/s/
Keith Brackpool
Keith
Brackpool,
Chairman
and Chief Executive Officer
Date:
March
16, 2007
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed by the following persons in the capacities and on the dates
indicated.
|
Name
and Position
|
Date
|
|
/s/
Keith Brackpool
|
March
16, 2007
|
|
Keith
Brackpool, Chairman and
|
|
|
Chief
Executive Officer
|
|
|
(Principal
Executive Officer)
|
|
|
/s/
O'Donnell Iselin II
|
March
16, 2007
|
|
O'Donnell
Iselin II, Chief Financial Officer
|
|
|
(Principal
Financial and Accounting Officer)
|
|
|
/s/
Stephen J. Duffy
|
March
16, 2007
|
|
Stephen
J. Duffy, Director
|
|
|
/s/
Geoffrey Grant
|
March
16, 2007
|
|
Geoffrey
Grant, Director
|
|
|
/s/
Winston H. Hickox
|
March
16, 2007
|
|
Winston
H. Hickox, Director
|
|
|
/s/
Murray H. Hutchison
|
March
16, 2007
|
|
Murray
H. Hutchison, Director
|
|
|
/s/
Raymond J. Pacini
|
March
16, 2007
|
|
Raymond
J. Pacini, Director
|
|
|
/s/
Timothy J. Shaheen
|
March
16, 2007
|
|
Timothy
J. Shaheen, Director
|
63